Share of discount is the portion of the discount amount available, which is the quantum of the amount that a subscriber forgoes in a draw in order to get the prize amount. In the quantum of discount, the foreman retains the commission, and the balance amount is distributed proportionately among all the subscribers at each instalment of the chit.

Bidding is nothing but a discount, which is a quantum of the amount that a subscriber forgoes in a draw in order to get the prize amount. The subscribers forego the highest discount during the prescribed time limit within the ceiling fixed by the Chit Funds Act, 1982, i.e. 40%.

In the event that no bidder is forthcoming in an auction, a lot will be drawn from the non-prized subscribers at the close of the prescribed time (i.e. 5 minutes), and the subscriber drawn will be declared as a prized subscriber. He will be entitled to receive the gross chit amount for his ticket less the foreman commission.

A Prized Subscriber means a subscriber who has either received or is entitled to receive the net chit amount. The prized subscriber who draws the net chit amount shall pay the Foreman the amount due for his ticket for each instalment on or before the due date of each such auction.

The prized subscriber who is entitled to receive the net chit amount must furnish necessary security or sureties to the satisfaction of the foreman for due payment of future subscriptions to draw the net chit amount.

In a Chit Fund Organisation, auctions play a vital role, which is crucial for identifying the prized subscriber in each auction. The subscriber who is to get the prize amount at any instalment shall be determined by a lot or by an auction at the place and time mentioned in the chit agreement. The time allowed for the auction is 5 minutes from the commencement of the proceedings. The proceedings will be regulated by the foreman, and in case of a dispute, the decision of the foreman is final.

The prime eligibility for subscribers to participate in an auction is to make up-to-date payments. The subscribers can submit written bid offers stating the maximum amount of discount they are willing to forego, which must be received by the foreman at least one day before the concerned auction, and it can be withdrawn only 24 hours before the auction time. Only subscribers or their authorised persons/proxies will be allowed to take part in the auction. Such authorisations shall be in writing.

The auction shall start from a foreman’s commission of 5% of the chit value, and bidders may, in the auction, raise a discount to the maximum of 25/30/35/40 per cent of the chit value, which is mentioned in the chit agreement. Each time, the bid shall be raised by rupees hundred or multiples thereof.

The non-prized subscriber who bids at the highest discount, not exceeding the specified maximum discount, will be declared as the prized subscriber. If there is more than one bidder for the maximum discount, the auction will be decided by lot among such bidders.

The foreman is a representative of the Chit Fund Company to operate the chit and is duly authorised by such a company. A number of authorised representatives authorised by the company can act as foremen depending on the requirement.

Among various rights and duties of the foreman, the following are crucial for the proper conducting of the chit.

It is the Right of the Foreman-

• To obtain the gross chit amount without deducing the discount at the instalment specified in the chit agreement.
• To entitle 5% of gross chit amount as may be fixed in the chit agreement by way of commission or remuneration for meeting the expenses for running the chit.
• To collect interest and penalty, if any, payable on any default in the payment instalments under the provisions of the chit agreement.
• To receive and realise all subscriptions from the subscribers and to distribute the prize amounts to the prized subscribers.
• To demand sufficient security from any prized subscriber for the due payment of future subscriptions payable by him.

It is the duty of foreman-

• To be bound to pay the net chit amount to the prized subscriber on furnishing sufficient security for the due payment of future subscriptions.
• To deposit the unpaid net chit amount in a separate account in an approved bank mentioned in the chit agreement where the prized subscriber is unable to draw the net chit amount until the next succeeding auction. To intimate in writing the fact of such deposit and the reasons to the prized subscriber as well as the registrar.
• To distribute a share of discount or dividend among the subscribers by way of adjustment towards the subscriptions payable for the next instalment, in accordance with the chit agreement.

Once a person wins an auction, they are excluded from participating in future auctions but are still required to contribute their share. In the event that no bids are placed during a particular month, the entire amount becomes available for a lucky draw or lottery. Through a lucky dip, one member is declared the winner of the funds.

Bidding means that the member agrees to forego some part of the money in order to claim the bid amount. The lowest bidder, i.e. the one who is ready to forego the most subject to a ceiling, gets the amount. The Chit Funds Act of 1982 establishes a maximum ceiling of 40% on the amount that a member can forgo.

'Dividend' refers to the portion of the discount amount available under the chit agreement that is distributed proportionately among the subscribers at each instalment of the chit.