THE PRIZE CHITS AND MONEY CIRCULATION SCHEMES (BANNING) ACT, 1978 
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ARRANGEMENT OF SECTIONS 
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SECTIONS 

1.  Short title and extent. 
2.  Definitions. 
3.  Banning of prize chits and money circulation schemes or enrolment as members or participation 

therein. 

4.  Penalty for contravening the provisions of section 3. 
5.  Penalty for other offences in connection with prize chits or money circulation schemes. 
6.  Offences by companies. 
7.  Power to enter, search and seize. 
8.  Forfeiture of newspaper and publication containing prize chit or money circulation scheme. 
9.  Power to try offences. 
10.  Offences under this Act to be cognizable. 
11.  Act not to apply to certain prize chits or money circulation schemes. 
12.  Transitional provisions. 
13.  Power to make rules. 
14.  Repeals and saving. 

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THE PRIZE CHITS AND MONEY CIRCULATION SCHEMES (BANNING) ACT, 1978 

ACT NO. 43 OF 1978 

[12th December, 1978.] 

An Act  to  ban the promotion  or conduct  of prize chits and money circulation schemes and for 

matters connected therewith or incidental thereto. 

BE it enacted by Parliament in the Twenty-ninth Year of the Republic of India as follows:— 

1.  Short  title  and  extent.—(1)  This  Act  may  be  called  the  Prize  Chits  and  Money  Circulation 

Schemes (Banning) Act, 1978. 

(2) It extends to the whole of India 1***. 

2. Definitions.—In this Act, unless the context otherwise requires,— 

(a) “conventional chit” means a transaction whether called chit, chit fund, kuri or by any other 
name by or under which a person responsible for the conduct of the chit enters into an agreement with 
a  specified  number  of  persons  that  every  one  of  them  shall  subscribe  a  certain  sum  of  money  (or 
certain quantity of grain instead) by way of periodical instalments for a definite period and that each 
such  subscriber  shall,  in  his  turn,  as  determined  by  lot  or  by  auction  or  by  tender  or  in  such  other 
manner as may be provided for in the chit agreement, be entitled to a prize amount. 

Explanation.—In  this  clause  “prize  amount”  shall  mean  the  amount,  by  whatever  name  called, 
arrived  at  by  deducting  from  out  of  the  total  amount  paid  or  payable  at  each  instalment  by  all  the 
subscribers, 

(i) the commission charged as service charges as a promoter or foreman or an agent; and 

(ii) any sum which a subscriber agrees to forego, from out of the total subscriptions of each 

instalment, in consideration of the balance being paid to him; 

(b) “money” includes a cheque, postal order, demand draft, telegraphic transfer or money order; 
(c) “money circulation scheme” means any scheme, by whatever name called, for the making of 
quick  or  easy  money,  or  for  the  receipt  of  any  money  or  valuable  thing  as  the  consideration  for  a 
promise  to  pay  money,  on  any  event  or  contingency  relative  or  applicable  to  the  enrolment  of 
members into the scheme, whether or not such money or thing is derived from the entrance money of 
the members of such scheme or periodical subscriptions; 

(d) “prescribed” means prescribed by rules made under this Act; 
(e) “prize chit” includes any transaction or arrangement by whatever name called under which a 
person collects whether as a promoter, foreman, agent or in any other capacity, monies in one lump 
sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other 
instruments or in any other manner or as membership fees or admission fees or service charges to or 
in  respect  of  any  savings,  mutual  benefit,  thrift,  or  any  other  scheme  or  arrangement  by  whatever 
name  called,  and  utilises  the  monies  so  collected  or  any  part  thereof  or  the  income  accruing  from 
investment or other use of such monies for all or any of the following purposes, namely:— 

(i)  giving  or  awarding  periodically  or  otherwise  to  a  specified  number  of  subscribers  as 
determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not 
the recipient of the prize or gift is under a liability to make any further payment in respect of such 
scheme or arrangement; 

(ii) refunding to the subscribers or such of them as have not won any prize or gift, the whole 
or part of the subscriptions, contributions or other monies collected, with or without any bonus, 
premium, interest or other advantage by whatever name called, on the termination of the scheme 
or arrangement, or on or after the expiry of the period stipulated therein, 

but does not include a conventional chit; 

1.  The  words  “except  the  State  of  Jammu  and  Kashmir”  omitted  by  Act  34  of  2019,  s.  95  and  the  Fifth  Schedule  

(w.e.f. 31-10-2019). 

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(f) “Reserve Bank” means the Reserve Bank of India constituted under the Reserve Bank of India 

Act, 1934 (2 of 1934). 

3.  Banning  of  prize  chits  and  money  circulation  schemes  or  enrolment  as  members  or 
participation therein.—No person shall promote or conduct any prize chit or money circulation scheme, 
or enroll as a member to any such chit or scheme, or participate in it otherwise, or receive or remit any 
money in pursuance of such chit or scheme. 

4. Penalty for contravening the provisions of section 3.—Whoever contravenes the provisions of 
section 3 shall be punishable with imprisonment for a term which may extend to three years, or with fine 
which may extend to five thousand rupees, or with both: 

Provided that in the absence of special and adequate reasons to the contrary to be mentioned in the 
judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than 
one thousand rupees. 

5.  Penalty  for  other  offences  in  connection  with  prize  chits  or  money  circulation  schemes.—
Whoever,  with  a  view  to  the  promotion  or  conduct  of  any  prize  chit  or  money  circulation  scheme  in 
contravention  of  the  provisions  of  this  Act  or  in  connection  with  any  chit  or  scheme  promoted  or 
conducted as aforesaid,— 

(a) prints or publishes any ticket, coupon or other document for use in the prize chit or money 

circulation scheme; or 

(b) sells or distributes or offers or advertises for sale or distribution, or has in his possession for 
the purpose of sale or distribution any ticket, coupon or other document for use in the prize chit or 
money circulation scheme; or 

(c)  prints,  publishes  or  distributes,  or  has  in  his  possession  for  the  purpose  of  publication  or 

distribution— 

(i) any advertisement of the prize chit or money circulation scheme; or 

(ii)  any  list,  whether  complete  or  not,  of  members  in  the  prize  chit  or  money  circulation 

scheme; or 

(iii)  any  such  matter  descriptive  of,  or  otherwise  relating  to  the  prize  chit  or  money 
circulation scheme, as is calculated to act as an inducement to persons to participate in that prize 
chit or money circulation scheme or any other prize chit or money circulation scheme; or 

(d) brings, or invites any person to send, for the purpose of sale or distribution, any ticket, coupon 
or other document for use in a prize chit or money circulation scheme or any advertisement of such 
prize chit or money circulation scheme; or 

(e)  uses  any  premises,  or  causes  or  knowingly  permits  any  premises  to  be  used,  for  purposes 

connected with the promotion or conduct of the prize chit or money circulation scheme; or 

(f) causes or procures or attempts to procure any person to do any of the above-mentioned acts, 

shall be punishable with imprisonment for a term which may extend to two years, or with fine which may 
extend to three thousand rupees, or with both: 

Provided that in the absence of special and adequate reasons to the contrary to be mentioned in the 
judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than 
one thousand rupees. 

6. Offences by companies.—(1) Where an offence under this Act has been committed by a company, 
every person who, at the time the offence was committed, was in charge of, and  was responsible to, the 
company for the conduct of the business of the company, as well as the company, shall be deemed to be 
guilty of the offence and shall be liable to be proceeded against and punished accordingly: 

Provided  that  nothing  contained  in  this  sub-section  shall  render  any  such  person  liable  to  any 
punishment provided in this Act, if he proves that the offence was committed without his knowledge or 
that he exercised all due diligence to prevent the commission of such offence. 

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(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been 
committed  by  a  company  and  it  is  proved  that  the  offence  has  been  committed  with  the  consent  or 
connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other 
officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty 
of that offence and shall be liable to be proceeded against and punished accordingly. 

Explanation.—For the purposes of this section— 

(a)  “company”  means  any  body  corporate  and  includes  a  firm  or  other  association  of    

individuals; and 

(b) “director”, in relation to a firm, means a partner in the firm. 

7. Power to enter, search and seize.—(1) It shall be lawful for any police officer not below the rank 

of an officer in charge of a police station,— 

(a) to enter, if necessary by force, whether by day or night with such assistance as he considers 
necessary, any premises which he has reason to suspect, are being used for purposes connected with 
the  promotion  or  conduct  of  any  prize  chit  or  money  circulation  scheme  in  contravention  of  the 
provisions of this Act; 

(b) to search the said premises and the persons whom he may find therein; 

(c)  to  take  into  custody  and  produce  before  any  Judicial  Magistrate  all  such  persons  as  are 
concerned or against whom a complaint has been made or credible information has been received or a 
reasonable  suspicion  exists  of  their  having  been  concerned  with  the  use  of  the  said  premises  for 
purposes  connected  with,  or  with  the  promotion  or  conduct  of,  any  such  prize  chit  or  money 
circulation scheme as aforesaid; 

(d)  to  seize  all  things  found  in  the  said  premises  which  are  intended  to  be  used,  or  reasonably 
suspected to have been used, in connection with any such prize chit or money circulation scheme as 
aforesaid. 

(2) Any officer authorised by the State Government in this behalf may— 

(a) at all reasonable times, enter into and search any premises which he has reason to suspect, are 
being  used  for  the  purposes  connected  with,  or  conduct  of,  any  prize  chit  or  money  circulation 
scheme in contravention of the provisions of this Act; 

(b) examine any person having the control of, or employed in connection with, any such prize chit 

or money circulation scheme; 

(c) order the production of any documents, books or records in the possession or power of any 
person  having  the  control  of,  or  employed  in  connection  with,  any  such  prize  chit  or  money 
circulation scheme; and 

(d) inspect and seize any register, books of account, documents or any other literature found in 

the said premises. 

(3)  All searches  under this  section  shall  be  made in accordance  with the provisions of the  Code  of 

Criminal Procedure, 1973 (2 of 1974). 

8.  Forfeiture  of  newspaper  and  publication  containing  prize  chit  or  money  circulation 
scheme.—Where any newspaper or other publication contains any material connected with any prize chit 
or money circulation scheme promoted or conducted in contravention of the provisions of his Act or any 
advertisement  in  relation  thereto,  the  State  Government  may,  by  notification  in  the  Official  Gazette, 
declare every copy of the newspaper and every copy of the publication containing such material or the 
advertisement to be forfeited to the State Government. 

9.  Power  to  try  offences.—No  court  inferior  to  that  of  a  Chief  Metropolitan  Magistrate,  or  as  the 

case may be, Chief Judicial Magistrate, shall try any offence punishable under this Act. 

10.  Offences  under  this  Act  to  be  cognizable.—All  offences  punishable  under  this  Act  shall  be 

cognizable. 

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11. Act not to apply to certain prize chits or money circulation schemes.—Nothing contained in 

this Act shall apply to any prize chit or money circulation scheme promoted by— 

(a) a State Government or any officer or authority on its behalf; or 

(b) a company wholly owned by a State Government which does not carry on any business other 
than  the  conducting  of  a  prize  chit  or  money  circulation  scheme  whether  it  is  in  the  nature  of  a 
conventional chit or otherwise; or 

(c)  a  banking  company  as  defined  in  clause  (c)  of  section  5  of  the  Banking  Regulation             

Act, 1949 (10 of 1949), or a banking institution notified by the Central Government under section 51 
of  that  Act  or  the  State  Bank  of  India  constituted  under  section  3  of  the  State  Bank  of  India            
Act, 1955 (23 of 1955), or a subsidiary bank constituted under section 3 of the State Bank of India 
(Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 
of  the  Banking  Companies  (Acquisition  and  Transfer  of  Undertakings)  Act,  1970  (5 of  1970),  or  a 
Regional Rural Bank established under section 3 of the Regional Rural Banks Act, 1976 (21 of 1976), 
or  a  co-operative  bank  as  defined  in  clause  (bii)  of  section  2  of  the  Reserve  Bank  of  India              
Act, 1934 (2 of 1934); or 

(d)  any  charitable  or  educational  institution  notified  in  this  behalf  by  the  State  Government,  in 

consultation with the Reserve Bank. 

12.  Transitional  provisions.—(1)  Notwithstanding  anything  contained  in  this  Act,  a  person 
conducting a prize chit or money circulation scheme at the commencement of this Act may  continue to 
conduct  such  chit  or  scheme  for  such  period  as  may  be  necessary  for  the  winding  up  of  the  business 
relating to such chit or scheme, so however that such period shall not in any case extend beyond a period 
of two years from such commencement: 

Provided  that  the  said  person  shall  furnish  to  the  State  Government  or  to  such  officer  as  may  be 
authorised by it in this behalf and to such office of the Reserve Bank as may be prescribed in such form 
and within such period as may be prescribed, full information regarding the chit or scheme along with a 
winding up plan prepared in accordance with the provisions of any rules that may be made by the State 
Government in this behalf under this Act: 

Provided  further  that  if  the  State  Government  is  satisfied,  on  an  application  made  by  the  person 
conducting the prize chit or money circulation scheme, that the chit or scheme cannot be wound up within 
the period fixed in the winding up plan furnished to the State Government under the foregoing proviso, it 
may,  in  consultation  with  the  Reserve  Bank,  permit  such  person  to  continue  to  conduct  the  business 
relating to the said chit or scheme for such further period as may be considered necessary having regard to 
the circumstances of the case and the interests of the members of the said chit or scheme. 

(2) The State Government may, in consultation with the Reserve Bank, approve the winding up plan 
furnished under sub-section (1) with or without modifications or reject the same and may grant or refuse 
to grant permission to continue to conduct that chit or scheme: 

Provided that no such winding up plan shall be modified or rejected without giving an opportunity of 

being heard to the person who conducts such prize chit or money circulation scheme. 

(3)  If  any  person  fails  to  furnish  full  information  regarding  the  said  chit  or  scheme  along  with  its 
winding  up  plan  in  the  form  and  within  the  period  prescribed,  he  shall  forfeit  his  right  to  continue  the 
business relating to the said chit or scheme on the expiry of such period. 

(4) Notwithstanding anything to the contrary contained in any agreement or arrangement entered into 
between  any  person  conducting  any  such  chit  or  scheme  and  the  subscriber,  the  person  conducting  the 
chit  or  scheme  shall,  within  such  period  as  may  be  prescribed,  refund  the  monies  or  the  subscriptions 
collected till the date of default referred to in sub-section (3). 

(5) If any person fails to comply with the provisions of sub-section (4), he shall be punishable with 
imprisonment for a term which may extend to two years, or with fine which may extend to three thousand 
rupees, or with both: 

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Provided that in the absence of special and adequate reasons to the contrary to be mentioned in the 
judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than 
one thousand rupees. 

13. Power to make rules.—(1) The State Government may, by notification in the Official Gazette 
and in consultation with the Reserve Bank, make rules for the purpose of carrying out the provisions of 
this Act. 

(2)  In  particular  and  without  prejudice  to  the  generality  of  the  foregoing  power,  such  rules  may 

provide for— 

(a) the office of the Reserve Bank to whom full information regarding any prize chit or money 
circulation scheme may be furnished under the first proviso to sub-section (1) of section 12, and the 
form in which and the period within which such information may be furnished; 

(b) the particulars relating to the winding up plan of the business relating to prize chits or money 

circulation schemes. 
2[(3) Every rule made under this section shall be laid, as soon as may be after it is made, before the 

State Legislature.] 

14.  Repeals  and  saving.—(1)  The  Andhra  Pradesh  Money  Circulation  Scheme  (Prohibition)        

Act,  1965  (Andhra  Pradesh  Act  30  of  1956),  as  in  force  in  the  State  of  Andhra  Pradesh,  and  in  the     
Union  territory  of  Chandigarh  and  the  Madhya  Pradesh  Dhan  Parichalan  Skeem  (Pratishedh)             
Adhiniyam, 1975 (Madhya Pradesh Act 19 of 1975), are hereby repealed. 

(2) Notwithstanding the repeal of any Act referred to in sub-section (1), anything done or any action 
taken under the provisions of any such Act shall, in so far as such thing or action is not inconsistent with 
the provisions of this Act, be deemed to have been done or taken under the provisions of this Act as if the 
said provisions were in force when such thing was done or such action was taken and shall continue in 
force accordingly until superseded by anything done or any action taken under this Act. 

1. Ins. by Act 4 of 1986, s. 2 and the Schedule (w.e.f. 15-5-1986). 

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