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Secured Investment Company and ors. Vs. Registrar of Firms, Societies and Chits - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAllahabad High Court
Decided On
Case NumberWrit Petn. No. 630 of 1982
Judge
Reported inAIR1984All28
ActsPrize Chits and Money Circulation Schemes (Banning) Act, 1978 - Sections 2 and 3
AppellantSecured Investment Company and ors.
RespondentRegistrar of Firms, Societies and Chits
Appellant AdvocateP.N. Mathur, Adv.
Respondent AdvocateB.M.N. Kuchar, Adv.
DispositionPetition allowed
Excerpt:
commercial - interpretation of meaning of 'prize chit' - sections 2(e) and 3 of prize chits and money circulation schemes (banning act), 1978 - petitioner firm started a business of collecting money under a scheme from subscribers - part of collected money was deposited in bank in the name of subscribers - residual amount used for holding lucky draws for awarding prizes to the subscriber - scheme cannot be treated as prize chit. - - the petitioners firm acts like an agent for the bank and also helps such depositors in making the deposits and obtaining the receipt from the bank. . & 19 other consolation prizes consisting of articles like transistor. on 3rd february, 1982, the petitioner received an order from the opposite party in which it was said that the opposite party was.....k.s. varma, j. 1. this writ petition is directed against certain orders passed by the registrar of firms. societies and chits. uttar pradesh. lucknow. the action, which purports to have been taken against the petitioners under the provisions of the prize chits and money circulation schemes (banning) act. 1978 (hereinafter referred to as the act) is sought to be challenged.2. petitioners nos. 1 and 2 are partners of an unregistered partnership firm m/s. secured investment company (petitioner no. 1). it is claimed that petitioner no. 1 deals in the business of acting as an agent for retting money deposited in nationalised or scheduled banks only and also for promotion of sales of certain commodities. the petitioners are carrying on their business mainly in lucknow with branches at kanpur.....
Judgment:

K.S. Varma, J.

1. This writ petition is directed against certain orders passed by the Registrar of Firms. Societies and Chits. Uttar Pradesh. Lucknow. The action, which purports to have been taken against the petitioners under the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act. 1978 (hereinafter referred to as the Act) is sought to be challenged.

2. Petitioners Nos. 1 and 2 are partners of an unregistered partnership firm M/s. Secured Investment Company (petitioner No. 1). It is claimed that petitioner No. 1 deals in the business of acting as an agent for Retting money deposited in nationalised or scheduled banks only and also for promotion of sales of certain commodities. The petitioners are carrying on their business mainly in Lucknow with branches at Kanpur and Bareilly. It is further claimed in the writ petition that the petitioner's firm started a scheme for investment in which persons who were interested were required to pay a sum of Rs. 220 only once. Then a sum was deposited in a Nationalised or Scheduled Bank in the Reinvestment Deposits Plan certificate and person concerned was given a Fixed Deposit Receipt which has maturity value of Rs. 220. The receipt is given directly by the Bank in the name of the depositor. The petitioner firm acts only as a motivator for making deposits in the nationalised or scheduled banks. The petitioners firm acts like an agent for the bank and also helps such depositors in making the deposits and obtaining the receipt from the bank. The petitioner does not get any commission either from the bank or from the depositor but under the scheme he gets a small interest which the depositor would earn in 66 months. Out of this profit, the petitioner provides for the item? of utility and household effects which a Person can set in accordance with the draw in which he would be able to participate for a period of 60 months. The petitioners further say that the person participating in the scheme is fully secured for his money because he gets a Fixed Deposit Receipt from a nationalised or scheduled bank with the maturity value of Rs. 220. The depositor voluntarily foregoes to accept any interest on the amount for a term of 66 months. The depositor gets the Reinvestment Deposit Plan Receipt of the bank which he can encash from the bank directly whenever he desires. In short, the depositor is not likely to lose the amount deposited and he voluntarily agrees to forego interest. Thus a small spare money of the depositor is available to nationalised or scheduled bank which can be utilised, according to the plans of the Government for development and other welfare work for the benefit of the society at large. The deposit of 66 months allows considerable scope for the bank and consequently to the Government to utilise the small thrift of such deposits for great purposes. The petitioner is only able to earn the interest that this small amount would have yielded in lieu of his commission or for services rendered. In addition to it the petitioners provide for articles ranging from a Scooter or Refrigerator to other household effects to be made available to the depositors up to a total sum of Rs. 15.000 every month. Thus, it is clear that the depositor foregoes the interest with a view to get any of the items mentioned in Clause 8 of the agreement in accordance with the draw. It is significant that no cash prize or cash in lieu of the article is given to any of the depositor. Thus, a depositor has 60 chances of getting any of the consumer goods mentioned therein for the petty amount of interest that he foregoes.

3. The terms and conditions of the agreement are contained in the document which has been filed as annexure 1 to the writ petition. Those terms and conditions are being reproduced below:--

'1. Secured Investment Co. will be known as Company.

2. Every member will deposit with the Co. Rs. 220 only once : in return he will get a Reinvestment Deposit Plan Receipt/Bank Cash Certificate (a type of Fixed Deposit Receipt) of a Govt. Nationalised Bank.

3. No interest will be given to the member, thus the maturity value of the Bank's R. D. P. will be Rs. 220.

4. After a member deposits Rs. 220, he will set his Bank's R. D. P. within 7 days. For members from Lucknow. Kan-Pur and Bareilly every effort will be made to give them the R. D. P. Receipt the very next day.

5. The duration of the scheme is for 66 months therefore, the duration of the Bank's R. D. P. Receipt is also for 66 months.

6. Lucky draws for articles totalling Rs. 15,000 per month will be given every month for 60 months. Thus, the total value of prizes for 60 months will be Rs. 9 lacs. Totally 60 lucky draws will be held, one every month, after the recruitment of 19.990 member per group.

7. Every month. 21 lucky prizes will be given. The 1st prize will be a Vijai Scooter, the 2nd prize will be a Kulvinator Refrigerator (90 lits). or a T.V.. & 19 other consolation prizes consisting of articles like Transistor. Sewinff Machine. Cycle. Pressure Cooker. Stainless Steel Thali Sets. Alarm Clocks etc.

8. If there is any price increase, latter in the period of the scheme on the value of the price articles which are derailed below, the winning member shall pay for the actual price increase Cash In Lieu Of Articles Will Not Be Given.

1.

One Vijai Super Scooter

Rs. 8000

2.

One Kelvinator Fridge (90 Lits.)or one C. V. Plus one Mixi

Rs. 3900

3.

One Cycle

Rs. 400

4.

One Table Fan

Rs. 350

5.

One Sewing Machine

Rs. 325

6.

2 Nos. Philps Transistors

Rs. 230/-

each Rs.460

7.

3 Nos. Pressure Cookers (3L(s.)

Rs. 1751-

each Hs.525

8.

5 Nos. Steel Thali Sets.

Rs. 100;-

each Rs.500 set

9.

6 Nos. Alarm Clocks.

Rs. 90/-

each Rs.540

Total 21

Total

Rs. 15000

9. A winning member will be entitled to participate in subsequent draws. Thus a member can win prizes over and over again.

10. If a member withdraws during the duration of the scheme, he can encash his Bank's R. D. P. directly from the Bank. However, he will not be entitled for the entire amount of Rs. 220, but, will lose interest for the balance months as per Reserve Bank of India rules governing from time to time. For example, if a member withdraws immediately after he gets his R. D. P. Receipt he loses up to a maximum of Rs. 92. This is the maximum amount a member can lose if he withdraws from the scheme immediately after he becomes a member and after getting his Bank R. D. P. Of course, he will also not be entitled for the balance lucky draws.

11. The reason for deduction of interest is that the company gives these fantastic prizes through the interest thus Rained, also, this interest gained has to cover the Company's overheads and profit. However, a customer's refund of his Rs. 220 is 100 per cent secured because at the end of the scheme he can go directly to the Bank and encash the R. D. P. without any consent from the Company.

12. Outstation members can encash thy R.D.P. by presenting it to any Bank. The procedure is the same as one normally encashes an outstation cheque.

13. The company reserves the right to accept or reject any membership without assigning any reasons.

14. In case the total membership is not fully subscribed to members can still be recruited after the start, of the draws. However, the company will at no stage keep memberships reserved in its own name, thus winner of every draw will go to an actual member.

15. The lucky draws will take place in rotation at Lucknow. Kanpur and Bareilly on the 1st Sunday of every month. The lucky draws will be taken out by members themselves to ensure fairness and honesty in the draw.

16. No Shareholder. Partner. Director and staff member of the company is entitled to enrol himself as a member in the scheme.

17. Legal dispute, if any, will be subject to the jurisdiction of Lucknow Courts only.

Before signing on the agreement I have read/understood the Rules and Regulations of the Scheme.

Signature of member.........

Name & Address............

Date...............

4. The petitioners claim that the scheme envisaged by the document (annexure 1) does not fall within the ambit of the Act and as such it cannot be stopped. It is alleged in the writ petition that the Registrar of the Firms (hereinafter referred to as the opposite party) sent a letter dated 3-11-1981 (annexure 2 to the writ petition) requiring the petitioner No. 1 to explain their scheme. The petitioners sent a detailed reply dt. 10-11-1981 in which they explained the scheme and maintained that the scheme was neither a 'money circulation scheme' nor a 'prize chit' as defined in the Act. They prayed that the notice issued to them may be withdrawn. On 3rd February, 1982, the petitioner received an order from the opposite party in which it was said that the opposite party was not satisfied with the explanation given by the petitioners. The petitioners were required to submit for inspection certain documents relating to their business. A copy of this letter has been filed as annexure 3 to the writ petition. The petitioners submitted the required documents before the opposite party who took those documents into his custody and gave a receipt copy of which has been filed as annexure 4 to the writ petition. The opposite party is further said to have written a letter dt. 3rd February. 1962 to the Indian Bank instructing them that no transactions En the petitioner's account may be permitted to be made. Similar letters were written to other banks also where the petitioners had their accounts. A copy of the letter dt. 3rd February. 1982 from opposite party to the Indian Bank is annexure 6 to the writ petition. The petitioners pray that a writ, direction or order in the nature of certiorari may be issued quashing the order No. 13148-49 dated 3rd February, 1982 contained in annexure 3 as also his order No, 13188 (1) dated 3rd February. 1982 contained in annexure G. They have further prayed that the opposite party may be commanded to return all the documents seized by him and he may be further directed not to interfere with the business of the petitioners which they are carrying on in terms of the scheme.

5. The writ petition has been contested on behalf of the opposite party and counter-affidavit has been filed. The main contention of the opposite party is to the effect that the scheme under which the petitioners are carrying on their business falls squarely within the definition of Prize Chit a? contained in Section 2(e) of the Act. The main Plea raised on behalf of the opposite party is contained in para 5 of the counter-affidavit which is reproduced below:--

'(5) That the contents of para 3 of the writ petition is denied except to this extent that the company collects the money as the promoter of the scheme from her subscribers @ 220.00 in lump sum per member and deposits Rupees 127.75 in a Nationalised Bank for 66 months in favour of the subscriber which has the maturity value of Rs. 220, The Bank performs the duty as an agent of the petitioner No. 1 with a promise to pay Rs. 220 after maturity of 66 months through the Reinvestment Deposit Plan Receipt Certificate to the subscriber. Through the contents of rules framed by the petitioner No. 1 and given as the annexure 1 to the writ petition it appears itself that the running scheme comes under the ambit of Section 2(e) of the Prize Chit and Money Circulation Schemes (Banning) Act 1978 which is a prohibited business. As stated above the firm gets Rs. 92.25 per member after depositing 127.75 in the Bank in the name of the subscribers out of Rs. 220, Thus it is not correct to say that the petitioner No. 1 does not get any commission from the Bank or from the subscribers. According to the above rules the petitioner No. 1 will collect an amount of Rs. 1844907/75 from the total 19999 subscribers as per scheme and will distribute prizes of an amount of Rupees 15,000/- per month up to 60 months total of which comes to Rs. 9 lacs. The remaining amount of Rs. 9.44.907.75 is the petitioner's commission. The interest earned on the amount of Rs. 18.44.907.75 will also be available to the petitioners. The lucky draws will be started after the completion of 19,999 subscribers. The definition of the prize chit is as under given under Section 2(e). 'Prize Chit includes any transaction...... agent or in any other capacity monies in one lump sum or in' instalments by way of contribution or subscription...... in respect of any savings.' mutual benefits thrifts......: and utilises the money so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes:--

(i) Giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash, or in kind. whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such schemes or arrangement.

(ii) Refunding to the subscribers or such of them as have not won any prize or gift the whole or part of the subscription contribution or other monies collected with or without any bonus premium interest or other advantage by whatsoever name called on the termination of the scheme or arrangement or on or after the expiry of the period stipulated therein. But does not include a conventional chit.

1. Under the scheme of the petitioners the promoter collects Rs. 220 in lump sum.

2. Rs. 127.75 is deposited by the promoter in the Bank in the name of subscriber for 66 months the maturity value of which is Rs. 220 which is received by the subscriber after the expiry of 66 months i.e, after the expiry of the schemn

3. A part of Rs. 92.25 is utilised by the promoter for the purpose of giving or awarding periodically the prizes to the specified number of the subscribers by lot or draw.

Thus from the definition of the Prize Chits as stated above and the scheme run by the detitioners, it is clear that the scheme comes in the ambit of Section 2(e) of the Prize Chits and Money Circulation Schemes (Banning) Act 1978.'

6. We have heard learned counsel for the parties.

7. The petitioners have contended that the business which they are carrying on under the name and style of M/s. Secured Investment Company does not fall within the scope of the Prize Chits and Money Circulation Schemes (Banning) Act 1978. It is further contended that their business cannot be said to be a 'Money Circulation Scheme' as defined in Section 2(c) nor can it be said to be a 'prize chit' within the meaning of Section 2(e) of the Act. Mr. Shanti Bhushan appearing on behalf of the petitioners also contended that even if the business of the petitioners may not be a business of conventional chit as defined in Section 2(a) of the Act which has not been banned. their business would still not be covered by the provisions of the Act as it was neither a 'Prize Chit' nor a 'Money Circulation Scheme'. Since the opposite party is contesting this petition on the ground that the business of the petitioners is covered by the definition of 'Prize Chit' as contained in Section 2(e) of the Act and they do not claim that it is a 'Money Circulation Scheme', it would not be necessary for us to consider the definition of 'Money Circulation Scheme' contained in Section 2(c) of the Act. With reference to the definition of 'Prize Chit' contained in Section 2(e) of the Act. Mr. Shanti Bhushan contended that if there were two or more meanings which could possibly be given to the defintion of 'Prize Chit.' the interpretation which favoured the petitioners should be adopted because the Act prohibits the carrying on of business and restricting the right, of a citizen guaranteed to him under the Constitution. It was also contended that since the carrying on of business which purports to have been banned by the Act is an offence under the Act and any person, who participate in it is also liable to be prosecuted, the provisions of the Act should be strictly construed. He contender that if the scheme under which the petitioners were carrying on their business was to be looked at from the depositors' point of view as has been done by the Supreme Court in Civil Appeal No. 1129 of 1981 : (reported in AIR 1982 SC 949), State of West Bengal v. Swapan Kumar Guha connected with Civil Appeal No. 1130 of 1681. State of West Bengal v. Sanchaita Investment it would be found that it was a business of collecting money from various persons and. at their instance, investing the same in a nationalized bank in Reinvestment Deposit Plan Receipt and that a person, who subscribed money for the purpose of getting a Reinvestment Deposit Plan Receipt, would not be liable to be prosecuted. It would therefore all the more show, contends Mr. Shanti Bhushan, that the business carried on by the petitioners was not a business which was sought to be banned by the Act and that it would not amount to an offence.

8. In order to appreciate the respective contentions, we proceed first to examine the provisions of the Act.

9. Section 2(c) of the Act defines the 'Prize Chit' as under:--

'(a) 'Prize Chit' includes any transaction or arrangement by whatever name called under which a person collects whether as a promoter, foreman, agent or in any other capacity, monies in one lump sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift. or any other scheme or arrangement by whatever name called, and utilises the monies so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes, namely:--

(i) giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement:

(ii) refunding to the subscribers or such of them as have not won any prize or gift the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage by whatever name called, on the termination of the scheme or arrangement or on or after the expiry of the period stipulated therein:

but does not include a conventional chit.'

Section 2(a) of this Act defines the 'conventional chit' as under:--

'Section 2(a) 'conventional chit' means a transaction whether called chit, chit fund kuri or by any other name by or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or certain quantity of grain instead) by way of periodical instalments for a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the chit agreement, be entitled to a prize amount.

Explanation : In this clause 'prize amount' shall mean the amount, by whatever name called, arrived at by deducting from out of the total amount paid or payable at each instalment by all the subscribers,

(i) the commission charged as service charges as a promoter or a foreman or an agent:

(ii) any sum which a subscriber agrees to forego, from out of the total subscriptions of each instalments, in consideration of the balance being paid to him.'

10. Section 3 of the Act which imposes a ban on 'Prize Chit and Money Circulation Schemes' lays down as under:--

'3. Banning of prize chits and money circulation schemes or enrolment as members or participation therein.--No person shall promote or conduct any prize chit or money circulation scheme, or enrol as a member to any such chit or scheme, or participate in it, otherwise, or receive or remit any money in pursuance of such chit Or scheme.'

11. Section 4 of the Act which prescribes penalty for contravening the provisions of Section 3 runs as under :

'4. Penalty for contravening the provisions of Section 3. -- Whoever contravenes the provisions of Section 3 shall be Punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both : Provided that in the absence of special and adequate reasons to the contrary to be mentioned in the judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than one thousand rupees.'

12. It has been contended on behalf of the petitioners that since the Statute in question is a penal Statute, the definition of 'Prize Chit' contained in Section 2(e) as also the provisions of Section 3 of the Act should be strictly construed.

13. The Supreme Court in the case of Tota Ram v. State of Bombay reported in AIR 1954 SC 496 at p. 499 has recorded its approval to the judgment delivered by Lord Macmillon in the case of L. & N. E. Rly. Co. v. Beniman reported in (1946) 1 All ER 255. The passage from the iudgment of Lord Macmillon is quoted below:--

'Where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however, beneficent its intention, beyond the fair and ordinary meaning of its language.'

14. The Supreme Court further in the case of State of Madhya Pradesh v. Azad Bharat Finance Co. (AIR 1967 SC 2761 has held that the penal Statute should if possible be construed in such a manner that a person who has not committed or abetted any offence should not be visited with any penalty. The rule of interpretation, therefore, is that where a Statute prescribes penalty for the infringement of any of its provisions, it would not be legitimate to stretch the language of the Act, however, beneficent its intention might be beyond the fair and ordinary meaning of the language. Learned counsel for the petitioners referred to us to the case of Nawabkhan Abbas Khan v. State of Gujarat (AIR 1974 SC 1471). The relevant portion of the judgment of the Supreme Court in para 6 at page 1475 is quoted below:--

'The constitutional perspective must be clear in unlocking the mystique of 'void' and 'voidable' vis-a-vis orders under the Act. The Act is a constraint on a fundamental right and so the scheme of Article 19 must be vividly before our minds if extraordinary controls over human rights statutorily vested in administrative tribunals are to be held in constitutional leash. Freedom of movement, of association, of profession and property, are founding commitments and severe restraints thereon must be strictly construed.........'

15. This decision of the Supreme Court also does not lay down any new law on the question of interpretation of Statute and reiterates the earlier Views. Learned counsel for the petitioners has also referred to us the case of W. H. King v. Republic of India, reported in 1952 SCR 418 (424) : (AIR 1952 SC 156 at p. 158) and has contended that the penal Statute has to be construed strictly. We may also point out that the definition of 'money circulation scheme' contained in Section 2(c) of the Act was considered by the Supreme Court in Civil Appeal No. 1129 of 1981 connected with Civil Appeal No. 1130 of 1981 : (reported in AIR 1982 SC 9491 (supra). The Hon'ble the Chief Justice while delivering his separate judgment, observed in this regard as under (at P. 956):--

'When it is said that penal statutesmust be construed strictly. what ismeant is that the court must see thatthe thing charged is an offence withinthe plain meaning of the words usedand it must not strain the words : 'Toput it in other words, the rule of strictconstruction requires that the languageof a statute should be so construed thatno case shall be held to fall within itwhich does not come within the reasonable interpretation of the Statute', andthat in case of doubt, the constructionfavourable to the subject should be preferred. But I do not think that this ruleof strict interpretation of penal statutesin any way affects the fundamental principle of interpretation, that the primarytest which can safely be applied is thelanguage used in the Act and, therefore, when the words are clear andplain, the court must acceptthe expressed intention of thelegislature. It is unnecessaryto pursue this matter anyfurther in view of the fact that the language of Section 2(c) is in my opinion, clearand admits of no doubt or difficulty'.

16. In view of the aforesaid decision of the Supreme Court even if we apply the primary test of the language used in the Act, we would find that the words used in Section 2(e) while defining 'prize chit' are clear and admits of no doubt or difficulty. The intention of the legislature has been clearly expressed in the definition.

17. A perusal of the definition of 'Prize Chit' quoted above would indicate that it is an inclusive definition. The requirements of the definition may be indicated below:--

(i) there should be a transaction or arrangement;

(ii) under which a person this capacity is not material! collects money;

(iii) in one lump sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever name called:

(iv) and utilises the monies so collected or any part thereof or the income accruing from investment or other use of such monies:

(v) for all or any of the following purposes, namely:--

(a) Riving or awarding periodically otherwise to a specified number of subscribers as determined by lot. draw or in any other manner, prizes or gifts in cash or in kind:

(b) refunding to the subscribers or such of them as have not won any prize or gift, the whole or Part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage by whatever name called, on the termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein.

18. The words 'transaction' and 'arrangement' have not been defined in the Act. The word 'transaction', as ordinarily understood means the management or settlement of an affair. Generally, a transaction consists of an agreement. In Webster's Third New International Dictionary, the word 'transaction' has been defined, inter alia, 'as a business deal'. The word 'transact' in the same dictionary has been defined to mean 'to prosecute negotiations: carry on business: to trade in or with.'

19. Webster's Third New International Dictionary defines the word 'arrangement' as a mutual agreement or understanding. It also means 'to come to an agreement or settlement'. In Stroud's Judicial Dictionary. IVth Edition, Vol. I, page 182, the word 'arrangement' has been said to be identical with agreement in writing (vide Cave v. Hastings, (1881) 7 QBD 125).

20. Thus the first requirement in the (inclusive and not conclusive) definition of 'prize chit' is the existence of a transaction or arrangement which in view of the above, would mean that there has to be some sort of a business deal or agreement The money is to be collected by a person (whatever be his capacity whether as a promoter or foreman etc.) under the said agreement.

21. The other requirement of the definition is that the collection of money has to be by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever name called. The third requirement is that the money so collected or any part thereof or the income accruing from investment is utilised for the purposes mentioned in Clauses (i) and fill of Section 2(e) of the Act.

22. We now proceed to consider the facts of the present case and the question whether the scheme sponsored by the petitioners is a 'prize chit' within the meaning of the Act or not. In doing so we shall consider the meaning of other requirements of the definition at the appropriate staffs. Annexure 1 to the writ petition is a form which has necessarily to be filled by the person joining the scheme. The fact that it is a scheme is not disputed by the petitioners themselves. In para 3 of the writ petition, the petitioners stated as under:--

'3. That the petitioner's firm started a scheme for investment in which a persons who were interested were required to pay a sum of Rs. 220 only once. Then a sum was deposited in a Nationalised or scheduled Bank in the Reinvestment Deposit Plan Certificate and person concerned was given the Fixed Deposit Receipt which had the maturity value of Rs. 220. The receipt is given directly by the Bank in the name of the depositor. The petitioner's firm acts only as a motivator for making deposits in the nationalised or scheduled banks. The petitioner's firm acts like an agent for the bank and also helps such depositors in making the deposits and obtaining the receipt from the bank. The petitioner does not get any commission either from the bank or from the depositor : but under the scheme he gets a small interest which the depositor would earn in 66 months. Out of this profit the petitioner provides for the items of utility and household effects which a person can get in accordance with the draw in which he would be able to participate for a period of 66 months. A true COPV of the scheme is annex-are 1.'

It is further stated in paragraph 4 of the writ petition as under;--

'......... Thus, it is clear that the depositor foregoes the interest with a view to get any of the items mentioned a Clause 8 of the agreement in accordance with the draw.........'

In para 20 of the writ petition, it is stated as under:--

'......... The scheme would show that the subscribers give up the small interest that their deposit might have earned in order to get any of the prizes which are mentioned to Clause 8 of the Scheme and are valued at Rs. 15.000 per month .............'

The petitioners further in paragraph 21 of the writ petition stated as under:--

'......... If they voluntarily forego the interest it is neither illegal nor even immoral, because the subscribers know that they would be putting themselves to a greater advantage in joining the scheme.........'

23. The portions of the writ petition which have been Quoted above would indicate that the case of the petitioners is that the document (annexure 1) is not only the scheme but is also an agreement and that a member voluntarily gives up the interest under the scheme a view to get any of the items mentioned in Clause 8 of the agreement in accordance with the draw.

24. The terms of the agreement contained in annexure 1 have been quoted in their entirety in the earlier part of the judgment. The agreement speaks of 'prize', 'scheme' and 'lucky draws'. It would be significant to note that at the end of the terms of the agreement contained in annexure 1, there is a clause which reads as under:--

'Before signing on the agreement I have read/understood the Rules and Regulations of the Scheme.

Signature of Member.........

Name & Address...............

Date.................................'

25. The petitioners, therefore, do not dispute that there is an agreement between the petitioners and the members. Every member deposits with the petitioners Rs. 220 in a lump sum. After the member deposits Rs. 220 he Rets a 'Reinvestment Deposit Plan Receipt.' According to the agreement, the duration of the Reinvestment Deposit Plan Receipt is 66 months because, as is stated in the agreement the duration of the scheme is 66 months. It is further stated in the agreement that lucky draws for the articles specified in Clause 8 of the agreement will be held every month for 60 months. The agreement further says that every month. 21 lucky prizes would be given and that the winning member will be entitled to participate in subsequent draws. Thus a member can win prizes over and over again.

26. It has been urged by the learned counsel for the petitioners that the definition of 'prize chit' contained in Section 2(e) of the Act requires that the money should have been collected by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit. or any other scheme or arrangement by whatever name called. His further contention is that it is the money so collected which, according to the further requirements of the aforesaid definition, should be utilised in awarding prizes or gifts. It has been submitted before us that the document annexure 1 to the writ petition as also the pleadings set out by the petitioners in the writ petition do not say that the money was either paid by the 'member' or collected by the petitioners by way of contributions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever name called. It has also been submitted that the prizes specified in Clause 8 of the agreement (annexure 1) are not given out of the money so collected. The contention is that since these two essential ingredients are missing the scheme sponsored by the petitioners cannot be said to fall within the ambit of 'prize chit' as defined in Section 2(e) of the Act. In this connection we have been referred to the facts set out by the petitioners in various paragraphs of the writ petition and the rejoinder affidavit. The petitioners referred to us paragraph 2 of the writ petition which we have already quoted above and then to paragraph 4 of the writ petition in which it is stated 'that it would appear from a perusal of annexure 1 that the Person participating in the Scheme is fully secured for his money because he gets a Fixed Deposit Receipt from a nationalised or scheduled bank with the maturity value of Rs. 220. The depositor voluntarily foregoes to accept any interest on the amount for a term of 66 months. The depostor gets the Reinvestment Deposit Plan Receipt of the bank which he can encash from the bank directly whenever he desires. In short, the depositor is not likely to lose the amount deposited and he voluntarily agrees to forego interest ......... The petitioner is only able to earn the interest that this small amount would have yielded in lieu of his commission or for services rendered. In addition to it the petitioner provides for articles ranging from a Scooter or Refrigerator to other household effects to be made available, to the depositors up to a total sum of Rs. 15.000 every month. Thus it is clear that the depositor foregoes the interest with a view to get any of the items mentioned in Clause 8 of the agreement in accordance with the draw.'

27. The petitioners further contend (vide paragraph 17 of the writ petition) that 'it would at once appear from the definition of the 'prize chit' that where a promoter or foreman or agent collects monies by way of contribution or subscription or by selling units or other instruments only then the scheme may come within the purview of the Prize Chit............

28. The scheme of the petitioners show that there is no membership fee or admission fee or any other arrangement of a similar type. The simple function which the petitioners perform is of taking money from the subscriber and deposit it in the bank with a view to obtain a Reinvestment Deposit Plan Receipt from the bank to be delivered to the petitioner.'

29. Since we are not required to consider the Question whether the scheme sponsored by the petitioner is a 'money circulation scheme' within the meaning of the Act or not we were not referred to the pleadings contained in that respect in other paras of the writ petition or the rejoinder affidavit.

30. We have already pointed out in the earlier part of the judgment that the opposite party is contesting the claim of the petitioners on the ground, inter alia, that the scheme sponsored by the petitioners falls squarely within the definition of 'Prize chit' as defined in Section 2(e) of the Act. We have already reproduced the whole of para 5 of the counter-affidavit in the earlier Part of the judgment. The opposite party contends in paragraph 5 of the counter-affidavit that the petitioners collect the money as the promoter of the scheme from the subscribers at the rate of Rs. 220 in lump sum per member and deposits only Rs. 127.75 in the Nationalised Bank in the name of subscriber for 66 months. Its maturity value is Rs. 220 which sum the subscriber would receive after the expiry of the scheme. The petitioners thus tret Rs. 92.25 per depositor. The opposite party contended that a part of the aforesaid amount i.e. a sum of Rs. 92.25 is utilised by the petitioners for the purposes of giving or awarding periodical prizes to the specified number of subscribers determined by lot or draw.

31. The petitioners contend that there is no membership fees or admission fees or any other arrangement. Even if it is accepted that there is membership fees and the amount of Rs. 229 is not collected from the person concerned as membership fees the question remains whether, notwithstanding that the agreement describes that person as a member, the amount so collected from the member 'does or does: not' retain the character, at least of his 'contribution' or 'subscription'. (We were not required by the opposite party to consider other phrases).

32. It has been urged strenuously on behalf of the petitioners that since the clear professed purpose of depositing the sum of Rs. 220 has been mentioned as procuring of a Reinvestment Deposit Plan Receipt it should not be held to have been deposited for any other purposes and that in view of the terms and conditions of the scheme contained in the agreement (annexure IV the deposit of Rs. 220 by a member would not be treated to be his 'contribution' or subscription.'

33. We have given our anxious consideration to this aspect of the matter.

34. The words 'contribution or 'subscription' have not been defined separately in the Act. Webster's Third New International Dictionary defines the word 'contribute' to mean 'to give or grant in common with others (as to a common fund or for a common purpose), to give money or other aid for a specified object; to give a Part to a common fund or store; Lead assistance or aid ten a common purpose'. The would 'contribution' has been defined in the same dictionary to mean 'the portion or share that am individual contributes to the common store: a share contributed to any act or effect: the whole that is formed by the gifts of individuals'. The word 'subscribe' has been defined in Webster's Third New International Dictionary to mean 'contribute. Hive something in pursuance of a promise 30 made,' The word 'subscription' has been defined in the same dictionary to mean, inter alia, 'a sum subscribed.'

35. The scheme of the agreement set out in annexure 1 has to be read as a whole. In order to find oat the true character of the deposit, we will have to look into the other terms and conditions of the agreement. The scheme says that 19,999 members per group would be recruited. Clause 2 of the agreement, as stated earlier, requires that every member will deposit Rs. 220 in lump sum. Clause 6 of the agreement says that lucky draws for articles totalling Rs. 15,000 per month will fee held every month for 60 Months, and every month 21 lucky prizes which have been specified in para 9 of the agreement would be given. It is further provided in Clause 8 that if there is any price increase during the period of the scheme on the value of the prize articles, winning member shall nay for the actual price increase. A winning member as provided in Clause 9, will be entitled to participate in subsequent draws. Thus, the scheme envisages that a person will deposit Rs. 220 with the petitioners; This deposit would be made by him in his capacity as member. Lucky draws for articles specified in CLAUSE 8 would be held every month for 60 months. Members, it is manifastly clear, alone would participate in the lucky draws and the winning member would be given prizes.

36. It is thus clear from a reading of the documents (annexure 11 that the so-called 'member' deposits the amount with the petitioners for the purpose of obtaining a Reinvestment Deposit Plan Receipt, which is promised to him by the petitioners. He may have been having an idea in the background that by depositing the amount of Rs. 220 with the petitioners and obtaining the Reinvestment Deposit Plan Receipt he would also be considered for the distribution of 'Lucky prizes'. But that is not enough inasmuch as the amount Which, he had deposited with the petitioners was to be invested in a nationalised bank and he was to get a Reinvestment Deposit Plan Receipt. If the person from whom the money has been collected has not deposited it with the petitioners as 'contributions' or 'subscriptions', it is difficult to hold that it is collected by the petitioners as his 'contribution or subscription'.

37. The facts of the case reveal that the petitioners collect a sum of Rs. 230 from every member. They split-up this amount into two portions. Sum of Rs. 127.75 is deposited by them in a nationalised bank in the name of the subscriber for a period of 66 months and they obtain Reinvestment Deposit Plan Receipt for the maturity value of Rs. 220 payable directly to the subscriber. The remaining amount i.e. the amount of Rs. 92.25 is appropriated by them towards, if, we were permitted to use the phrase, 'common pool' for the purpose of holding lucky draws in order to award the items specified in Clause 8 of agreement fannexure 1) as 'prizes'. It is, therefore, difficult to hold in these circumstances that the amount of Rupees 92.25 which is utilised by the petitioners towards lucky draws, was collected by them as 'contribution' or 'subscription' etc. particularly when the member depositing the amount of Rupees 220 had never intended that the amount shall be split-up and a part of it would be utilised as his contribution or subscription. Reading the definition of 'prize chit'. as contained in Section 2(e) of the Act once again, we find that the existence of 'transaction' or 'arrangement' postulates mutuality of ideas. Not only that the 'member' who deposits the amount under 1 he 'transaction' or 'arrangement' as his contribution or subscription, etc.. it should have been collected by the petitioners as his contribution or subscription etc. with the further intention that the amount so collected would be utilised for giving or awarding prizes or gifts. Even if it were held that the definition of 'prize chit' contemplates only one way traffic inasmuch as it is a promoter who should sponsor a 'transaction' or 'arrangement' or 'scheme', it is he who should collect the money, it is he who should utilise the money so collected or any part thereof or the income accruing from the investment for the purposes of giving or awarding prizes or gifts, we cannot ignore that the money should nevertheless, have been collected as 'contribution' or 'subscription' or membership fees etc. Since these essential ingredients of the definition of the 'prize chit' are missing from the scheme under consideration, it is not possible to hold that the scheme falls squarely within the meaning of 'prize chit'.

38. The definition of 'prize chit' came to be considered by the Calcutta High Court in the case of Sanchaita Investments v. State of W. B. (AIR 1981 Cal 157) and after considering the respective contentions of the parties, it was observed in paragraph 68 of the report on page 170 as under:--

'68. In my view, the contention of Mr. Deb and Mr. Sen should be accepted. In my opinion (ii) of Section 2(e) of the Act contains the residuary provision and contemplates payment to those who are not lucky enough to Ret the 'prize' or 'gifts' which are contemplated in (i) of Section 2(e) of the Act. Further, in my view, the receipt of the prize or gifts mentioned in (i) are entirely dependent on a chance event viz., the lot or draw or some similar contrivance.'

39. The Calcutta High Court thereafter referred to the decision of the Supreme Court, in the case of Srinivasa Enterprises v. Union of India (AIR 1981 SC 504) and after reproducing the certain passage foam the judgment of the Supreme Court, the Calcutta High Court held that:--

'These two paragraphs were repeatedly referred to both by Mr. Deb and Mr. Sen in aid of their submissions that the scheme of the ban under the Act was entirely in respect of lottery gambling and an element of chance. This it was submitted, is very clear from the two paragraphs of the judgment of the Supreme Court extracted above.'

40. A perusal of the judgment of the Calcutta High Court would show that the principal argument raised before it was that the scheme of that case was a 'money circulation scheme'. It was in alternative argued that if the scheme was not a money circulation scheme, it would be at least 'prize chit'. The Calcutta High Court appears to have based its finding on Clauses (i) and (ii) or he definition of 'prize chit' as contained in Section 2(e) of the Act. The Calcutta High Court does not appear to have scrutinised in detail the earlier part of the definition. It may be pertinent to note that there was an appeal filed by the State of West Bengal in the Supreme Court against the aforesaid judgment of the Calcutta High Court. It was not argued before the Supreme Court on behalf of the State of West Bengal that the scheme in question was a prize chit and the arguments were confined to the definition of 'money circulation scheme.'

41. We are fully alive to the situation that the Act is a legislative measure to advance social reform and that he object of the Act was to ban completely the receipt of the prizes or gifts which were entirely dependant on a chance event, namely, the lot or draw of some similar contrivance. We are also fully conscious of the fact that under the scheme, the givind or awarding of prize depends entirely on a chance event inasmuch as the specified number of subscribers to whom the prize is to be given is determined, as the petitioners themselves say, by 'lucky draws'. We are also conscious that the definition of 'prize chit' contained in the Act is an inclusive definition and that it is settled rule of statutory interpretation that where the legislature defines a word or phrase to include the things or acts, in such cases the word 'includes' is a phrase of extension and not a restrictive definition. The fact however, remains that we cannot possibly expand the definition of 'prize chit' beyond permissible proposition. As stated earlier, since the scheme under consideration taken as a whole, does not fall within the ambit of Section 2(e) of the Act inasmuch as some of the essential requirements contained in the definition are missing from the present scheme, we are constrained to hold that the ban imposed by the Act would not be applicable to the present, scheme sponsored by the petitioner.

42. For the reasons stated above, the writ petition is allowed with costs. The impugned orders Nos. 13148-49 dt. 3rd Feb., 1982 contained in annexure 3 and 13188 (1) dated 3rd Feb.. 1982 contained in annexure 6, passed by the opposite party are quashed. The opposite party is commanded by means of a writ of mandamus to return to the petitioners all the documents which were seized by him and which are mentioned in annexure 4. The opposite party is further directed not to interfere with the business of the petitioners which they are carrying on under the scheme contained in annexure 1.


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