AP high court upholds chit fund firms’ right to recover dues directly from guarantors

Vijayawada: In a significant ruling that could have far-reaching implications for thousands of chit fund subscribers and guarantors, the Andhra Pradesh high court has said 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.Justice Chimalapati Ravi delivered the ruling while dismissing a petition filed by Repalle resident Kambala Venkata Rama Rao, who challenged the attachment of his salary in connection with unpaid chit fund dues.The case pertains to 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.Acting on the request, the deputy registrar issued a recovery certificate, following which the Guntur court ordered 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.However, 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. It 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.