(1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), but subject to the provisions of this Act, a company shall not commence or carry on chit business unless it has a paid-up capital of not less than rupees one lakh.
(2) Every company having a paid-up capital of less than rupees one lakh and carrying on chit business on the commencement of this Act, shall, before the expiry of a period of three years from such commencement, increase its paid-up capital of not less than rupees one lakh:
Provided that the State Government may, if it considers it necessary in the public interest or for avoiding any hardship, extend the said period of three years in respect of any company by such further period or periods not exceeding two years in the aggregate:
Provided further that no such company shall commence any new chit the duration of which would extend beyond the said period of three years or such extended period or periods under the first proviso unless it increases its paid-up capital to not less than rupees one lakh.
(3) Every company carrying on chit business shall create and maintain a reserve fund and shall, out of the balance of profit of each year as disclosed in its profit and loss account and before any [share of discount] on its shares is declared, transfer to such reserve fund, a sum equal to not less than ten per cent. of such profit.
(4) No company shall appropriate any sum or sums from the reserve fund except with the prior approval of the Registrar and, for the purpose of obtaining such approval, it shall make an application in the prescribed form to the Registrar explaining the circumstances relating to such appropriation.