The Andhra Pradesh High Court delivered a significant ruling with far-reaching implications for thousands of chit fund subscribers and guarantors. The court held that chit fund companies are legally empowered to proceed directly against guarantors for recovery of pending dues, even without first exhausting recovery measures against the main borrower.
Case Background
Justice Chimalapati Ravi delivered the ruling while dismissing a petition filed by Kambala Venkata Rama Rao, a resident of Repalle, who challenged the attachment of his salary in connection with unpaid chit fund dues. The case involves a chit valued at ₹6.09 lakh taken by a subscriber from Kapil Chit Kosta Private Limited. Rama Rao and others had stood as sureties for the subscriber. After the borrower allegedly defaulted on payments, the chit fund company approached the deputy registrar of chits seeking recovery proceedings.
Recovery Certificate and Salary Attachment
Acting on the request, the deputy registrar issued a recovery certificate. Consequently, the Guntur court ordered the attachment of Rama Rao’s salary on October 29, 2025. Rama Rao later moved the high court, arguing that the borrower was financially capable and available for recovery proceedings. He contended that initiating action directly against the guarantor without first proceeding against the borrower was illegal. He also questioned the authority of the deputy registrar to issue a recovery certificate, claiming only the chit registrar held such powers.
High Court's Observations
The high court rejected both arguments. Referring to earlier Supreme Court judgments, the court observed that the Chit Funds Act contains no provision mandating that recovery efforts must first be made against the borrower before proceeding against the guarantor. The court emphasized that a guarantor shares equal liability with the borrower since the guarantee itself enables the subscriber to draw the chit amount.
Authority of Deputy Registrars
The court further clarified that deputy registrars, additional registrars, joint registrars, and assistant registrars all fall within the definition of “Registrar” under the Chit Funds Act. Therefore, certificates issued by them are legally valid and carry the same force as a civil court decree. This ruling reinforces the liability of guarantors in chit fund transactions and streamlines the recovery process for chit fund companies.
