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Sudarshan Finance Corporation and ors. Vs. the State of Madh. Pradesh - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Petn. No. 8 of 1976
Judge
Reported inAIR1977MP74; 1977MPLJ74
ActsConstitution of India - Articles 31, 245, 301 and 304; Madhya Pradesh Dhan Parichalan Skeem (Pratishedh) Adhiniyam, 1975
AppellantSudarshan Finance Corporation and ors.
RespondentThe State of Madh. Pradesh
Appellant AdvocateShiv Pujan Singh and ;K.L. Issrani, Advs.
Respondent AdvocateM.C. Nihalani, Adv. General and ;M.V. Tamaskar, Govt. Adv.
DispositionPetition dismissed
Cases ReferredRaipur v. State of M. P.
Excerpt:
- - ' in case an offence is committed by a company, section 6 provides that the company as well as every person in charge of, and responsible to the company for the conduct of its business at the time of the commission of the offence, shall be deemed to be guilty. attorney general of quebec province, air 1947 pc 44. that case is clearly not in point. 19. this is clearly a far-fetched argument in the impugned act, we do not find any provision enacted regarding promissory notes. in pith and substance, therefore, entry 7 of list iii clearly applies. the said study group has also recommended for a central act by parliament to ensure uniformity in the provisions applicable to chit fund institutions throughout the country. therefore, a competition success wherein does not depend to a.....shiv dayal, c.j.1. this writ petition and the other writ petition (misc. petition no. 35 of 1976) under article 226 o the constitution challenge the validity of the m. p. dhan parichalan skeem (pratishedh) adhiniyam, 1975 (act no. 19 of 1975) (hereinafter referred to as the act), on the ground of want of legislative competence in the state legislature, as also for vagueness and arbitrariness and as a colourable piece of legislation and fraud on the constitution, and further as violative of the fundamental right under article 31 of the constitution. during the course of the final hearing of these petitions, leave was sought to amend them. it was granted as the learned advocate-general had no objection. by the amendment, the act is further challenged as in contravention of articles 301 to.....
Judgment:

Shiv Dayal, C.J.

1. This writ petition and the other writ petition (Misc. Petition No. 35 of 1976) under Article 226 o the Constitution challenge the validity of the M. P. Dhan Parichalan Skeem (Pratishedh) Adhiniyam, 1975 (Act No. 19 of 1975) (hereinafter referred to as the Act), on the ground of want of legislative competence in the State Legislature, as also for vagueness and arbitrariness and as a colourable piece of legislation and fraud on the Constitution, and further as violative of the fundamental right under Article 31 of the Constitution. During the course of the final hearing of these petitions, leave was sought to amend them. It was granted as the learned Advocate-General had no objection. By the amendment, the Act is further challenged as in contravention of Articles 301 to 304 of the Constitution.

2. Section 3 of the Act reads thus:--'No person shall promote or conduct any money circulation scheme or enrol as a member in any such scheme, or participate in it otherwise, or remit or receive any money in pursuance of such scheme.'

3. Section 4 makes contravention of the provisions of Section 3, punishable with imprisonment for a term which may extend to six months or fine which may extend to Rs. 1000/-, or with both. Section 5 lays down penalty for other offences in connection with money circulation schemes:--

'5. Penalty for other offences in connection with money circulation schemes. --Whoever with a view to the promotion or conduct of any money circulation scheme in contravention of the provisions of this Act or in connection with any such money circulation scheme promoted or conducted--

(a) Prints or publishes any ticket, coupon or other documents for use in the money circulation scheme; or

(b) Sells or distributes or offers or advertises for sale or distribution, or has in his possession, for the purpose of sale or distribution any ticket, coupon, or other document for use in the money circulation scheme; or

(c) prints, publishes or distributes, or has in his possession for the purpose of publication or distribution,--

(i) any advertisement of the money circulation scheme; or

(ii) any list, whether complete or not, of members in the money circulation scheme; or

(iii) any such matter descriptive of, or otherwise relating to the money circulation scheme as is calculated to act as an inducement to persons to participate in that money circulation scheme or any other money circulation scheme; or

(d) brings, or invites any person to send, for the purpose of sale or distribution, any ticket, coupon or other document for use in, or any advertisement of, the money circulation scheme; or

(e) uses any premises, or causes or knowingly permits any premises to be used, for purposes connected with the promotion or conduct of the money circulation scheme; or

(f) causes or procures or attempts to procure any person to do any of the abovementioned acts;

shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both.'

In case an offence is committed by a company, Section 6 provides that the company as well as every person in charge of, and responsible to the company for the conduct of its business at the time of the commission of the offence, shall be deemed to be guilty. Section 7 empowers Police Officers to enter the suspected premises for the purpose of search and to seize things. Section 8, which was specifically attacked at the hearing, enacts:--

'Where any newspaper or other publication contains any money circulation scheme promoted or conducted in contravention of the provisions of this Act or any advertisement in relation thereto, the State Government may, by notification declare every copy of the newspaper and every copy of the publication containing, the money circulation scheme or the advertisement to be forfeited to the State Government'

4. Section 9 restricts the power to try offences to Courts not inferior to that of Judicial Magistrate of the First Class. Section 10 makes the offences punishable under the Act as cognizable. Section 11 exempts a money circulation scheme promoted by the State Government. Section 12 contains a transitory provision. It enables a person conducting a money circulation scheme on the date of the commencement of the Act to continue to conduct such scheme for such period as will be necessary for the winding up of the business relating to that scheme, but not beyond the period of 6 months from the date of commencement of the Act. This was amended by the M. P. Dhan Parichalan Skeem (Pratishedh) Sanshodhan Adhiniyam, 1975, the effect of which is that a person conducting a money circulation scheme on the date of the commencement of the Act, that is, August, 1, 1975, may continue to conduct the scheme for such period as may be necessary for the winding up of the business relating to the scheme, provided he furnishes particulars of the scheme and does not start new business by enrolling new members. Thus, the promoter of a money circulation scheme cannot, as from August 1, 1975, take up a new scheme or enroll new members in the old schemes. He can continue to conduct all his old schemes taken up before the commencement of the Act, even after the enforcement of the Act, for a period not exceeding six months or such further period as may be allowed by the State Government. The petitioners have already been granted permission under Section 12 to continue to conduct all their schemes which had been launched prior to the commencement of the Act, upto the full period for which each scheme was normally scheduled to run (vide State Government order dated February 3, 1976). Thus, time ranging from February 1976 to November 1979 has been granted to the petitioners to continue to conduct their various schemes.

5. A 'money circulation scheme' within the meaning of the Act is:--

'any scheme, by whatever name called or known, for the making of quick or easy money, or for the receipt of any money or valuable thing as consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money is derived from the entrance money of the members subscription and includes a chit.'

[Section 2 (c)]

A 'chit' has been defined in the Act thus:--

' 'Chit' means a transaction whether called chit fund, chit, Kuri, or by any other name, by which its promoter, conductor or any other person responsible for the conduct of chit enters into an agreement with a number of subscribers that every one of them shall subscribe a certain sum by instalments for a definite period and that each subscriber in his turn as determined by lot in the agreement, shall be entitled to a prize amount.'

[Section 2 (a)]

6. M/s. Sudarshan Finance Corporation, Madras, (petitioner No. 1 in this petition No, 8 of 1976) is a partnership firm, the partners being M. Subramanian (Petitioner No. 2) and C. Haridas (petitioner No. 3). The Petitioners' case is that they are carrying on and conducting chit fund business in various parts of India through their 16 branches in different States. In Madhya Pradesh, they have been carrying on their business from 1972, having branches at Jabalpur, Raipur, Indore, Gwalior and Bhilai. They claim that the petitioner firm is known for its integrity and honesty. It is alleged in the petition that the petitioners have been meeting the financial needs of all classes of people by chits in wide ranging values from almost a few rupees a month to hundreds of rupees, extending from a few months to several years. It has financial involvement and commitments in the State of Madhya Pradesh and the total turn over of the petitioner-firm was about Rs. 6,00,00,000/-. In Madhya Pradesh alone, it had a turnover of about 2.28 crores. During the last three years auction value of chits of various denominations was about Rs. 6,90,500/- per month. Payments have been made by the petitioner firm in the Madhya Pradesh State to the tune of about Rs. 41,22,915/-, which is due to be repaid and received by the petitioner firm at different stages of the termination of the chit schemes, extending to 40 or 50 months' duration.

7. In the other writ petition (Misc. Petition No. 35 of 1976), Garuda Chit Trading Co. Pvt. Ltd. is a Private Limited Company. We were told at the hearing that it has two share-holders. Both the petitions were heard together and learned counsel for each adopted the arguments of the other.

8. The conduct of a chit business may be broadly stated thus: The person who organizes the chit business is called 'Stakeholder' or 'foreman'. A certain number of individuals join together and subscribe in daily, weekly or monthly instalments for a fixed period of days, weeks or months. On a date fixed by the foreman, auction is conducted in respect of the total of the subscriptions of any one instalment, less certain discounts. The subscribers bid at the auction and the lowest bidder gets the amount. The difference between the collection and the bid is distributable among the other subscribers. The prize winner (that is, the bidder) draws money on furnishing security for the payment of the further instalments for the duration of that chit. The foreman takes upon himself the responsibility of conducting the chit and financing the chit transaction. He gets a commission of 5 per cent of the total chit amount.

9. The petitioners' contention is that the impugned Act is beyond the legislative competence of the State Legislature because the chit or Kuri business is a part of 'Banking within the, meaning of Entry 45, List I of the Seventh Schedule. Moreover, it is under the regulatory or prohibitory power of the Reserve Bank of India, so that the subject-matter falls under Entry 38 of the Union List 'Reserve Bank of India.'

10. The accepted legal concept of banking is carrying on business of receiving moneys and collecting profits for customers subject to the obligation of honouring cheques drawn upon them from time to time by the customers to the extent of the amounts available on their current accounts. This concept is followed in Section 5(b) of the Banking Regulation Act, 1949, where 'Banking' has been defined thus:--

' 'banking' means accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.'

11. In 3 Halsbury (4th Edition) page 31, para 38, it is stated thus:--

'A 'banker' is an individual, partnership or corporation, whose sole or predominating business is banking, that is the receipt of money on current or deposit account and the payment of cheques drawn by and the collection of cheques paid in by a customer.'

There also appears the following statement:--

'Numerous other functions are undertaken at the present day by banks, such as the payment of domiciled bills, the custody of valuables, discounting bills, executor and trustee business or acting in relation to stock exchange transactions, foreign exchange business, the issue of travellers cheques, credit card systems; and banks have functions under certain financial legislation, e. g. by delegation under the Exchange Control Act, 1947, Section 37(4), or as authorised dealers or authorised depositories under that Act and subordinate legislation. These functions are not strictly banking business.'

12. It will thus be seen that the essence of banking business is receiving money on current account for depositing it to be repayable on demand and withdrawable by cheque, draft or otherwise. An ordinary money lender is not a 'Bank'. He does not accept moneys on terms enabling a depositor to draw cheques upon him. The business of running chit funds cannot, therefore, be said to be banking, within the accepted meaning of the term. This was also the view taken in Chockanathan Chit Fund v. Union Territory of Pondicherry, AIR 1972 Mad 99.

13. Dr. Singhvi relied on Tennant v. The Union Bank of Canada 1894 AC 31. There, the question for consideration was whether the warehouse receipts, taken in security by a bank in the course of the business of banking are matters coming within the class of subjects described in Section 91, Sub-section (15) of the British North America Act 1867, as 'Banking, incorporation of Banks, and the Issue of Paper Money'. If they are, the provisions made by the Bank Act with respect to such receipts were intra vires. Upon that point, their Lordships did not entertain any doubt It was observed:--

'The legislative authority conferred by these words is not confined to the mere constitution of corporate bodies with the privilege of carrying on the business of bankers. It extends to the issue of paper currency, which necessarily means the creation of a species of personal property carrying with it rights and privileges which the law of the province does not and cannot, attach to it. It also comprehends 'banking' an expression which is wide enough to embrace every transaction coming within the legitimate business of a banker.'

For what has been said above, this case does not help the petitioners. Chit fund business cannot be said to be banking.

14. Learned Counsel further relied on Attorney-General of Canada v. Attorney General of Quebec Province, AIR 1947 PC 44. That case is clearly not in point. What their Lordships had to determine was whether the transaction of receiving from depositors bank deposits and repaying those deposits to the depositors came within the legitimate business of a banker. It was held that a Provincial Legislature enters upon the field of banking when it interferes with the right of depositors to receive payments of their deposits.

15. The next case relied on by the learned counsel, Attorney-General of Alberta v. Attorney-General of Canada, AIR 1948 PC 194, also does not help him. It was held that operations of the sort set out earlier in the judgment fell within the connotation of banking as that word is used in Section 91 of the British North America Act. Chit fund business does not fall within the purview of those operations.

16. Dr. Singhvi further relied on the following head-note in Commonwealth of Australia v. Bank of New South Wales, 1950 AC 235.

'The business of banking, which consists of the creation and transfer of credit, the making of loans, the purchase and disposal of investments and other kindred transactions, is included among those activities described as 'trade, commerce, and intercourse, in Section 92 of the Constitution, which provides that trade, commerce, and intercourse among the States..... shall be absolutely 'free' and in so far as it is carried on by means of inter-State transactions it is within the ambit of, and its freedom is protected by, that section. Accordingly, Section 46 of the Banking Act, 1947, which, while leaving untouched the Commonwealth and State banks, prohibited the carrying on in Australia of the business of banking by private banks, was invalid as contravening Section 92 of the Constitution.'

We do not see bow this case helps him.

17. We are unable to accept the petitioner's other contention that the subject of the impugned Act, falls within the purview of Entry 38 of the Union List 'Reserve Bank of India'. The Act does not contain any provision about the Reserve Bank of India. In the whole of the Act, Reserve Bank of India does not occur at any place. There is nothing in the Act to curtail the powers of the Reserve Bank, nor to confer any power on the Reserve Bank, nor to control any of the powers or functions of the Reserve Bank.

18. Entry 46 of the Union List was also relied on. The contention is that the enforceability of the impugned Act destroys the efficiency of the promissory notes which are executed in favour of the foreman (petitioner) by every recipient of the prize amount and the reciprocal obligation underlying them would be in jeopardy. The cbit fund scheme postulates payment of instalments to the petitioner by subscribers in 40 or to 50 months and the repayment of the prize amounts by the prized subscribers to the petitioner-firm in instalments extending from 40 to 50 months, on the basis of promissory notes, The Act renders these reciprocal obligations under the promissory notes inoperative, illegal and unenforceable, and in so doing it travels beyond the scope of the State Legislature's competence.

19. This is clearly a far-fetched argument In the impugned Act, we do not find any provision enacted regarding promissory notes. Entry 46, List I, is, therefore, inapplicable.

20. In Prafulla Kumar v. Bank of Commerce, Khulna AIR 1947 PC 60, legislative competence of the State legislature in regard to the Bengal Money-lenders Act was challenged. That Act limited the amount recoverable by a moneylender on his loan for principal and interest, and prohibited payments of sums larger than those prohibited by the Act The pith and substance was money-lending. Their Lordships observed:--

'To take a promissory note as security for a loan is the common practice of moneylenders and if a legislature cannot limit the liability of a borrower in respect of a promissory note given by him, it cannot in any real sense deal with money-lending. All the lender would have to do in order to oust its jurisdiction would be to continue his normal practice of taking the security of a promissory note and he would then be free from any restrictions imposed by the Provincial Legislature. In truth, however, the substance is money-lending and the promissory note is but the instrument, for securing the loan.'

It was held that the Act was not void as being ultra vires the Legislature.

21. Learned Advocate-General relied on Entry 30 of the State List and contended that by its nature, a money circulation scheme is within the purview of 'money lending'. He relied on a Full Bench decision of' the Kerala High Court in P. K. Achuthan v. State Bank Travancore, AIR 1975 Ker 47 (FB). There, it was observed:--

'From what has been said above, it is manifest that what actually transpires when a prized subscriber is allowed to draw the Kuri amount is the grant of a loan to him from the common fund in the hands of the foreman with the concessional facility of effecting the repayment in instalments subject to a stipulation that the said concession is liable to be withdrawn in the event of default being committed in payment of any of the instalments. Thus, it is really a debt in praesenti but permitted to be paid by instalments, the benefit of the said facility being available to the debtor only so long as the instalments are regularly paid.'

In the petition also, while referring to the nature of the transactions, it has been said:--

'Chit fund transactions have been highly popular in all parts of the country as indigenous system providing financing facilities in the shape of advances from the common fund repayable in easy instalments and serving also as a scheme for investment and savings and disbursing them to the needy in the form of credit.'

A money circulation scheme or a chit fund scheme, as was described to us by Dr, Singhvi and also Shri Swaminathan is that serveral people pool then contribution out of which a loan is advanced to the lowest bidder, who may be in need of money in prae-senti. He then repays the loan in the form of instalments. Therefore, on their own showing, Entry 30 of List II would apply.

22. But, even if there be any doubt about the application of Entry 30 of the State List, the pith and substance of the impugned Act cannot escape Entry 7 of the concurrent List.

23. It was contended for the petitioner that since chit fund schemes have not been directly and explicitly covered under any of the Entries in the three Lists in the 7th Schedule to the Constitution, the residuary Entry 97 of the Union List is attracted, so that the legislative power lies in the Union Legislature exclusively. Reliance is placed on Second G. T. Officer v. D. H. Hazareth, AIR 1970 SG 999. In our opinion, this contention is constructed on incorrect premises. Entry 7 of the Concurrent List is wide and comprehensive enough. It comes into play where there is no special Entry covering a particular contract. Chit fund scheme is a special form of contract. In pith and substance, therefore, Entry 7 of List III clearly applies. The view we take was taken in Mayavaram Financial Corporation Ltd. v. Reserve Bank of India, (1973) 2 Mad LJ 72= 41 Com Cas 890. In that case, 3 writ petitions were filed by 3 Chit Fund Companies for the issue of a writ of mandamus restraining the Reserve Bank of India from enforcing the provisions of the Non-Banking Financial Companies (Reserve Bank) Directions, 1966. After setting out the scheme of working of chits in para 2, it was observed:--

'A large number of instances came to light where foremen of Chits have either disappeared or evaded payments to non-prized subscribers, and, with a view to safeguard the interests of subscribers, the State of Madras enacted the Madras Chit Funds Act, 1961.'

In Section 2 (2) of that Act, 'chit' is defined as follows:--

' 'Chit' means a transaction whether called chit fund, chit, kuri, or by any other name, by which its foreman enters into an agreement with a number of subscribers that every one of them shall subscribe a certain sum or a certain quantity of grain by instalments for a definite period and that each subscriber 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 agreement, shall be entitled to a prize amount.'

This definition is in the same words as in the Madhya Pradesh Act. It was held that the chit fund scheme being a special contract fell within Entry 7 of List III of the 7th Schedule. See also Chockanathan Chit Fund v. Union Territory of Pondicherry, AIR 1972 Mad 99.

24. The assent of the President to the Madhya Pradesh Act was received on July 2, 1975, before the Act was brought into force.

25. It is then contended that the Act violates the right guaranteed under Article 301 of the Constitution. It is urged that chit fund business is carried on not only intra-State but also inter-State. The impugned Act infringes the right of free trade, commerce and business. Shri Swaminathan relied on State of Bombay v. R. M. D. Chamar-baugwalia, AIR 1956 Bom 1, and referred to paragraph 33 of Chagla C. J.'s judgment. Learned counsel argued that the impugned piece of legislation confused good with bad. He was at pains to distinguish between two categories, chit funds and money circulation schemes, He called the petitioners, Garuda Chit Fund (M. P. 35 of 1976) and also Sudarshan Financial Corporation (M. P. No. 8 of 1976) as 'conventional'. According to him and also Dr. Singhvi, the outstanding feature of a conventional chit fund is that the entire money of a particular instalment in respect of a particular chit is distributed among the subscribers forthwith, after deducting an insignificant fraction of 5 per cent, which goes to the foreman. It was also emphasised that the foreman takes upon himself the responsibility of conducting the chit and financing the chit transaction. For the small fraction of 5 per cent that he gets, he has to finance every auction even though some of the subscribers may be in default; he has to pay the full amount of the prize money, even if the claims fall short and to that extent he has to advance his own money; he has to face loss in case the security given by prize winner proves useless or the amount is irrecoverable; it is he who has to undertake the botheration of filing suits; he has to maintain a regular office, employees and account books, Both the learned counsel tried to demonstrate before us that a conventional chit fund scheme is a scheme of mutual benefit shared equally and equitably by the subscribers. They get a loan free of interest, when money is needed; for instance, for a daughter's marriage or children's education, It was argued that the impugned Act would deprive not only residents of Madhya Pradesh but also residents outside Madbya Pradesh, of the benefit of chit schemes promoted within Madhya Pradesh. The legislation is, therefore, unreasonable and unjust. In support of their contention, both the learned counsel relied on the Report of the Year 1972 of the Banking Commission, which was set up by the Government of India, particularly the following passage:--

'There are alternative scheme introduced by various Financial Corporations, which are superior to Chit Fund Schemes, e g. Recurring Deposit, Monthly Income Deposits Scheme, Insurance linked Deposit Scheme. Small Savings, Provident Fund, Insurance. Yet the Chit Fund is showing signs of becoming more and more popular. The popularity of Chit funds can be explained by the fact that the subscriber is entitled to borrow from it by offering discount at the auction. This is shown by the findings of the survey of 'Depositors' Appraisal of Banking Services conducted for the Commission by the National Council of Applied Economic Research. The depositors of Commercial Banks who joined Chit Funds, most of them replied that they did so in order to borrow for spe-cial needs. Many depositors of Commercial Banks probably join Chit funds because of a Chitty they can get the combined benefits of regular savings and borrowings for specific needs.

The Banking Commission has observed that it was essential to have a uniform Chit Fund Legislation applicable to the whole country to regulate Chit Funds (vide pages 428, 17 and 43 of the Report).

The said recommendations of the Banking Commission to formulate a model law to regulate the Chit Fund business to be adopted by all States have already been accepted by the Government of India and the Reserve Bank of India, according to the directions given by the Government of India, is taking steps to prepare a model Chit Fund law vide news item 'The Hindu' Daily dated 30-8-74. (A copy of the said news item is annexed hereto and is marked as Annexure 'C'. To achieve this end the Reserve Bank of India constituted a study group to make specific recommendations. The said study group has also recommended for a Central Act by Parliament to ensure uniformity in the provisions applicable to Chit Fund institutions throughout the country. The same recommendations have been accepted by the Reserve Bank of India and feeling that a considerable time is likely to be spent in formulating a model law to regulate the chit business for the whole country, the Reserve Bank of India has advised the State Governments, which do not have laws regulating Chit Funds, to examine the desirability of extending to their States the laws of other States which have such legislation, vide news item Indian Express Daily dated 14-11-1975. (A copy of the said news item is annexed hereto and is marked as Annexure 'D').

(Paragraph 5 in Petition No. 8 of 1976 and paragraph 5 in Petition No. 35 of 1976).

For the petitioners in both these petitions, serious exception has been taken to mixing up conventional chit fund schemes with other money circulation schemes. It was urged that the framers of this law did not have a clear idea of the business of a conventional chit fund in contradistinction to that of the others, and this was apparent from the definition of 'money circulation scheme' contained in the Act. Dr. Singhvi relied on Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and referred to paragraph 34, where Gajendragadkar J. (as he then was) said:--

'The provision contained in Article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a declaratory character; it is not also a mere statement of a directive principle of State policy; it embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country.'

In paragraph 39 of the same ruling, it was observed:--

'That is why it seems to us that Article 301 read in its proper context and subject to the limitations prescribed by the other relevant Articles in Part XIII, must be regarded as imposing a constitutional limitation on the legislative power of Parliament and the Legislatures of the States.'

Reliance was also placed on Automobile Transport Ltd. v. State of Rajasthan, AIR 1962 SC 1406. While analysing the expression 'shall be free' in Article 304 of the Constitution, Subba Rao J. (as he then was) posed 3 questions which occur to one's mind in regard to it: (i) What is free? (ii) free from what; and (iii) where is it free? He observed that it is implicit in the concept of freedom that there will be obstructions to it and Article 301 provides for freedom from the said barriers or impediments in effect operating as barriers. The expression 'shall be free' declares in a mandatory form of freedom of such transport or movement from such barriers.

'All obstructions or impediments, whatever shape they may take, to the tree flow or movement of trade, or non-commercial intercourse, offend Article 301 of the Constitution, except in so far as they are saved by the succeeding provisions.'

Referring to paragraph 35 of that decision, it was argued that regulating a business was permissible but not completely prohibiting it.

'The word 'freedom' is not capable of precise definition, but it can be stated what would infringe or detract from the said freedom. Before a particular law can be said to infringe the said freedom, it must be ascertained whether the impugned provision operates as a restriction impeding the free movement of trade or only as a regulation facilitating the same. Restrictions obstruct the freedom of movement, whereas regulations promote it.'

26. It was pointed out that in other States, the enactments have only 'regulated' chit fund business; for instance, Madras Chit Funds Act, 1961, Andhra Pradesh Chit Funds Act, 1971; Goa, Daman and Diu Chit Funds Act, 1973; Maharashtra Chit Funds Act, 1974; Kerala Chitties Act, 1975; and U. P. Chit Funds Act, 1975. It is at once remark-worthy that, on the one hand, the petitioners allege want of legislative competence in the State legislature, on the other hand, in the same breath, they rely on Madras, Kerala, Maharashtra and U. P. enactments which are all laws made by State legislatures; not one of them is enacted by the Parliament.

27. Section 3 of the impugned Act imposes a ban on money circulation scheme, which term is defined in Section 2 (c), as reproduced above. That expression includes a 'chit'. The word 'chit' is also defined in the Act (already reproduced). A chit transaction is prohibited by Section 3 of the Act. The promotion or conduct of a money circulation scheme is punishable under Section 4 of the Act. Certain acts incidental to the promotion or conduct of a money circulation scheme in contravention of the Act are made punishable under Section 5. Thus, the Act not only imposes restrictions on the business but completely prohibits it.

28. It is apparent that there is an element of gambling or chance, which is the outstanding feature of a chit scheme. On payment of every instalment by all the subscribers of a particular chit, there is an auction. The prize goes to the lowest bidder, i. e. one who offers the highest sacrifice, or the largest discount not exceeding 25 per cent of the chit value. The limit having thus been fixed, if the last bid is simultaneously offered by more than one subscriber, or if more than one subscriber have, at the end of the auction bid, offered to take a chit at the maximum of the discount allowed, the bid or offer shall be decided by the casting of lots among them and the winner in the lots shall be declared as a prized subscriber (per Rule 6 of the Garud Chit Rules and Regulations). This is the heart and soul of a chit which attracts subscribers. Divorced from that feature, a chit scheme has no attraction (temptation) and will be extinct. It is true that, as the rules prima facie prescribe, there has to be an auction, but the so-called auction may be merely in the name. It is an extraordinary peculiarity of the so-called auction that a limit is fixed and it can easily be seen that the greatest temptation of the scheme being payment of a lump sum for a fractional subscription, many subscribers would come forward to offer the maximum discount prescribed. This will invariably lead to a draw. If no subscriber is forthcoming for the auction, the foreman shall take lots amongst the eligible non-prized subscribers with the discount of 5 per cent of the chit value and the winner in the lots shall be declared as prized subscriber and the draw shall be confirmed in his/her name. The subscriber so successful will be intimated of the draw and will be obliged to take the chit value as per rules of the company. Essentially, therefore, this scheme is one of a prize competiuon, which does not involve skill in any substantial degree, and cannot, therefore, constitute 'trade, commerce or intercourse' within the meaning of Article 301 of the Constitution. In State of Bombay v. R. M. D. C , AIR 1957 SC 699, S. R. Das, C. J., speaking for the Court, held:--

'A competition in order to avoid the stigma of gambling must depend to a substantial degree upon the exercise of skill. Therefore, a competition success wherein does not depend to a substantial degree upon the exercise of skill is now recognised to be of a gambling nature.'

In that case, the Supreme Court considered the case of a prize competition, called the 'R. M. D. C. Crosswords' for which entries were received from various parts of India, including the State of Bombay through agents and depots established in those places to collect entry forms and for being forwarded to the head office at Bangalore. It was held that the prize competition being of a gambling nature could not be regarded as trade or commerce and as such no fundamental right could be claimed under Article 19(1)(g) in respect of such competitions, nor protection under Article 301 of the Constitution. Their Lordships were emphatic in their observations that gambling activities from their very nature and in essence are extra-commercium, although the external forms, formalities and instruments of trade may be employed, and, that they are not protected either by Article 19(1)(g) or Article 301.

29. Besides, Article 304(b) empowers the Legislature of a State to impose by law such reasonable restrictions on the freedom of trade, commerce or intercourse with or within the State, as may be required in the public interest. The requirements are three: (i) The restrictions must be reasonable; (ii) they must be required in the public interest; and (iii) they must have been im-posed with the previous sanction of the President. Therefore, the nature of the right, the purpose of restrictions, the extent of urgency of the evil sought to be remedied and the demands of the prevailing conditions, should all enter into the judicial verdict, while deciding reasonableness of restrictions. On a perusal of the rules, for instance, Rules 8, 9 and 10, we are satisfied that there is immense potentiality for exploitation and fraud. Suppose a chit scheme has 25 subscribers, each of whom has to pay 40 instalments for a chit of Rs. 1,000/-. It is not as if all the subscribers collect at one place, Some of the so-called subscribers may be fictitious, names being given by the foreman. He may give 10 such names. The amount received from the 15 genuine subscribers is collected by the foreman. One after another, these names given by him, can be paid the entire instalments or the prize. In this way, the moneys raised from those 15 remain with the foreman to be used or invested by him, as he pleases. The foreman can easily and comfortably delay payment. Under Rule 8, security has to be furnished in any one of the forms mentioned in it to cover the future instalments, to the satisfaction of the foreman. Then only the prized subscriber is entitled to draw the prize money. Clause (b) of that rule reads thus:--

'All expenses in connection with inspection of securities, legal chrages, stamp duty, Registration charges or any other charges or expenses shall be borne by the subscriber.'

Under Rule 9, the foreman is at liberty to call for further fresh security/surety or both from prized subscribers who have drawn the chit amount, when he finds that what is furnished is insufficient, inadequate or defective.

'If the Foreman considers that additional security is required, the subscriber shall furnish such additional security within 15 days of such requisition, failing which, the subscriber shall not be allowed any divided and he/she shall be called upon to pay all the balance amounts at once, as if he/she were a defaulter.'

The discretion of the foreman is unguided and uncontrolled, Rule 10 provides a penalty, if the prized subscriber does not furnish adequate security and draws the chit amount within the date fixed. The foreman has even the power to cancel the confirmation of the bid. And, in case of a reauction, the difference is to be borne by such subscriber, Rules 11 and 12 lay down penalty in case of default on due date. It is abundantly clear from these rules that the foreman has such discretion and liberty as to deprive the subscribers of their money, under one pretext or the other. Another remarkable feature is contained in Rule 13 that no subscriber is allowed to sell, mortgage, transfer, assign or alienate his/her chit. The subscriber has to apply for transfer of the chit for which he has to pay Rs. 4.25 as transfer fee. The Foreman has the absolute right to refuse to transfer. If a transfer is permitted, both the transferor and the transferee have to sign necessary forms in the presence of the Foreman. It can be seen what hurdles have been placed so as to render a transfer almost impractic-able.

30. It was very emphatically urged by both the learned counsel that the impugned Act would deprive a large number of people of the unique benefit which Chit Fund Schemes provide to them at the time of their need. Persons of low income group can hardly save much, but when one requires lump-sum for a girl's marriage or for children's education, a subscriber, on payment of one instalment, can get the entire money by one instalment contributed by all the subscribers. And, this big amount which he gets is repayable by instalments in several years and the loan is free of interest. Simple or illiterate subscribers fall prey to the temptation which such argument throws open. The argument is fallacious. The chance to get the entire money is one in 25, if there are 25 subscribers, or one in 40, if there are 40 subscribers. No one can say who will get the prize money of a particular instalment; it is merely a chance. Now, if a subscriber needs money for the daughter's marriage today, but his turn to get the prize money may not come for the next 10 instalments, where is the benefit? On the contrary, he has to pay instalments at a time when he needs money (for his daughter's marriage, etc.). Thus, it is a beneficent legislation to protect people from throwing their hard earned money into such temptations,

31. In the Banking Commission Report, it is stated as follows:--

'6.15. Chit funds are open to abuse by the foreman who may resort to unfair methods for securing illegal gains. Such unfair methods include enrolment of fictitious members to complete the required number of members in a chit series. Similarly, a needy non-prized member may be exploited so that he gets the prize only at the maximum discount. Delaying tactics may be adopted by the foreman in disbursing the prize amount to prized subscriber on the ground that the security offered by him is not acceptable or adequate. Meanwhile the foreman may use the prize money interest-free. If he succeeds in delaying payment till the succeeding draw, the earlier prize winner can be given the prize out of the collections of the succeeding draw. Thus, one instalment can always remain in the hands of the foreman to be utilised in any way he likes. The above malpractices are only of an illustrative nature and while framing the regulatory measures, such malpractices will have to be kept in view so as to minimise their occurrence.'

32. Although we were repeatedly told by the learned counsel for the petitioner that the Banking Commission had made a clear distinction between conventional chit funds and other chit funds (which may roughly be called as non-conventional) and that the Banking Commission did nor re-commend extinction of conventional chit funds, it was admitted before us that the above observations in paragraph 6.15 applied to conventional chit funds. It was, however, contended that there were no complaints against the petitioners. The question before us is not whether the particular petitioners abused chit claims What is to be seen if whether there is potentiality for exploitation and fraud.

33. The following statement of objects and reasons is appended to the impugned Act:--

'A large number of money circulation schemes and chit funds are being conducted by private persons and companies without adequate financial base and such persons and companies are indulging in malpractices to swindle and misuse the money they receive from the public. It is, therefore, proposed to prohibit such money circulation schemes and chit funds in the public interest.'

34. For the reasons we have already given, we have reached the conclusion that the impugned legislation is reasonable and in public interest.

35. It was emphasised by the petitioners that chit funds have been in vogue from ancient times. But, a vice is still so, even though it is ancient. Drinking liquor, for instance, is a well known vice. Although it has been in existence from immemorial past and perhaps, throughout the world. It is harmful and ruinous to body and mind, to man and society. 'There is a devil in every berry of the grape' (Qoran). Wine has drowned more than the sea.

'O thou invisible spirit of wine, if thou has no name to be known by, let us call three-Devil: Oh, that men should put an enemy to their mouths to steal away their brains that we should, with joy, revel, pleasure, and applause, transform ourselves into beasts (Shakespeare).

That is why one of the directive principle of State policy enshrined in qur Constitution, enjoins the State to bring about prohibition of the consumption, except for medicinal purposes, of intoxicating drinks (Article 47). True, that drinking still continues, although our Constitution was enacted 25 years ago, but no legislation can be forbidden for protecting its people from practices which it conceives to be attended by ruinous results. Gambling is one of such practices.

36. From ancient times seers and law givers of India looked upon gambling as a sinful and pernicious vice and deprecated its practice. Hymn of the Rigveda proclaims the demerit of gambling. Verses 7, 10 and 13 say:

'7. Dice verily are armed with goads and driving books, deceiving and tormenting causing grievous woe. They give frail gifts and then destroy the man who wins, thinly anointed with the player's fairest good.

10. The gamber's wife is left forlorn and wretched; the mother mourns, the son who wanders homeless. In constant fear, in debt, and seeking riches, he goes by night unto the home of others.

13. Play not with dice; no, cultivate thy cornland. Enjoy the gain, and deem that wealth sufficient. There are thy cattle, there are thy wife 0 gambler, so this good Savitar himself hath told me.'

The Mahabharata deprecates gambling by depicting the woeful conditions of the Pandavas who had gambled away their kingdom. Manu forbade gambling altogether. Verse 221 advises the king to exclude from his realm gambling and betting for those two vices cause the destruction of the kingdom of princes. Verse 224 enjoins upon the king the duty to corporally punish all those persons who either gamble or bet or provide an opportunity for it. Verse 225 calls upon the king to instantly banish all gamblers from his town. In verse 226 the gamblers are described as secret thieves who constantly harass the good subjects by their forbidden practices. Verse 227 calls gambling a vice causing great enmity and advises wise men not to practise it even for amusement. The concluding verse 228 provides that on every man who addicts himself to that vice either secretly or openly the king may inflict punishment according to his discretion. While Manu condemned gambling outright, Yajnavalkya sought to bring it under State control but he too in verse 202 (2) provided that persons gambling with false dice or other instruments should be branded and punished by the king. Kautilya also advocated State control of gambling and, as a practical person that he was, was not averse to the State earning some revenue therefrom. Vrihaspati dealing with gambling in Chap, xxvi, verse 199, recognises that gambling had been totally prohibited by Manu because it destroyed truth, honesty, and wealth, while ether lawgivers permitted it when conducted under the control of the State so as to allow the king a share of every stake. Such was the notion of Hindu law-givers regarding the vice of gambling. Hamilton in his Hedaya Vol. IV, Book XLIV, includes gambling as a Kiraheat or abomination. He says:--

'It is an abomination to play at chess, dice or any other game; for if anything is staked it is gambling, which is expressly prohibited in the Koran; or if on the other hand, nothing be hazarded it is useless and vain.'

37. In England, before the intervention by the Legislature, gambling and wagering were prohibited by the English Common Law, although the English Courts looked upon it with disfavour and discouraged it on grounds of public policy by denying procedural facilities which were granted to other litigants. The Scottish Courts refused to recognise the validity of wagering contracts and held that sponiones ludicroe, as they style such contracts, are void by the Common Law of Scotland. In America, it was held by the Supreme Court in Phalen v. Commonwealth of Virginia (1850) 49 US 163 = 12 Law Ed. 1030.

'Experience has shown that the common forms of gambling are comparatively innocuous when placed in contrast with widespread pestilence of lotteries. The former are confined to a few persons and places, but, the latter infests the whole community; it enters every dwelling; it reaches every class; it preys upon the hard earning of the poor; it plunders the ignorant and the simple.'

These observations were quoted with approval in Douglas v. Commonwealth Kentucky, (1897) 168 US 488 = 42 Law Ed. 553 at p. 555), where it was observed:--

'Is the State forbidden by the supreme law of the land from protecting its people at all times from practices which it conceives to be attended by such ruinous results? Can the Legislature of a State contract away its powers to establish such regulations as are reasonably necessary from time to time to protect the public morals against the evils of lotteries?'

From this, it is apparent that the activities which were condemned in our country from ancient rimes, have been equally discouraged and looked upon with disfavour in England, Scotland and America. We have respectfully borrowed the above passages from State of Bombay v. K. M. D. Chamarbaugwala (AIR 1957 SC 699) (supra) to say that although the evil of gambling is as old as hills, its universal acceptance as an evil is equally ancient. That an evil is ancient is no reason to perpetrate. As human civilization advances, primitive vices have to be eradicated and, generally speaking, that can effectively be done through the mighty hand of the legislature,

38. It is no argument that other States have not yet prohibited promotion or conduct of chit funds and the Madhya Pradesh State is the first and the only State to ban chit fund and other circulation schemes. After all, every good legislation has to have beginning and since the impugned piece of legislation is in public interest, and will protect thousands of men and women, particularly illiterate ones, it is commendable.

39. It was strenuously urged for the petitioners that the respondent-State was bound to make an equiry, but it did not; if it had, material would have been placed before us Learned counsel relied on Khyberbari Tea Co. v. State of Assam, AIR 1964 SC 925, where, dealing with the restrictions under Article 19(1)(g) of the Constitution, their Lordships laid down thus:--

'If the respondents do not place any materials before the Court to establish that the legislation comes within the premissible limits of Clause (6), it is surely not for the appellants to prove negatively that the legislation was not reasonable and was not conducive to the welfare of the community. It is true that on several occasions, this Court has generally observed that a presumption of constitutionality arises where a statute is impeached as being unconstitutional but as has been held in the case of Saghir Ahmed, 1955-1 SCR 707: (AIR 1954 SC 728) in regard to the fundamental right under Article 19(1)(g), as soon as the invasion of the right is proved, it is for the State to prove its case that the impugned legislation falls within Clause (6) of Article 19.'

It can be clearly seen that these observations must be confined to Article 19. The present petitioners have specifically stated that they are not seeking shelter under Article 19, as they cannot, its operation being suspended during the current emergency. These observations do not apply to any other Article, This their Lordships have made clear in the same paragraph 35:--

'The position may be different when we are dealing with Article 14, because under that Article the initial presumption of constitutionality may have a larger sway inasmuch as it may place the burden on the petitioner to show that the impugned law denied equality before the law, or equal protection of the laws. We may in this connection refer to the observations made by this Court in the case of Hamdard Dawakhana v. Union of India, 1960-2 SCR 671 at p. 679 = AIR 1960 SC 554 at p. 560. Another principle which has to be borne in mind in examining the constitutionality of a statute, it was observed, is that it must be assumed that the legislature understands and appreciates the needs of the people and the laws it enacts are directed to problems which are made manifest by experience and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. Presumption is, therefore, in favour of the constitutionality of an enactment.'

Reliance was also placed upon State of Mysore v. H. Sanjeeviah AIR 1967 SC 1189, in support of the contention that distinction must be drawn between a prohibitory and a regulatory enactment. Their Lordships said:--

'There is no evidence of an enquiry made by the State before the provisos were framed, and no case is made out that they are reasonable restrictions on the freedom of trade, commerce and intercourse imposed in the public interest. Article 301 in terms prohibits the imposition of any restriction on trade, commerce and intercourse throughout the territory of India, and by the enactment of the two provisos clearly a restriction is imposed upon the freedom of trade.'

40. Learned Advocate-General relied on the observations in G. K. Krishnan v. State of Tamil Nadu AIR 1975 SC 583. He further relied on the petitioner's (Garuda Chit Fund) letter dated March 20, 1974, addressed to the Hon'ble Minister for Finance, Government of Madhya Pradesh, Bhopal, in which it claimed to be 'one amongst the first 'Three Bests' in the country today and felt privileged 'to state this, for we have followed the morals and ethics of this business most conscientiously'. With that preface, the letter says:--

' 'Chit Fund' as you know has been dependable source of saving for the low and lower middle income groups and has been in vogue in the Southern States of Kerala and Tamil Nadu from time immemorial. The recent mushroom growth of Companies which in the name of 'Chit Fund' transact questionable means and make themselves qualify to be known as 'Cheat Funds' has however tranished the image of really serving institutions like the one we have the pleasure and pride to represent but the popular demand for honest business being still greater, we find it necessary to open more and more Branches to serve our constituents.

As already stated, there is a feeling in certain quarters that chit Funds are organisations where the people can be hoodwinked and cheated fairly easily, by any unscrupulous individuals who may get to run these funds. But the existence of 'Garuda' during the last three years the amount of business we have transacted through the growing number of Branches all over the country has proceeded to establish beyond doubt that Virtues' still continue to have 'regard'..... Presently, Madhya Pradesh has any number of Chit Fund Companies, most of which indulge in Prize Bonds and Lotteries doing business other than bona fide Chit Kuries and the speed with which they are racing to amass wealth make it alarming for genuine Companies like ours,'

Thus, it is undeniable that in the name of chit funds, people were being exploited and the petitioner itself styled them as 'Cheat Funds' although it calls itself and two other companies as genuine chit funds, and as the 'first three bests'. Name of the other two are not disclosed in the letter.

41. In the return filed by the respondent-State, reliance is placed on the report of the Study Group on the working of non-banking companies, conducted by the Reserve Bank of India, where it has been recommended that these schemes should be totally banned in the larger interest of the pub-He. It is further stated in the return:--

'It will not be out of place to mention that the State Government received several complaints as regards the running of chit funds and depriving the public or the subscribers of their legitimate prize of chits as and when due.'

Page 128 of the Report was referred to for the purpose of showing how the promoters make undue profit.

42. Recently, in A. B. Abdul Kadir v. State of Kerala, AIR 1976 SC 182 the Supreme Court has laid down that although the onus of showing that the restrictions on the freedom of trade, commerce or intercourse in the public interest are reasonable, is upon the State, if the Court, on consideration of the totality of facts finds that the restrictions are reasonable, the Court would uphold the same in spite of lack of details in the affidavit filed on behalf of the State. In the present case, on consideration of the totality of the facts narrated above, we undoubtedly find that the restrictions are reasonable.

43. The last contention for the petitioners is that the impugned Act suffers from the vice of vagueness. The definition of 'money circulation scheme' was assailed. On behalf of both the petitioners, it was urged that the tail-end was pernicious and mischievous. A money circulation scheme may be bad, but inclusion of a chit fund scheme in the definition was unwarranted and unjustified in view of the earlier definition of 'chit'. It is clear from the language of Sections 3 and 5 that the prohibitory and penaj provisions relate to 'money circulation scheme'. The main and principal definition, therefore, is that of 'money circulation scheme' in Section 2 (c). It is this definition, which has to be read first. The expression 'money circulation scheme', includes a 'chit'. This is permissible. See Municipal Council, Raipur v. State of M. P. AIR 1970 SC 1923. In that case, a motor transport undertaking was defined as 'a motor transport undertaking engaged in carrying passengers or goods or both by road for hire or reward and includes a private carrier'. In the Motor Vehicles Act, a private carrier is defined to mean the owner of a transport vehicle, other than a public carrier, who uses that vehicle solely for the carriage of goods which are his property, or the carriage of which is necessary for the purpose of his business, not being the business of providing transport. The Municipal Council was held to be within the definition of a private carrier, inasmuch as the council owned transport vehicles and used them solely for the carriage of goods which were its property. The argument before the Supreme Court was that the word 'includes' in the definition of the expression 'motor transport undertaking' helped the accused because it was only an undertaking of a commercial nature, which was intended to be included within the definition, and since the Municipal Council was not carrying on any business but was carrying on statutory obligations imposed upon it, the Municipal Council could not be called an undertaking. The Supreme Court rejected that contention and held that the words of the definition were plain and not susceptible of any reasonable limitation.

'It seems to us that by using the word 'includes' the legislature undoubtedly intended to enlarge the meaning of the expression 'motor transport undertaking'. The words 'private carrier' have been given a specific meaning in the Motor Vehicles Act 1939, and it is difficult to limit this specific meaning on any reasonable basis.'

44. In the present case, the petitioners' contention that the framers of the law could not include 'a chit' in 'a money circulation scheme', cannot be accepted. The Legislature had the power to enlarge the definition as it did.

45. Then it is urged that a separate definition of 'chit' having been incorporated in the preceding Clause (a), the words 'includes a chit' in Clause (c) were self-contradictory and without any sense whatever. We do not see any force in this argument. It is a matter of legislative practice that in an interpretation clause, definitions of words are arranged alphabetically. As already said the principal definition for the purposes of the impugned Act is that of 'money circulation scheme'. The inclusion of 'chit' in that definition enlarges its amplitude. When that definition employs the words 'includes a chit', the question is, what is a 'chit'? That necessitated the definition of 'chit' and hence the definition Clause (a). Truly speaking, the definition of 'chit' is in the form of an explanation, and, as a part and parcel of it, its real place is below the definition of 'money circulation scheme'. But since the latter expression begins with the alphabet 'M', while the former with alphabet 'C', they were embodied in the Act in alphabetical order. That, however, makes no difference in substance.

46. It was vehemently argued that the money received in a chit fund scheme is neither quick money nor easy money. Strong language was used by the learned counsel for the petitioners on the employment of this expression in the impugned Act. But, from the nature of the transactions covered by the chit fund scheme or the money circulation scheme, we do not see why it cannot be called quick money, as all the subscribers have to pay then instalments at the appointed date, otherwise, they run a great risk. The money, therefore, comes quickly and the foreman immediately pockets his 5 per cent. It is also easy because without in-vesting anything, the foreman gets 5 per cent out of the money subscribed by others. Learned counsel told us that for that 5 per cent, the foreman has to advertise, maintain office, maintain accounts and arrange payments. Such an argument can also be advanced in the case of a common gaming house or a gambling den. There also, arrangement has to be made of the premises, arrangement has to be made for people to sit down for the purpose of gambling, instruments of gaming have to be provided, and arrangement has to be made for light and, according to the Season, for fans or heaters. In spite of all this, there can be no doubt that it is quick and easy money making.

47. Section 5 (c) of the impugned Act was ridiculed, It was argued that if a Chit scheme of Madras State is advertised in a newspaper which is circulated within Madhya Pradesh as well, the editor and publisher of the newspaper can be punished with imprisonment under Section 5 (c). This argument completely overlooks that a person becomes liable to punishment under Section 5 only if he does any of the acts enumerated in that section with a view to the promotion or conduct of, any money circulation scheme in contravention of the provisions of the Act. A newspaper, which merely prints or publishes any advertisement or list etc. within the meaning of Clause (c) of Section 5, does not ipso facto commit an offence. It must be with a view to the promotion or conduct. A newspaper neither promotes nor conducts a money circulation scheme. In Jagadish Swamp's Companies Act, 2nd Edition Vol. II, p. 1165, the term 'promoter' is defined thus:--

'The term 'promoter' is a term, not of law, but of business, usefully summing up in a single word a number of business operations familier to the commercial world by which a company is generally brought into existence..... A promoter, thus, is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose.'

48. It was faintly argued that the petitioners' fundamental right under Article 31 of the Constitution is violated, as the petitioners will be deprived of their property. This contention is wholly without merit. Promotion or conduct of a money circulation scheme or chit fund is prohibited by authority of law. And, the impugned Act does no where provide for transfer of ownership or right to possession of any property, to the State or to a Corporation owned or controlled by the State. Therefore, by virtue of Clause (2-A) of Article 31 of the Constitution, the Act cannot be deemed to provide for compulsory acquisition or requisitioning of property, assuming that it deprives the petitioners of their property.

49. Both these petitions must be dismissed with costs and the respondents should get costs with Rs. 500/- as counsel's fee to be paid equally by each of the petitioners.

50. In the result, this petition is dismissed with costs. Counsel's fee Rs. 250/-.


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