The Times of India,
This refers to the write-up published in the Times of India, Delhi Edition dated June 25, 2013 under the heading “Chit Funds offer Quick Loans but come with Risks”.
On a reading of the said article, we find that though the comparison between chit funds, Bank FDs & MFs have been done with reasonable fairness, but it is not free of malicious reporting. To back our contention, we would draw your attention to the following.
1. The presentation of chit fund as ’risky’ in the headline itself smells mischievous. Though on reading the entire story, the reader will find that registered chit funds are a good option but the headline makes a negative imprint on those who don’t read beyond the headline. For example, in the sub-heading why don’t you say “If you require money anytime soon, chit fund is the best option”. This also could have gone well with your story. What we are saying his PLEASE DON’T MANIPULATE FACTS TO MAKE IT JUICY FOR THE STORY.’
2. The first paragraph refers to the ‘recent scam’ as a ‘collapse of the largest chit fund in West Bengal’ scam. This reference, to say the least, is preposterous. The recent collapse was of ‘Saradha’ group which had floated around 160 odd companies in areas like Real estate, Media, agro, exports etc but however, none of them were neither floated as a chit fund company nor working in such manner. So how come their failure is attributed to our industry.
Did the writer, Mr. Partha Sinha or for that matter anyone from TOI involved in this write up bother to find out what actually a chit fund means? Did they ascertain the facts with the Registrar of chit Funds, West Bengal? What is shocking is a newspaper like TOI that boasts of high ethical standards could publish such unfounded stories!
The fact is that failure of individual or a Residuary NBFC or Deposit accepting companies and Multi-level Marketing/Ponzi scheme companies are constantly being reported by the media as failure of a chit fund company, and the writer in the present instance followed suit, without bothering to do his homework!
To present our case, we start with the legal definition of ‘Chit Fund’.
Section 2 (b) of THE CHIT FUNDS ACT 1982 is reproduced below
“Chit” means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount;
Explanation – A transaction is not a chit within the meaning of this clause, if in such transaction,-
i.Some alone, but not all, of the subscribers get the prize amount without any liability to pay future subscription; or
ii.all the subscribers get the chit amount by turns with a liability to pay future subscriptions;
Some basic features of Chit Funds that distinguishes it from MLM/Ponzi companies are as follows.
1. Reserve Bank of India is the Principal Regulator for Chit funds, and has an advisory role, as provided u/s 73 of The Chit Fund Act, 1982 (Act No. 40 of 1982).
2. Chit Funds are defined under Sec. 45 I(c) of the RBI Act. RBI Notification No.DNBC.39/DG(H)-77 dated 20th June 1977 categorizes it as Miscellaneous Non-Banking company (MNBC)
3. Since the subject is in the concurrent list (Entry 7 of List III) of the Constitution, administration of the Rules is with the respective State Governments. The company should be registered with the Registrar of Chit Fund of the State of their operation
4. Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 (b) of ‘The Chit Funds Act, 1982’
5. Any company carrying on the operation of ‘Chit Fund’ should have the words ‘Chit’, ‘Chitty’ or ‘Kuri’ as part of their company name.
6. Chit Fund companies are not allowed to accept deposits from the Public, Trade in Stock, Equity or other cash management.
7. Chit Funds, as of now, are not allowed to carry on other businesses without the permission of the Registrar/State Governments.
The above clarification, we are sure you will see makes it amply clear that in the referred collapse in West Bengal, the writer erred in calling it a ‘Chit Fund’ collapse as the said group(s) doesn’t fulfill even one of the parameters of chit fund.
Our sincere request is that before filing their report/stories, the reporter should find out the nature of the company, the laws governing their operation and should desist from loosely worded reports, a procedure given a bypass in this case. In fact, the office of Registrar of Chit Funds in Kolkata is at the ‘Writer’s building’ and is open to one and all. A mere telephone call would have served the purpose of justice! Another glaring issue, though it may be a sheer coincidence, is that UTI Mutual Funds is sponsoring this investor education initiative and write-ups are recommending MFs! As this ‘Swatantara’ column is being brought out in association with Ministry of Corporate Affairs, Government of India, this communication is being copied to them for their information and necessary action.
Attributing such events/incidents and failure of individual or a Residuary NBFC or Deposit accepting companies, as failure of Chit Fund Companies, you will agree, is Erroneous, Unauthenticated and Malicious, and will create a run-in situation for the various Chit Fund Companies working for last several years in various parts of India. In fact some companies are more than 100 years old and have been carrying on their activities in impeccable manner.
As the reputation of the members of our Association is gravely hurt by your malicious report, you are hereby requested to issue a clarification article of similar size and prominence in your newspaper, acknowledging the mistake and clarifying the correct facts along with an unconditional apology within 3 days and oblige.
In case we do not hear from you, we will be compelled to initiate necessary legal action without any further reference to you.
All India Association of Chit Funds (Regd.)