1932 (3) TMI 16 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the company's purpose under Section 294-A of the Indian Penal Code.
2. Interpretation of the memorandum and articles of association.
3. Definition and characteristics of a lottery.
4. Comparison with previous case laws.
5. Distinction between a lottery and a wagering contract.
6. Justification for the compulsory winding up of the company.

Detailed Analysis:

1. Legality of the Company's Purpose under Section 294-A of the Indian Penal Code:
The appeal challenges the judgment ordering the winding up of the appellant company for being formed for an illegal purpose, specifically conducting a lottery, which is an offense under Section 294-A of the Indian Penal Code. The trial Judge found that the company's activities amounted to conducting a lottery, thus violating the said section.

2. Interpretation of the Memorandum and Articles of Association:
The memorandum of association listed charitable objectives, including raising funds for charity. However, the articles of association, particularly Articles 16 to 21, outlined a scheme where donors received certificates entitling them to interest-free loans or cash bonuses determined by drawings, which the court found to be beyond the memorandum's stated purposes. The court noted that the company's operation deviated from its original charitable objects and instead focused on a scheme dependent on chance.

3. Definition and Characteristics of a Lottery:
The court sought a definition of "lottery" since it is not defined in the Indian Penal Code. Referring to Webster's Dictionary, a lottery is "a distribution of prizes by lot or chance." The court concluded that the scheme in question involved a significant element of chance, as the benefits to certificate-holders were determined by drawings, making it a lottery.

4. Comparison with Previous Case Laws:
The court considered several English cases to determine whether the scheme constituted a lottery:
- Sykes v. Beadon: A scheme involving distribution of funds by lot was deemed a lottery.
- Taylor v. Smetten: Selling tea packets with prize coupons was held to be a lottery.
- Re International Securities Corporation Ltd.: A scheme similar to the present case was found to be a lottery.
- Mutual Loan Agency, Ltd. v. Attorney-General: A scheme involving ballot loans was held to be a lottery.

5. Distinction between a Lottery and a Wagering Contract:
The appellants argued that the scheme was not a lottery but a charitable activity. The court distinguished between a lottery and a wager, citing definitions from various cases:
- Carkill v. Carbolic Smoke Ball Co.: A wager involves mutual agreement on the outcome of an uncertain event.
- Hampden v. Walsh: A wager involves one party winning and the other losing based on a future event.
- Ellesmere (Earl) v. Wallace: A multipartite agreement to contribute to a sweepstakes may be illegal as a lottery if determined by chance, not skill.

The court concluded that the scheme had all the elements of a lottery and none of a wager, as the benefits were purely dependent on chance.

6. Justification for the Compulsory Winding Up of the Company:
The court rejected the argument that the company could remove the objectionable features and continue its original purposes. It held that removing the lottery elements would undermine the company's substratum. The court cited Leng & Co. ("Sheffield Telegraph") v. Sillitoe, where annexing an illegal business to a legitimate one still resulted in liability. The court affirmed that the company's main object was conducting a lottery, making it illegal under Section 294-A of the Indian Penal Code, and justified the compulsory winding up.

Conclusion:
The appeal was dismissed with costs, affirming the trial Judge's order for the compulsory winding up of the company on the grounds that it was conducting an illegal lottery, as defined by Section 294-A of the Indian Penal Code. The court emphasized that the scheme's dependence on chance, as outlined in the articles of association and prospectus, constituted a lottery, thus necessitating the winding up of the company.