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These are challenging times for chit fund operators. A scam involving the Saradha group allegedly conning customers under the guise of a chit fund, has raised serious questions for the industry. With a reported 10,000 chit funds in the country handling over Rs 30,000 crore annually, chit fund proponents maintain that these funds are an important financial tool. The scam has also sparked responses from both the centre and states: the Finance Ministry, Ministry of Corporate Affairs and SEBI have all promised to act and the West Bengal Assembly has passed The West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013, with Odisha and Haryana considering similar legislation. What is a chit fund? A chit fund is a type of saving scheme where a specified number of subscribers contribute payments in instalment over a defined period. Each subscriber is entitled to a prize amount determined by lot, auction or tender depending on the nature of the chit fund. Typically the prize amount is the entire pool of contribution minus a discount which is redistributed to subscribers as a dividend. For example, consider an auction-type chit fund with 50 subscribers contributing Rs 100 every month. The monthly pool is Rs 5,000 and this is auctioned out every month. The winning bid, say Rs 1000, would be the discount and be distributed among the subscribers. The winning bidder would then receive Rs 4,000 (Rs 5,000 – 1,000) while the rest of subscribers would receive Rs 20 (1000/50). Winners cannot enter the auction again and will be liable for the monthly subscription as the process is repeated for the duration of the scheme. The company managing the chit fund (foreman) would retain a commission from the prize amount every month. Collectively, the subscribers to a chit fund are referred to as a chit group and a chit fund company may run many such groups. What are the laws governing chit funds? Classifying them as contracts, the Supreme Court has read chit funds as being part of the Concurrent List of the Indian Constitution; hence both the centre and state can frame legislation regarding chit funds. States like Tamil Nadu, Andhra Pradesh and Kerala had enacted legislation (e.g The Kerala Chitties Act, 1975 and The Tamil Nadu Chit Funds Act, 1961) for regulating chit funds. Chit Funds Act, 1982 In 1982, the Ministry of Finance enacted the Chit Funds Act to regulate the sector. Under the Act, the central government can choose to notify the Act in different states on different dates; if the Act is notified in a state, then the state act would be repealed[i]. States are responsible for notifying rules and have the power to exempt certain chit funds from the provisions of the Act. Last year the central government, notified the Act in Arunachal Pradesh, Gujarat, Haryana, Kerala and Nagaland. Under the Act, all chit funds require previous sanction from the state government. The capital requirement for establishing chit funds is Rs 1 lakh and at least 10% of profits should be transferred to a reserve fund. The amount of discount (i.e. the bid) is capped at 40% of the total chit fund value. States may appoint a Registrar who would be responsible for regulation, inspection and dispute settlement in the sector. Any grievances over decisions made by the Registrar can be subject to appeals directed to the state government. Chit fund managers are required to deposit the entire value of the chit fund (can be done in 50% cash and 50% bank guarantee) with the Registrar for the duration of the chit cycle. Prize Chits and Money Circulation Schemes (Banning) Act, 1978 The Prize Chits and Money Circulation Schemes (Banning) Act, 1978 defines and prohibits any illegal chit fund schemes (e.g. schemes where auction winners are not liable to future payments). Again, the responsibility for enforcing the provisions of this Act lies with the state government. Reports suggest that the government is discussing amendments to this Bill in the wake of the chit fund scam. West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013 Last month the West Bengal Assembly passed the West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013. This was a direct response to the chit fund scam in West Bengal. While not regulating chit funds directly, the Act regulates and restricts financial establishments to curb any unscrupulous activity with regards to deposits. Chit funds are specifically included under the definition of deposits. The state government will appoint a competent authority to conduct investigations. What is the role of RBI and SEBI? The Reserve Bank of India (RBI) is the regulator for banks and other non banking financial companies (NBFCs) but does not regulate the chit fund business. While chit funds accept deposits, the term ‘deposit’ as defined under the Reserve Bank of India Act, 1934 does not include subscriptions to chits. However the RBI can provide guidance to state governments on regulatory aspects like creating rules or exempting certain chit funds. As the regulator of the securities market, SEBI regulates collective investment schemes. But the SEBI Act, 1992 specifically excludes chit funds from their definition of collective investment schemes. In the recent case with Sarada Group, the SEBI investigation discovered that Sarada were, in effect, operating a collective investment scheme without SEBI’s approval.
[i] The central act repeals the Andhra Pradesh Chit Funds Act, 1971; the Kerala Chitties Act, 1975, the Maharashtra Chit Funds Act, 1974’, the Tamil Nadu Chit Funds Act, 1961 (applicable in Chandiragh and Delhi), the Uttar Pradesh Chit Funds Act, 1975, Goa, Daman and Diu Chit Funds Act, 1973 and Pondicheery Funds Act, 1966.
The Transgender Persons (Protection of Rights) Bill, 2016 has been listed for passage during the ongoing Winter Session of Parliament. This Bill was introduced in the Monsoon Session last year and referred to the Standing Committee on Social Justice and Empowerment, which tabled its report earlier this year. The Bill seeks to recognise transgender persons, and confer anti-discriminatory rights and entitlements related to education, employment, health, and welfare measures. This post explains key provisions of the Bill and certain issues for consideration.
Self-identification and obtaining a Certificate of Identity
The Bill provides for ‘self-perceived gender identity’ i.e. persons can determine their gender on their own. This is in line with a Supreme Court judgement (2014) which held that the self determination of one’s gender is part of the fundamental right to dignity, freedom and personal autonomy guaranteed under the Constitution.[1]
Along with the provision on ‘self-perceived gender identity’, the Bill also provides for a screening process to obtain a Certificate of Identity. This Certificate will certify the person as ‘transgender’. An application for obtaining such a Certificate will be referred to a District Screening Committee which will comprise five members including a medical officer, psychologist or psychiatrist, and a representative of the transgender community.
The Bill therefore allows individuals to self-identify their gender, but at the same time they must also undergo the screening process to get certified, and as a result be identified as a ‘transgender’. In this context, it is unclear how these two provisions of self-perceived gender identity and an external screening process will reconcile with each other. The Standing Committee has also upheld both these processes of self-identification and the external screening process to get certified. In addition, the Committee recommended that the Bill should provide for a mechanism for appeal against the decisions of the District Screening Committee.
Since, the Bill provides certain entitlements to transgender persons for their inclusion and participation in society, it can be argued that there must be an objective criteria to verify the eligibility of these applicants for them to receive benefits targeted for transgender persons.
Status of transgender persons under existing laws
Currently, several criminal and civil laws recognise two categories of gender i.e. man and woman. These include laws such as Indian Penal Code (IPC), 1860, National Rural Employment Guarantee Act, 2005 (NREGA) and Hindu Succession Act, 1956. Now, the Bill seeks to recognise a third gender i.e. ‘transgender’. However, the Bill does not clarify how transgender persons will be treated under certain existing laws.
For example, under NREGA, priority is given to women workers (at least one-third of the beneficiaries are to be women) if they have registered and requested for work under the Act. Similarly, under the Hindu Adoptions and Maintenance Act, 1956, there are different eligibility criteria for males and females to adopt a girl child. In this context, the applicability of such laws to a ‘transgender’ person is not stated in the Bill. The Standing Committee has recommended recognising transgender persons’ right to marriage, partnership, divorce and adoption, as governed by their personal laws or other relevant legislation.
In addition, the penalties for similar offences may also vary because of the application of different laws based on gender identity. For example, under the IPC, sexual offences related to women attract a maximum penalty of life imprisonment, which is higher than that specified for sexual abuse against a transgender person under the Bill (up to two years).[2]
Who is a transgender person?
As per international standards, ‘transgender’ is an umbrella term that includes persons whose sense of gender does not match with the gender assigned to them at birth.[3], [4] For example, a person born as a man may identify with the opposite gender, i.e., as a woman.[5] In addition to this sense of mismatch, the definition provided under the Bill also lists further criteria to be defined as a transgender person. These additional criteria include being (i) ‘neither wholly male nor female’, or (ii) ‘a combination of male or female’, or (iii) ‘neither male nor female’.
The Supreme Court, the Expert Committee of the Ministry of Social Justice and Welfare, and the recent Standing Committee report all define ‘transgender persons’ based on the mismatch only.1,[5],[6] Therefore, the definition provided under the Bill does not clarify if simply proving a mismatch is enough (as is the norm internationally) or whether the additional listed criteria ought to be fulfilled as well.
Offences and penalties
The Bill specifies certain offences which include: (i) compelling transgender persons to beg or do forced or bonded labour, and (ii) physical, sexual, verbal, emotional or economic abuse. These offences will attract imprisonment between six months and two years, in addition to a fine.
The Standing Committee recommended graded punishment for different offences, and suggested that those involving physical and sexual assault should attract higher punishment. It further stated that the Bill must also specifically recognise and provide appropriate penalties for violence faced by transgender persons from officials in educational institutions, healthcare institutions, police stations, etc.
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[1]. National Legal Services Authority vs. Union of India [(2014) 5 SCC 438]; Article 21, Constitution of India.
[2]. Sections 354, 354A, 354B, 375, Indian Penal Code, 1860.
[3]. Guidelines related to Transgender persons, American Psychological Association, https://www.apa.org/practice/guidelines/transgender.pdf.
[4]. Standards of Care, 7th Version, The World Professional Association for Transgender Health, https://s3.amazonaws.com/amo_hub_content/Association140/files/Standards%20of%20Care%20V7%20-%202011%20WPATH%20(2)(1).pdf.
[5]. Report of the Expert Committee on the Issues relating to Transgender Persons, Ministry of Social Justice and Empowerment, January 27, 2014, http://socialjustice.nic.in/writereaddata/UploadFile/Binder2.pdf.
[6]. Report no.43, The Transgender Persons (Protection of Rights) Bill, 2016, Standing Committee on Social Justice and Empowerment, July 21, 2017, http://164.100.47.193/lsscommittee/Social%20Justice%20&%20Empowerment/16_Social_Justice_
