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TMI Blog2008 (7) TMI 1068X X X X Extracts X X X X X X X X Extracts X X X X ..... d purchase one unit of lotteries from the promoters. The promoters will make use of ₹ 350/- to purchase 35 lottery tickets of the Kerala State Government each of ₹ 10/- for the unit holder for the next 35 weeks. If the unit holder wins any prize up to ₹ 5,000/- in the 35 draws, the promoters shall collect the amount and pay the same to the unit holder. If the unit holder wins any prize above ₹ 5,000/-, the ticket shall be handed over to the unit holder for collection of the amount. The balance of ₹ 275/- (₹ 625 - ₹ 350) will be used to make the unit holder a subscriber of a magazine by name `Thrikalam' for one year. The said magazine would reproduce relevant and important materials from other magazines. It would also furnish necessary information about the lottery tickets which have won prizes. 5. The unit holder will be returned (paid) not only ₹ 625/- which he had initially invested, but twice his investment i.e. ₹ 1,250/- (less ₹ 100/- as service charges for the promoters and legal deduction for tax, etc.) on an early date. As per the scheme, on sale of three tickets of ₹ 10/- each, the Government wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reached to almost ₹ 500 crores. Amounts were being paid to the unit holders initially very promptly--on many occasions even before the expiry of 35 weeks. More and more subscribers joined the queue. There was aggressive publicity and marketing through visual (TV) and printed media (pamphlets and newspapers). The scheme was proceeding very happily. More and more amounts were coming into the kitty of the promoters from unit holders. 7. Suddenly, however, there was a jolt to the scheme. Police Authorities registered a crime against the promoters for an offence punishable under Section 420 of Indian Penal Code (IPC), under the Prize, Chits Money Circulation Scheme (Banning) Act, 1978 (hereinafter referred to as `the Act') and also under the Reserve Bank of India Act, 1934. Certain proceedings were initiated even earlier with which we are not concerned in the present proceedings. The learned Chief Judicial Magistrate, Ernakulam by an order, dated November 14, 2006, framed charge against the appellants herein for offences punishable under Section 420 read with Section 34, IPC and under Sections 4 and 5 read with Section 2(c) and 3 of the Act. He, however, discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. On September 7, 2007, notice was issued by this Court. On February 22, 2008, the matters were ordered to be posted for final hearing on a non-miscellaneous day. That is how they are before us. 13. We have heard learned counsel for the parties. 14. The learned counsel for the appellants submitted that the trial Court and the High Court were right in discharging the accused for certain offences punishable under the Act and also under the Reserve Bank of India Act, 1934. The State has not preferred appeal against the said order and the decision has become final. He, however, contended that both the Courts were wrong in not discharging the accused for offences punishable under Sections 4 and 5 read with Sections 2(c) and 3 of the Act as also for an offence punishable under Section 420 read with Section 34, IPC. 15. It was submitted that the scheme formulated by the appellants could not fall within the mischief of `Money Circulation Scheme' as defined in clause (c) of Section 2 of the Act. If it is so, ban envisaged by Section 3 would not apply. Consequently, penal provisions of Sections 4 and 5 cannot be invoked. The Courts below were wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;money circulation scheme' means any scheme, by whatever name called, (i) for the making of quick or easy money, or (ii) for the receipt of any money or valuable thing as the 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 or thing is derived from the entrance money of the members of such scheme or periodical subscriptions; 21. Section 3 bans money circulation schemes or enrolment as member to any such scheme or participation in such scheme. Sections 4 and 5 are penal provisions and prescribe punishment. Section 6 deals with offences committed by Companies. Section 7 authorizes Police Officer not below the rank of officer in charge of a police station to exercise power to enter and search premises and to seize things used for such scheme. Section 8 provides for forfeiture of newspaper and publication containing money circulation scheme. Section 9 declares that no Court inferior to the Court of Chief Metropolitan Magistrate or Chief Judicial Magistrate shall try any offence punishable under the Act. All offences punishable under the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - net of Clause (c). Similarly, there are many other vocations and business activities in which, of late, people have been notoriously making quick money as, for example, the builders and real estate brokers. I cannot accept that the provisions of Clause (c) are directed against any of these categories of persons. I do not suggest that law is powerless to reach easy or quick money and if it wills to reach it, it can find a way to do it. But the point of the matter is that it will verge upon the ludicrous to say that the weapon devised by law to ban the making of quick or easy money is the provision contained in Section 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act . 24. Explaining the ambit and scope of the expression `Money Circulation Scheme', the Court proceeded to state; In order to give meaning and content to the definition of the expression 'money circulation scheme' which is contained in Section 2(c) of the Act, one has, therefore, to look perforce to the adjectival Clause which qualifies the words for the making of quick or easy money . What is within the mischief of the Act is not any scheme, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enrolment of members into the scheme. 26. Referring to dictionary meanings, this Court proceeded to state; Therefore, a transaction under which, one party deposits with the other or lends to that other a sum of money on promise of being paid interest at a rate higher than the agreed rate of interest cannot, without more, be a 'money circulation scheme' within the meaning of Section 2(c) of the Act, howsoever high the promised rate of interest may be in comparison with the agreed rate. What that section requires is that such reciprocal promises, express or implied, must depend for their performance on the happening of an event or contingency relative or applicable to the enrolment of members into the scheme. In other words, there has to be a community of interest in the happening of such event or contingency . (emphasis supplied) 27. On the facts of the case, the Court held that it was not a `Money Circulation Scheme' and proceedings initiated against the accused were liable to be dropped. 28. Strongly relying on Swapan Kumar Guha and the observations of this Court, the learned counsel for the appellants contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a thousand rupees (in early eighties, not now) for a Special Leave Petition lasting five minutes, a doctor who charges a couple of thousands for an operation of tonsillitis lasting ten minutes, an engineer, an architect, a chartered accountant and other professionals who charge likewise. There are many other vocations and business activities in which people notoriously make quick money, e.g. builders and real estate brokers. From that, however, one cannot jump to the conclusion that they are all liable to be punished under Sections 4 and 5 of the Act. 31. The Court also took into account, apart from FIR, a detailed affidavit in reply filed in the High Court. Even in the said affidavit, there was no clear basis in respect of allegations, nor material was disclosed to show that prima facie, the firm was promoting or conducting a scheme for making quick or easy money which was dependent on any event or contingency relative or applicable to the enrolment of members into the scheme. The `song' of the State was that the scheme conducted by the accused would generate black money and would paralyze economy of the country. The Court was conscious and alive of seriousness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nrolment of the members into the scheme. It is immaterial by whom such members are enrolled. It may be by members, by promoters or their agents or by gullible sections of the society suo motu (by themselves). The sole consideration is that payment of money must be dependent on an event or contingency relative or applicable to the enrolment of more persons into the scheme, nothing more, though nothing less. In the present case, the second ingredient is very much present. 34. It was then contended by the learned counsel for the appellants that in the present case, all the promises have been fulfilled by the promoters and contract was complete inasmuch as for payment of ₹ 625/- by the unit holder, he was given 35 lottery tickets each of ₹ 10/- and thus an amount of ₹ 350/- gets appropriated. Likewise, for the balance amount of ₹ 275/- (₹ 625/- - ₹ 350/-), he has been made subscriber of a magazine `Thrikalam' for one year. Nothing, therefore, remains to be done thereafter by the promoters except the benefit which is likely to accrue in future. Such a scheme cannot be termed as a scheme for the making quick or easy money on any event or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved for the first member is paid. 6. The ₹ 1150 paid to the first member is claimed by us as payment of double the amount he had entrusted and we explain it as Refund and Commission less our service charge. i.e. Refund ₹ 625 Commission ₹ 625 ------- ₹ 1250 Less Service Charge ₹ 100 ------- ₹ 1150 ------- 7. Once the ₹ 1150 is paid to the member, the membership is ceased, and no more ticket or Thrikalam will be given to him, even if the promised 35 tickets and one year Thrikalam are not yet over. 8. To justify this stand of ours, though the ₹ 1150 paid is actually the commission, we term it as Refund and Commission so that the member shall not make any claim for the remaining tickets or Thrikalam. 9. If the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey which subsequent subscribers pay as the price of the unit. Of course, I have not taken note of the uncertain commission which would be receivable by the promoter for prizes won by the unit holders through them. I have also not taken specific note of the savings in respect of unpurchased tickets and non-supplied magazines after the subscriber receives the double amount and closes the transaction before elapse of the period of 35 months. It must be evident for any discerning mind that this Scheme cannot work unless more and more subscribers join and the amount paid by them as unit price is made use of to pay the previous subscribers. The system is an inherently fragile system which is unworkable. Foolish, gullible and stupid persons alone may fall for the Scheme without carefully analysing the stipulations of the Scheme. It would be totally erroneous to assume that the offence of cheating would not lie if the persons deceived are gullible, unintelligent and stupid persons. The system and the law has a duty to protect such victims of crime also. According to me, there is no reason to assume that the promoters had no contumacious intention and they embarked on the venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Deception of any person; 2.(a) Fraudulently or dishonestly inducing that person; (i) to deliver any property to any person, or (ii) to consent that any person shall retain any property, or (b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property. [vide Ram Jas, (1970) 2 SCC 740; Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168; S.W. Palamitkar v. State of Bihar, (2002) 1 SCC 241]. 45. The trial Court as well as the High Court considered the facts of the case and held that there is element of cheating inasmuch as a representation was made by the accused that every unit holder will get double the amount invested by him; the representation was false, the maker of the representation was aware that the representation was not true and by such representation, he deceived the victim to believe the representation to be true and actuated him to act on such representation. The promoters induced common public to part with money ..... X X X X Extracts X X X X X X X X Extracts X X X X
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