One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.
Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.
TL;DR: An unregistered chit fund company is running outside the Chit Funds Act, 1982, and taking subscriptions under a false promise of returns is cheating, not a loan gone sour. You can file a police complaint under Section 318(4) of the Bharatiya Nyaya Sanhita, 2023, and simultaneously sue for recovery of the money. Both routes need documents you probably already have.
Rohan Deshpande paid into a chit run out of a flat in Nagpur for a little over a year. The collections were small, monthly, and always sent by PhonePe. Then the payments stopped. The woman running the scheme, Sushma Kulkarni, told him she had no money. She said the same thing to everyone else who had paid in, and there were several of them. Five years went by. Rohan's outstanding was about ₹5 lakh.
He did not go to the police first. A relative told him the payments were "just money lending" and that no complaint would be registered, so he sat on it. That is where most people lose the case before it begins.
When he
When he finally walked in, five years had passed, and he brought the only two things he had: a notebook with monthly entries in it, and his phone. There was no registered chit agreement to show, no signed terms, nothing that said on paper who was holding his money. He had stopped calling Sushma Kulkarni a year earlier. She had stopped picking up long before that.
That is the whole file. A payment record and a promise that was never kept.
Why an unregistered chit fund company is not the same as a lender
The word "chit" gets used loosely in India. A genuine chit is a legally defined thing. A chit is an arrangement where a group of subscribers puts in money at fixed intervals and the pooled amount goes to one subscriber at a time, with a foreman who runs it and takes a commission.
Under the Chit Funds Act, 1982, a chit has to be registered with the Registrar of Chits in the State, and the business of running a chit cannot begin without the prior sanction of the State Government. There are limits on the chit amount, rules on security deposits, mandatory accounts and audits, and a Registrar who supervises the whole thing.
A flat in Nagpur with a woman collecting monthly instalments has none of that. So the first two questions in any such case are: was this scheme ever registered, and if it was not, what does that make it?
Once a scheme like this collects money from the public with a promise of returns and does not sit inside the Chit Funds Act, a second law comes into play. The Prize Chits and Money Circulation Schemes (Banning) Act, 1978 prohibits money circulation schemes and makes promoting or conducting one an offence. That Act has been on the books for decades and is routinely invoked against schemes that dress themselves up as savings plans or committees.
There is a third possibility, which depends entirely on what the money was used for. If the collections were pooled and put into a business or an investment with promised returns to subscribers, the arrangement may fall within the definition of a collective investment scheme under the SEBI Act, 1992. Whether a particular scheme crosses that line is a question of fact — how the money was pooled, who controlled it, what was promised. It is not something to assume.
When it stops being a loan and becomes cheating
This is the point where most people get talked out of filing a complaint, so it is worth being precise.
Not every unpaid debt is cheating. If a person genuinely intended to repay, borrowed money, and then could not repay because the business failed, that is a breach of contract. It is a civil wrong. Calling it cheating and filing an FIR usually ends badly for the complainant.
What changes the character of the transaction is what was in the person's mind at the time the money was taken, and how the scheme was actually run. A court will look at, among other things:
- Whether the scheme was ever registered with the Registrar of Chits, and whether the person running it said it was.
- Whether subscribers were told the truth about what would be done with the money.
- Whether the money collected was actually pooled and run as a chit, or simply spent.
- Whether the operator took money from new subscribers knowing there was nothing left to pay the old ones.
- Whether promises of returns were made and then quietly abandoned.
- Whether the operator gave any written acknowledgment of the amount owed, or refused to give one.
- Whether several subscribers were treated the same way, and whether the operator stopped responding to all of them at the same time.
A pattern is what makes these cases. One subscriber who lost money and has no documents is a weak complainant. Twelve subscribers with payment records, screenshots and the same story are a criminal case.
The sections that apply
Under the Bharatiya Nyaya Sanhita, 2023, the relevant offence is cheating under Section 318. The definition sits in Section 318(1), and the aggravated form — cheating and thereby dishonestly inducing a person to deliver property — is Section 318(4). That is the provision that replaced what used to be Section 420 of the Indian Penal Code. It carries imprisonment up to seven years and a fine. The article's earlier reference is to this provision, and it is the one usually invoked where money has actually been paid over on a false promise.
Where the money was entrusted to the operator and then misappropriated, criminal breach of trust under Section 316 of the BNS may also be attracted. The two offences are frequently charged together in chit fund cases, and it is for the investigating agency and then the court to decide which fits. Where more than one person was involved in running the scheme, Section 61 of the BNS on criminal conspiracy, and the common intention provision in Section 3(5), can come into the picture.
I should be straight about one thing. Which sections actually get applied depends on how the investigation reads the facts. It is not for a complainant to decide that in advance, and a complaint that insists on a particular section and nothing else often gets filed in the wrong place. Set out the facts and let the police apply the law.
How a complaint actually gets registered
Cheating is a cognizable offence, which means the police are obliged to register an FIR if the information discloses it. The provision is Section 173 of the Bharatiya Nagarik Suraksha Sanhita, 2023.
There is one procedural wrinkle people trip over. Section 173(3) of the BNSS permits a limited preliminary inquiry, with the prior approval of the Superintendent of Police, but only for offences punishable between three and seven years. If that inquiry is ordered, it has to be finished within a fixed time. A police station that says "we will look into it" and then does nothing is not doing a preliminary inquiry. Ask, in writing, whether one has been ordered.
If the station refuses to register the FIR, the sequence is:
- Send the substance of the information in writing to the Superintendent of Police. Under Section 173(4) of the BNSS, if the Superintendent is satisfied, the FIR is registered and investigated by an officer of the Superintendent's choosing.
- If that also goes nowhere, apply to the Magistrate under Section 175(3) of the BNSS, asking the Magistrate to direct an investigation. That is what used to be Section 156(3) of the old Code. This application is a serious step and is usually drafted with the complaint attached.
- Separately, you can file a private complaint before the Magistrate. Your statement is recorded under Section 223 of the BNSS, and the court then decides whether to take cognisance.
None of this requires the police to have recovered anything. The recovery comes later, and it may never come. What a criminal case does is put the operator under pressure and, sometimes, produce a settlement.
One word on delay. There is no limitation period for reporting a cognizable offence, which is why a five-year-old complaint is still a live complaint. But delay is the first thing a defence lawyer will attack, and the complainant needs a plain answer to "why now?" Illness, a relative telling you it was a loan, being afraid, trying to settle privately — these are answers. Having no answer is a problem.
What to collect before you file anything
Documents decide these cases. Almost everything on the following list is something a subscriber already has on their phone or in a drawer:
- Every payment record — bank statements, UPI transaction history from the app, cheque images, deposit slips. Export the UPI history, do not rely on scrolling through the app.
- The chit passbook, receipt book page, enrolment form, or any paper the operator gave you, even if it carries no company name.
- Any promissory note, written acknowledgment of the amount owed, or letter of assurance.
- Chat messages, call recordings, and voice notes. A voice note where she admits the amount is worth more than ten angry texts.
- Names and contact details of other subscribers. This is the single most useful thing you can gather.
- A two-page note in your own words: how you were approached, what you were told, what you paid, when it stopped, and what was said when you asked for the money.
On electronic evidence, Section 63 of the Bharatiya Sakshya Adhiniyam, 2023 governs admissibility, and it requires a certificate in the prescribed form for electronic records. In practice, bank and UPI statements obtained directly from the bank or the payment service are stronger than screenshots. Screenshots are still worth keeping, and it is better to preserve them now than to discover later that the phone was reset.
If the operator gave you a cheque that bounced, that is a separate and quicker route. A dishonour notice within thirty days of the return memo, fifteen days to pay, and then a complaint under Section 138 of the Negotiable Instruments Act, 1881. Many chit fund cases begin that way rather than with the police.
Can you file a case and still sue for the money?
Yes. The criminal complaint and the civil suit are not alternatives. They have different purposes: one punishes, the other recovers. They can run at the same time on the same facts, and there is no rule that you must choose.
The civil route is a suit for recovery of the amount paid, and it is the only route that puts money back in your hands if the operator has assets. If the claim rests on a promissory note, a cheque or a written acknowledgment of debt, a summary suit under Order XXXVII of the Code of Civil Procedure, 1908 may be available, which is faster because the defendant has to apply for leave to defend. Otherwise it is an ordinary suit.
Here is the part that hurts. A money recovery suit is governed by the three-year limitation under the Limitation Act, 1963, running from when the cause of action arose — normally when the payment fell due and was refused. Rohan's claim was five years old. Unless there was a written acknowledgment of the debt within the three years, or a part payment, which gives a fresh period under Sections 18 and 19 of that Act, the civil recovery may be time-barred even though the criminal complaint is not. This is the practical reason to check the dates before anything else.
If the person is likely to move assets, an application for attachment before judgment under Order XXXVIII Rule 5 of the CPC can be considered at the time of filing. It has to be supported with material showing the intention to obstruct execution of a decree. It is not granted on asking.
Settlement is possible. Cheating can be compounded with the permission of the court, and a settlement recorded before the court carries weight. What it does not do is automatically close a criminal case. The complainant's willingness to settle helps; the court makes the call.
Frequently Asked Questions
Can the police refuse to register my complaint against an unregistered chit fund company?
They can refuse in practice, and they do. Registration of an FIR is not discretionary where the information discloses a cognizable offence. If the station will not register it, send the substance in writing to the Superintendent of Police under Section 173(4) of the BNSS, and if that fails, move the Magistrate under Section 175(3) of the BNSS. Keep proof of every letter and the date it was received.
My payments go back five years. Is it too late?
Not for the criminal complaint, because there is no limitation on reporting a cognizable offence. Probably too late for a civil recovery suit, because that is generally three years from when the money became due. A written acknowledgment of the debt, or a part payment, restarts that clock. This is why dates matter more than the amount in these cases, and it is the first thing to check.
The operator says it was a loan and he simply could not repay. Does that defeat the case?
It might, and that is the honest answer. If he intended to repay and failed, it is a civil dispute. What changes the picture is a scheme that was never registered, promises that were never going to be honoured, money taken from new subscribers when there was nothing left, or collections that were never pooled at all. Evidence of a pattern across several subscribers is usually what decides this.
Do I need other subscribers to file with me?
It is not legally required. It helps enormously. A single complaint is one person's word against another's. Several complaints, with matching payment histories, show a scheme rather than a personal quarrel, and police are far more likely to register a case that shows a scheme.
Can I recover anything at all?
Sometimes. It depends on whether the operator has assets and whether the suit is within limitation. On these facts — five years of delay, no registered document, no written acknowledgment — recovery is uncertain and a court case may not be worth what it costs. A criminal complaint and the pressure it creates is often what produces a partial settlement. Anyone promising you a full recovery here is guessing.
What to send, and where
If you are in this situation, write in with the following, in this order: the payment record for each instalment, any receipt, passbook page or acknowledgment of the amount owed, a screenshot or copy of anything the operator said about repayment, and a two-line note giving the date of the first payment and the date of the last. Mention whether you have a cheque that bounced, because that changes the plan.
Send it to me@sudhirrao.com or call +91 97295 06771. You can also reach the chamber through /contact-us or book a slot at /book. The chamber sits at Chamber No. 86, Supreme Court of India, New Delhi – 110001, and there is no other office.
Bring the dates first. If the limitation has run and there is no acknowledgment in writing, the civil route may already be closed and what remains is the criminal complaint. Better to hear that on the first call than after filing.
This article is general information about Indian law and is not legal advice on your own situation. Please consult an advocate with your documents before acting.
Advocate Sudhir Rao, Supreme Court of India
Facing a similar matter? Speak to a criminal lawyer in Delhi — Advocate Sudhir Rao appears in bail, trial and appellate matters before the Delhi District Courts, the Delhi High Court and the Supreme Court of India.