STATE OF WEST BENGAL & ORS. v. SWAPAN KUMAR GUHA & ORS

Citation: [1982] 3 S.C.R. 121

Court: Supreme Court of India

Bench: Y.V. CHANDRACHUD, A. VARADARAJAN, AMARENDRA NATH SEN

Judgment text

• 'STATE OF WEST BENGAL & ORS. v. _SWAPAN KUMAR GUHA & ORS. February 2, 1982 , [ Y. V. CHANDRACHUD, C. J. A. VARADARAJAN, AND \ .. - )- AMARBNDRA NATH SBN, JJ. ] Prize Chits and Money Circulation Scheme1 (Banning) Act 1978 (43of1978) Ss. 2(c), 2(e), 3, 7 and 13-'Money Circulation Scheme'-What is-Firm Accepting deposits from public-Payment of interest at 48% per annnm though deposit receipt indiCate only 12%-ll'hether promotion of'money circulation scheme'- 'Whethe~ 'offence' committed under the Act. ·Criminal Procedure Code 1973, S. 154, 156, 157-F. l,R. -Cognlzable offence- Necessity ofdisclosure-No cognizable offence disclosed-Court justified in quashing the investigation. Cri-fninal Trial-F. I. R. -Condition precedent to com~ncement cf investiga. lion-Police have no unfettered discretion to commence investigation-Power to investig'! le to be exercised as-provided in Cr. P. C.

Interpretation of Statutes-Rule of strict interpretation ofpenal statutes- Whether affects primary test that language used in enactment when clear and plain to apply. Words & Phrases-'Money circulation scheme'-What is-Meaning of. The firm 'Sanchaita Investments', commenced its busines·s on July 1,1975, its three partners, the three respondents in the appeal contributii;ig a total capital of Rs. 7,000/-. The firm carried on business as financers and investors and in its business the firm accepted loans or deposits from the general public for different periods repayable with interest af12% per annum. Under the terms of deposits, the depositors had a right to withdraw the deposit with the firm at any time. In case of premature withdrawal the depositors were to Jose interest of 1%.

Under the terms and conditions -of the Cli;:posit the firm had also the liberty to repay the amount with interest to any depositor at any time before the expiry of the stipulated period of deposit without giving any reason. The firm was carrying on its business on a very extensive scale. In the year 1978 Parliament passed the Prize Chits and Money Circulation Schemes (Banning) Act 1978. The Act ! came info force on December 13, 1978 and section 12 provided a two years period ~for winding up ~verr k~nd. o~ bu. sin~~~ relating to prize chits and money circulat(Q! \ ~cb_emes•. Oo 13th December, 1980 the Commercial Tax Officer lodged a complaint of violation of the Act by the firm with the police. The FIR stated that the firm bad been offering fabulous interest at 48% per ~annum to its members, later reduced to 36% though the loan certificate receipts showed the rate of interest 1 to be 12% only.

The amount In excess of 12% clearly indicated that the Money Circulation Scheme' was being promoted and conducted for the making of quick and/or easy money and that prizes and for gifts in cash were also awarded to agents, promoters and members, and that the firm and its three partners in conducting such ~oney circulation schemes had violated section 3 of the Act and were therefore punishable under section 4. On the ·same day tbJ office of the firm was searched by the police and a sum of Rs. 42 1akhs was recovered. The residences of the partners were also searched and large amounts of cash as well · as documents were seized. Certain lists of agents seized during the investigation ) . , showed that code numbers were a~signed to many of the agents and that the c. agents had acquired large properties at various places and had also started; new business activities. The partners were arrested and enlarged on bail.

The firm and its partners filed a writ petition in the High Court challenging the validity of the F. l. R. and the proceedings arising out of it including the Validity·of the searches and seizure of docuinents, papers and cash. It was contended that the F. I. R. does~not disclose any offence under the Act which does not apply to the firm and that there was no violation of any provisions of the Act. The petition was contested by the State Government contending that the payment of interest . by the fir1n and its partners at the clandestine rate of 36% against the bank rate of. 12% in the context of the scheme promoted and conducted by the firm was tantamount to arr activity which was banned under tb. e Act. and that in the process of its working, the scheme of the firm generated quick and easy money so as to render such scheme ilr arrangement a 'mo~ey circulation scheme' within the meaning or the Act.

The High Court held that the Act did not apply to the firm and that the searches a·nd seizure:) were wrongful, illegal and improper and quashed the pro::eedings and directed the return or all documents and the refund,of the cash seized. In the appeals to. this Court it was contended on behalf of the State Government that: (t) the question of applicability of the Act will only come up for consideration after the investigation has been completed and all relevant materials have been gathered on sOoh investigation and that at the investigation stage, the Court does not interfere and also does not quash any proceedings before the investigation has been comoleted, (2) materials which had been gathered as a result of the inve.

stigation indicate that though the loan certificate s1i~ulate interest to be paid@ 12% much larger sum by way of interest ranging between 36@ to 48% was actually paid to the depositors, in cash in a clandestine manner, depriving and defrauding the revenue of its legitimate dues, (3) the nature of business carried on by the tirm indicates that the firm is conducting a 'Money circulation scheme' thereby violating s. 3 of the Act, and (4) tbe s. earches have been carried out in accordance with s. 7 of the Act and the cash money and other books and do~uJ! lel\IS have peen ! awfully seized ·- WEST BENGAL v. SWAPAN KUMAR 123 On behalf of the respondents it was contended that : (I) Investigation has to be done when an offence is disclosed for collecting materials for establish.. ing an offence and any investigation when no offence is·disclosed by the F. I. R.

and the other materials, means unnecessary harassment for the firm and its partners and illegal and improper deprivation of their liberty and property, (2) even if all the aitegations in the F. l. R. and in the a·ther materials before the Court are accepted to be correct, the said allegation do not go to show that the B. firm is conducting a money circulation scheme and do Iiot disclose any offence under the Act, (3) if 'no offence under the Act is disclosed and the Act has no application, there cannot be any qqestion of any search or seizure under the Act, and (4) to be a chit fund or a rnon~y circulation scheme, an element of uncer· tainty or luck is essential and in so far as the transactions carried on by the firm are concerned, the said element is nowhere. . C Dismissing the-appeals. HELD : By the Court 1. The investigation which has been commenced upon the First Information Report is without jurisdiction and must, therefore, be quashed. No D.

further investigation shall take place in pursuance or on the basis of the F. I. R. dated December 13, 1980 lodged by the Commercial Tax Officer, Bureau of Investigation. [143 DJ 2. The documents, books, papers, cash and other articles seized during the investigation shall be retained by the police in their custody for a period of two months and will be returned, on the expiry of that period, to persons from whom they were seized. [148 CJ r [Per Chandrachud, C. J. and Varadarajan J. ] 1. Two conditions must be satisfied before a person can be held guilty of an. offence under sectioD. 4 read with sections 3 and 2 (c) of the Act. In the first place, it must be proved that he is promoting or conducting a scheme for the making of quick or easy money and secondly, the chance or opportuitity of rn'aking quick or easy mon~y must be shown to depend upon an event or contingency relative or applicable to the enrolment of members into that scheme. [132 F-G] 2.

Besides the prize chits, what the Act aims at banning is money circulation schemes. The activity charged as falling within the mischief of the Act must be shown to be a part of a scheme for making quick or easy money, dependent upon the happening or non-happening Qf any event or contingency relative or applicatle to the enrolment of members into that scheme. [133 E-FJ 3. A transaction under which, one party deposits with the other or ff 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 circu· si. Ji>RllMil coultt RilPoitrs [1982) 3s. c. li.. lation scheme' within the moaning of section 2 (c) of tho Act, howsoever high the promised rate of interest may. be in comparison with the agreed rate.

What section 2 (c) requires is that the reciprocal promises, express or implied, must depend for their performance on the happening of an event or contingency relative or appJicable to the enrolment of meip. bers into the scheme. [134 A-BJ, In the instant case it seems impossible to bold on the basis of the allegations in the F. I. R. that any offence can be said to be made out primafacie under section 3 of the Act. In the first place, the F. I·. R. does not allege, directly or indirectly, that the firm was promoting or conducting a scheme for the making of quick or easy money, dependent on any event or contingency relative or applicable to the enrolment ofmembers into the scheme. Secondly, the F. l. R. does not contain any all~gation whatsoever that persons who advanced or deposited their monies with the firm were participants of a scheme for the making of quick or easy money, dependent upon any such event or contingency. The F. I. R bears the stamp of hurry and want of care.

It seems to assume, that it is enough for the purposes of section 2 (c) . to show that the accused is promoting ·or cond~cting a scheme for the making of quick or easy money, an assumption which is fallacious. An essential ingrediCnt of section 2 (c) is that the scheme for making quick or easy money must be dependent on any event Or contingency relative or applicable to the enrolment of members into tho scheme. [13S D·G] 4. A First Information Report which does not allege or disclose that the essential requirem~nts of the penal provision are prima facie satisfied, cannot form the foundation or constitute the starting point of a lawful investigation. [13$ O] 5. -There is no allegation even in any of the affidavits filed on behalf of the State and its officers that the depositors and the promoters are animated by . a community of interest in the matter of the sch~me being dependent upon any event or contingency relative or applicable to the enrolment of members into it.

That being an essential ingredient of the offence charged, it cannot be said in the absence of any allegation whatsoever in that behalf, that there is "reason to suspect" the commission of that offence within the meaning of section 157 of ~ the Code of Criminal Procedure, so as to justify the investigation undertaken by --- the State authorities. [138 B-D] 6. The rule of strict interpretation of penal sta_tutes does not lo any ___... __ way affect the fundamental principle of interpretation, that the primary test which can safely be applied is thc_language used in the Act and, when the words are clear and plain, the court must· accept the expressed intention of the legislature. 1. 139 Bl 7. The investigation can be quashed if no cognizable offence is disclosed by the F . I. R. The judiciary should not interfere with the police in matters which are within their province.

It is surely not within the province of the police to investigate into a Report which does not disclose the commission of a cognizable ·.. ;. offence and the CQde does not impose upon them the duty of inquiry in such cases. [142 B·C] WEST BSNOAL v. SWAPAN KUMAR 125 8. The condition precedent to the commencement of investigation under section 157 or the Code is that the F. I. R. must disclose, prima facie, that a cognizable offence has been committed. It is wrong to suppose that the police have an unfettered discretion to commence investigation under section 157 of the Code. Their right of inquiry is conditioned by the existence of reason to suspect the commission of a cognizable offence ·and they cannot, reasonably, have reason so to suspect unless the . F. I. R. prim a facie, discloses the commission of ) such offence. If that condition is satisfied, the investigation must go on.

The Court bas then no power to stop the investigation, for to do sO would be to trench upon the lawful power of the police to investigate into cognizable offences On the other hand, if the F. I. R. does not disclose the commission of a cognizable offence, the Court would be justified In quashing the investigation on the basis of the information as laid or received. (142 D-F] W. H. King v. R - "To The Deputy Superintendent of Police, Bureau of Investigation, 10, Madan Street, Calcutta-72. Sir, On a secret information that 'Sanchaita Investments' of 5-6, Fancy Lane, Calcutta, is carrying on business of promoting and/or conducting prize chit and/or money circulation scheme enrolling members of such chit and/or scheme, participating in those, and/or receiving and remitting monies in pursuance of such chits and/or scheme in violation of the provisions of.

the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, inquiry was held secretly to verify correctness or otherwise of the aforesaid secret information. · Enquiry reveals that the said 'Sanchaita Investments' is a partnership firm, partners being Shri Bihari Prasad Murarka, Shri Sambhu Mukherjee and Shri Swapan Kumar Guba and that it was floated in or around 1975. Enquiry further reveals. that the said firm bad been offering fabulous interest @ 48% per annum to its members until very recently. The rate of interest has of tare been reduced to 36% per annum. Such high rates of interest were and are being paid even though the loan certificate receipts show the rate of interest to be 12% only. Thus, the amount in excess of 12% so paid clearly sb9ws that the 'Money Circulation Scheme' is being promoted and conducted for the making of quick and/or easy money.

Prizes and/or gifts in cash were and are also awarded to agents, prornQt~rs and members too, In view of the ahove, Sarvashri Bihari Prasad Murarka, Sambhu Mukherjee and Swapan Kumar Guba appear to have been carrying on business in the trade name of Sanchaita Investments' in prize chits and money circulation scheme in violation of section 3 of the Prize Chits and Money Circulation Schemes \(Banning) Act, 1978 and are therefore, punishable under section 4 of the said Act. Necessary action may therefore, be kindly taken against the afores~id offenders along with other accomplices as provided in the law. ' Yours faithfully, Sd/- Commercial Tax Officer, ' Bureau of Investigation. " " • '" Section 4 of the Act provides that whoever contravences the i 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 menf. tioned in the judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than one thou- fl I i sand rupees. Though the F. I. R. is riddled with the "and/or" I'· clauses more appropriate in deeds of conveyancing, it is clear from ~ its tenor and is common ground that the gravamen of the accusation,against the accused is that they are conducting a 'money circulation scheme'. The reference in the F. I. R. to 'prize chits' reflects but a common human failing to· err on the safe side and the notorious effort of draftsmen to embrace as much as possible so that no argument may be shut out for want of pleading. Since the sole question for consideration arising out of the F. l. R. , as laid, is whether the accused are conducting a mon. ey circulation scheme, it is necessary to understand what is comprehended within the statutory meaning of that expression.

Section 2(c) of the Act provides : " 'Money circulation scheme' means any scheme, by whatever name called, for the making of quick or ·easy money, or for the receipt of any money or valuable thin!! WBST BENGAL v. SWAPAN KUMAR (Chandrachud, c. J. ) 131 as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into tlie scheme, whether or not snch money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions. " - Grammar and punctuation are hapless victims of the pace of life and I prefer in this case not to go merely by the commas used in clause (c) because, though they seem to me to bav~ been placed both as a matter of convenience and of meaningfulness, yet, a more thoughtful use of commas and other gadgets of punctuation would have helped make the meaning of the clause clear beyond controversy.

Besides, how far a clause which follows upon a comma governs euery clause that precedes the comma is a matter not free from doubt. I, therefore, consider it more safe and .. satisfactory to discover the true meaning of clause (c) by having regard to the substance of the matter as it emerges from the object and. purpose of the Act, the context in which the expression is used 0 and tho consequences necessarily following upon the acceptance of any particular interpretation of the provision, the contravention of which is visited by penal consequences. Commas or no commas, and howsoever thoughtfully one may place them if they are to be there, I find it impossible to take clause (c) to mean that any and every activity "for the making of quick or easy money" is comprehended within its scope. For the matter of that, I cannot believe any law to ban every kind of activity for making quick or easy money, without more, on pain of penal conse- -- \_ - quences.

It is far too vague and arbitrary to prescribe that >1'. "whosoever makes quick or easy money shall be liable to be punish- • ed with fine or imprisonment". For then, in the absence of any demarcation of legitimate money-making activities from those which fall within the ban, the question whether the penal provision is attracted in a given case wiil depend upon the will and temper, sweet or sour, of the magistracy. Besides, speaking of law and morals, it does not seem morally just or proper to say that no person shall make quick or easy money, especially quick. A person who makes quick money may do so legitimately by the use of his wits and wisdom and no 'moral tyrpitude may attach to it. One need not travel after· to find speaking examples of this. Indeed, there are honournble meq (al!

d now wqmen) in all professions re- cognised traditionally as noble, who make quite quick money by ·A the use of their talents, acumen and experience acquired over the years by dint of hard work and industry. A lawyer who charges a thousand rupees for a Special Leave Petition lasting five minutes (tha\ is as far as a Judge's imagination can go), a doctor who charges a couple of thousands for an operation of tonsilitis lasting ten 8 minutes, an engineer, an architect, a chartered accountant and other professionals who charge likewise, cannot by any stretch of imagination be brought into the drag-net of clause (c). Similarly, 'v 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". 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 qu. alifies the words "for the making of quick or easy money".

What is within the mischief of the Act is not "any scheme, by whatever name called, for the making of quick or easy money" simpliciter, but a scheme for the making of quick or easy 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 their periodical subscriptions). Two conditions must, therefore, be satisfied before a person can be hetd guilty of an offence under sec. 4 read with secs. 3 and 2(c) of the Act. In the first place, it must be proved tbar he is promoting or conducting a sch_eme for the making of quick or easy money and secondly, the c· chance or opportunity of making quick or easy money must be shown to depend upon an event or contingency relative or appli· cable to the enrolment of members into that scheme.

The legislative draftsman could have thoughtfully foreseen and avoided all reasonable controversy over the meaning of the expression 'mone:)' ~irvula! ion sphefl! ~' by shapin~ its gejipition in this form : WEST BENGAL v, SWA~AN KUMAR (Chandrachud, C. J. ) 133 '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 en- :. ~ trance money of the members of such scheme or periodical subscriptions; I have reshaped the definition, in order to bring out its meaning clearly, without adding or deleting a single word or comma from the original text of section 2 (c).

The substance of the matter is really not in doubt : only the form of the definition is likely to create some doubt as to the meaning of the expression which is defined and, therefore, I have made a formal modification in ihe definition without doing violence to its language and indeed, without even so much as altering a comma. There is another aspect of the matter which needs to be underscored, with a view to avoiding fruitless litigation in future. Besides the prize chits, what the Act aims at banning is money circulation schemes. It is manifestly necessary and mdeed, to say so is to state the obvious, that the activity charged as falling within the mischief of the Act must be shown to be a part of a scheme for making quick or easy money, dependent upon the happening or non-happening of any event or contingency relative or applicable to the enrolment of members into that scheme.

A 'scheme,' according to the dictionary meaning of that word, is 'a carefully arranged and systematic progflm of action', a 'systematic plan for attaining some object', 'a project', 'a system of correlated things'. (see Webster's New World Dictionary, and Shorter Oxford English Dictionary, Vol. II), The Systematic programme of action has to be a consensual arrangement between two or rr ore persons under which, the subscriber agrees to advance or lend money on promise of being paid more money on the happening· of any event or contingency relative or applicable to the enrolment of members into the programme. Reciprocally, the person who promotes or con-· ducts the programme promises, on receipt of an· advance or loan, 134 SUPllEMB COURT REPtiRTS (1982] 3 s. C. ll. to pay more money on the happening of such event or contingency. 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 comparision 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 • 'r 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. That explains why section 3 makes it an offence to "participate" in the scheme or to remit any money "in pursuance of such scheme". fle who conducts or promotes a money-spinning project may have manifold resources from which to pay fanciful interest by luring the unwary j customer.

But, unless the project envisages a mutual arrangement under which, the happening or non-happening of an event or conl_ tingency relative or applicable to the enrolment of members into that arrangement is of the essence, there can be no 'money circulation scheme' within the meaning of section 2 (c) of the Act. Numerous persons lend their hard-earned monies in the hope of earning high returns. It ~is notorious that, eventually, quite a few of them lose both the principal and the interest, for no project can succeed against· the basic laws· of economics. Sharp and wily promoters pay A's money to B and B's to C in order to finance interest at incredible rates; and eventually, when high-risk investment made by them at the cost of the credulous lenders fails, the entire arrangement founders on the rock of foolish optimism. The pro- /-_,_ moters, of course, have easy recourse to gadgets of the law of insolvency.

It is difficult to hold that the lender, himself a victim of the "" machinations of the crafty promoter, is intended by the Act to be arraigned as an accused. I do not think that any civilised law can intend to add insult to injury. The question as to whether the First Information Report prjma facie discloses an offence under section 4 read with section 3 of the Act has to be decieed in the light of these requirements of section 2 (c) of the Act. I have already reproduced in extenso the . I. R. lodged by the Commercial Tax Officer, Bureau of Investigation. Analy~ing it carefully, and even liberally, it makes the WEST BENGAt v. SWAPAN KUMAR (Chandrachud, C. J. ) t3S following allegations against the firm 'Sanchaita Investments' and its three partners : (I) The firm had been offering fabulous interest@ 48% per annum to its members, which rate of interest was later reduced to 36% per annum; (2) Such high rate of interest was being paid even though the loan certificate receipts .

show that interest was liable to be paid at the rate of 12% per annum only; and (3) The fact that interest was paid in excess of I2% shows clearly that a 'Money Circulation Scheme' was being promoted and conducted for the making of quick or easy money. It seems to me impossible to hold on the basis of tliese allegations that any offence can be said to be made out prima facie under section 3 of the Act. In the first place, the F. I. R. does not allege, directly or indirectly, that the firm was promoting or conducting scheme for the making of quick or easy money, dependent on any event or contingency relative or applicable to the enrolment of members into the scheme. Secondly, the F. I. R. does not contain any allegation whatsoever that persons who advanced or deposited their monies with the firm were participants of a scheme for the making of quick or easy money, dependent upon any such event or contingency. The F. l. R. bears on its face the stamp of hurry and want of care.

It seems to assume, what was argued before us by Shri Som Nath Chatterjee on behalf of the prosecution, that it is enough for the purposes of section 2 (c) to show that the accused is promoting or conducting a scheme for the making . of quick or easy money, an assumption which I have shown to be fallacious. An essential ingredient of section 2 (c) is that the scheme for making quick or easy money must 'be dependent on any ·event or contingency relative or applicable to the enrolement of members into the scheme. First Information Report which does not allege or disclose that the essential requirements of the penal provision are prima facie satisfied, cannot form the foundation or constitute the starting p9int of. a lawful iμvestigation. In answer to the writ petitions filed by the accused in the Calcutta High Court, affidavits were filed on behalf of the pro- secuting agency, which do not improve matters in any way.

The affidavit filed by Arun Kanti Roy, Deputy Secretary, Finance Department, Government of West'Bengal, alleges that : (i) The actual payment of a very high rate of interest against the professed rate of 12% attracted huge amounts of idle money into circulation ; (ii) The investment of money as collected is not under the regulatory control of the Reserve Bank of India or any other agency of the State dealing with credit control in relation to the country's economy; (iii) The pooling of the purchasing power and the financial resources and the unfettered deployment thereof have resulted in the concentration of tremendous economic power in the hand's of a few, posing a potential threat to the equilibrium of the country's economy; (iv) The entire process is speculative in nature and directed towards luring away the investing public to the speculative market for making quick and easy money; (v) The very basis of the so-called contractual arrangement between the firm and its depositors is founded on the.

fradulent device to assure to the people a high rate of interest, the major portion of which is paid through unaccounted for money, thereby encouraging the growth of such unaccounted money in the hands of the investing public; (vi) The professed rate of interest is a mere subterfuge to provide a cloak of bona fides and legality to the underb and transactions, through which unaccounted · for money comes into play in the market, generating further unaccounted for money, a part whereof gocis back to the depsitors in the form of the balance of inierest over 12% paid in cash, month by month ; . (vii) The firm did not have enough income or resources so as to be able to pay interest at such high rates ; (viii) The irresistible conclusion, therefore, is that . interest was being paid out of the capital itself; WEST BENGAL v. SWAPAN KUMAR (Chandrachad, C. J.

) d1 (ix) "The depositor becomes a member of the investment scheme of the firm by subscribing to it and the payment of the quick and easy money by way of high rate · of interest is dependent upon the period of investment and/or efflux of time which are very much relative and/ or applicable to the membership of the depositors of the scheme to which the depositor agrees to subscribe"; and I -~· (x) Iu the process of its working, the scheme of the firm ~- generates quick and easy money so as to render such , scheme or arrangement a 'money circulation scheme' within the meaning of the Act. ~ The Assistant Commissioner of Police Shri Sunil Kumar Cbakravarty has adopted these pleas and statements in his own affidavit. It is clear from these averments that even at the stage when the State of West Bengal and its concerned officers submitted detailed ' .

affidavits to the High Court, there was no clear basis for alleging and no 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 upon an event or contingency relative or applicable to the enrolment of members into that scheme. The burden of the State's song is that the scheme conducted by the accused generates black money and will lparalyse the economy of the country. These are serious matters indeed and it is unquestionable that a private party cannot be permitted to issue bearer bonds by the back door. The fact that the accused are indulging in an economic activity which is highly detrimental to national interests is a matter which must engage the prompt and serious attention of the State and Central Governments. But the narrow question for our consideration is whether on the basis of the allegations made against th_e accused, there is reason to suspect that .

they are guilty of an offence under section 4 read with sections 3 and 2 (c) of the Act. The allegation which we have reproduced in clause (ix) above from the affidavit of Arun Kanti Roy is the nearest that can be considered relevant for the purpose of section 2 (c) of the Acts. But even that allegation does not meet the requirement of that section since, what it says is that "the payment of quick and easy money by way of high rate of interest is dependent upon the period SUl>trn. Mll COURt REPoRTS (1982} 3 S. C. R. of investment and/or efflux of time which are. very much relative and/or applicable to the membership of the depositors of . the scheme to which the depositor agrees to subscribe".

This is too tenuous to show that the scheme is dependent upon an event or contingency of the description mentioned in section 2(c), apart from the fact that the only participation which is alleged as against the depositors is that they become members of the "investment scheme" by subscribing to it. There is no allegation even in any of the affidavits filed on behalf of the State of West Bengal and its concerned officers that the depositors and the promoters are animated by a community of interest in tbe ·matter of the scheme being dependent upon any event or contingency relative or applicable to the enrolment of members into it. That being an essential ingredient of the offence charged, i( cannot be said . in the absence of any allegation whatsoever in that behalf, that there is "reason to suspect" the commission of that offence within the meaning of section 15 7 of the Code of Criminal Procedure, so as to justify the investigation i. ndertaken by the State authorities.

• My learned Brother, A. N. Sen J. , bas considered exhaustively ' the various authorities cited at the Bar by both the sides on the question as to the power of the courts to quash an i1ivestigation. I fully concur with his careful analysis of those authorities and would content myself with a broad indication of the trend of law bearing on the subject. Shri Ashok Sen and Shri Siddhartha Shankar Ray pressed upon us with considerable insistence the principle reiterated in W. H. King v. Republic of India, (')that a statute which creates an offence and imposes a penalty of fine and imprisonment must be construed strictly in favour of the subject. The principle that no person can be put in peril of hii life and liberty on an ambiguity is 2 well-established. But, as observed in M. V. Joshi v. M. U. Shimpi ( ) when it is . said that penal statutes must be construed strictly, what is meant is that the c'ourt must see that the thing charged is an offence within the plain meaning of th.

e words used and it must not strain the words : "To put it in other words, the rule of strict construction requires that the language of a statute (I) [1952] S. C. R. 418, 424. (1) [1961] 3 SCR 993-994. WEST BBNGAL v. SWAPAN KUMAR (Chandrachud, C. J. ) 13~ should be ~o construed that no case shall be held to fall within it which does not come within the reasonable interpretation of the statute", and that in case of doubt, the construction favourable to the subject should be preferred. But I do not think that this rule of strict interpretation of penal statutes in any way affects the fu~damental principle of interpretation, that the primary Btest which can safely be applied is the language used in the Act and, therefore, when the words are clear and plain, the CDurt must accept the expressed intention of the Legislature.

It is unnecessary to pursue this matter any further in view of the fact that the language of section 2(c) is, in my opinion, clear arid admits of no doubt or difficulty. In R. P. Kapur v. The State of Punjab,(') the question which arose for consideration was whether a first information report can be quashed under section 561-A of the Code of Criminal Procedure. The Court held on the facts before it that no case for quashing the proceedings was made out but Gajendragadkar J. , speaking for the Court observed that though ordinarily, criminal proceedings instituted against an accused must be tried under the provisions of the .. Code, there are some categories of cases where the inherent jurisdiction of the Court can and should be exercised for quashing the proceedings. One such category, according to the Court, consists of cases where the allegations in ~he F. l. R. or t]le complaint, even if they are taken at their face value and accepted in.

their entirety, do not constitute the offence alleged; in such cases, no question of appreciating evidence arises and it is a matter merely of looking at the F. l. R. or the complaint in order to decide whether the offence alleged is disclosed or not. In such cases, said t)le Court, it would be legitimate for the High Court to hold that it would be manifestly unjust to allow the process of the criminal court to be issued against the accused. In S. N. Sharma v. Bipen Kumar Tiwari, (') a first information report was lodged naming an Additional District Magistrat~ (Judicial) as the principal accused. His application under section 159 of the Criminal Procedure Code asking t bat the Judicial Magistrate should himself conduct a preliminary inquiry was dismissed, but the Court observed that though the Code of Criminal {I) [1960) SCR 388, 392-393. (2) [1970) 3 S. C. R. 946. ' \ :.

' > ,,_ \ ,l· , - ' Procedure gives to the police unfettered power to investigate all cases where they suspect that a cognizable offence has been commit· ted, in appropriate cases, an aggrieved person can always seek a remedy by invoking the power of the High Court under Art. 226 of the Constitution and that the High Court could issue a writ of mandamus restraining the police from misusing their legal powers. y- Shri Som Nath Chatterjee has placed great reliance on the 1 decision of this Court in State of West Bengal v. S. N. Basak,( ) in .. ! ':which it was held that the statutory powers given to the . police under sections J54 and 156 of the Code of Criminal Procedure to investigate into the circumstances of an alleged cognizable offence without authority from a Magistrate cannot be interfered with by the exercise ·of powers under section 439 or under the inherent powers conferred b)' section 561A of the Code.

It must be remembered that no question arose in that case as to whether, the allegations contained in the F. I. R. disclosed any offence at all. The contention of the accused in that case was that the statutory power of investigation given to the police under Chapter XIV of the Code is not available in respectof an offence triable under the West Bengal Criminal Law Amendment (Special Courts) Act 1949 and that being so, the investigation undertaken by the police was without jurisdiction. That contention was negatived and, therefore, ihe application filed by the accused under sections 439 and 561 A of the Code was dismissed. In Jehan Singh v. Delhi Administration,(') the application filed by · the accused under s~ction 56l·A of the Code for quashing the investigation was dismissed as being premature and incompetent, but that was because t':e Court found (per Sarkaria L page 797) that pdma facie, the allegation in the F. l. R.

, if taken as correct, disclosed the commission of a cognizable offence by the accused. The only ·other decision to which I need refer is that of the Privy Council in King-Emperor· v. Kawaja Nazir. Ahmad,(') which conscitutes, as it were, the charter of the prosecution all over for saying that no investigation can ever be quashed. In a passage oft- (I) [1963) 2 S. C. R. 52. (2) [1974) 3 S. C. R. 794. (3) 71 I. A. 203. WEST BENGAL v. SWAPAN KUMAR (Chandrachud, c. J. ) 141 quoted but much-misunderstood, Lord porter, delivering the opinion of the Judicial Committee, observed : "In their Lordships' opinion, however, the more serious aspect of the. case is to be found in the resultant interference by the court with the duties of the police.

Just as it is essential that every one accused of a crime should have free access to a court of justice so that he may be duly acquitted if found noi guilty of the offence with which he is charged, so it is of the utmost importance that the judiciary should not interfere with the police in matters which are within their province and into which the law imposes on them the duty of inquiry. In India, as has been shown, there is a statutory right on the part of the police to investigate the circumstances of an alleged cognizable crime with· out requiring an~ authority from the judicial authorities, and it would,' as their Lordships. think, be an unfortunate result if it shou1a be 'held possible to interfere with those statutory rights by an exercise of the inherent jurisdiction of the court. The functions of the .

judiciary and the police are complementary, not overlapping, and the combination of individual liberty with a due observance of law and order • is only to be obtained by leaving each to exercise its own function, always, of course, subject to the right of the court to intervene in an appropriate case when moved under section 491 of the Criminal procedure Code to give directions in the nature of habeas corpus. In such a case as the present, however, the court's functions begin when a charge is preferred before it, and not until then. ', (pp. 212- 213) I do not think that this decision supports the wide proposition ~, canvassed before us by Shri Som Nath Chatterjee. In the case I before the Privy Council, similar charges which were levelled against the accused in an earlier prosecution were dismissed.

The High Court quashed the investigation into fresh charges after examining the previous record, on the basis of which it came to the conclusion that tl:e evidence against the accused was unacceptable. The question before the Privy Council was not whether the fresh F. I. R. disclosed any offence at all. In fact, immediately after the passage· which I have extracted above, the Privy Council qualified its state· J11ept by saying ; · 142 SUPREME COUllT REPORTS [1982) 3 s. c. R. "No doubt, if no cognizable offence is disclosed, and still more, if no Wfence of any kind is disclosed, the police would have no authority to undertake an investigation. " If anything, therefore, the judgment shows that an investigation can be quashed if no cognizable offence is disclosed by the F. I;R.

It shall also have been noticed, which is sometim~s overlooked, that the Privy Council took care to qualify its statement of the law by saying that the judiciary should not interfere with the police in matters which are within their province. It is surely not within the province of the police to investigate into a Report which does not disclose the commission of a cognizable offence and the Code does not impose upon them the duty of inquiry in such cases.. . The position which emerges from these decisions and the other ! decisions which are discussed by Brother A. N. Sen is that the condition precedent to the commencement of inveftigation under section 157 of the Code is that the F. I. R. must disclose, prima facie, that a cognizable offence has been committed. It is wrong to suppose 0 that the police have an unfettered discretion to commence investigation under section 157 of the Code.

Their right of inquiry is conditioned by the existence of reason to suspect the commission of a cognizable offence and they cannot, reasonably, have reason so to suspect unless the F. I. R. , prima fa cie, discloses the commission of such offence. If that condition is satisfied, the investigation must go on and th. e rule in Khwaja Nazir Ahmed (supra) will apply. The Court has then no power to stop the investigation, for to do so would be to trench upon the lawful power of the police to investigate into cognizable offences. On the other hand, if the F. l. R. does not disclose the commission of a cognizable offence, the Court would ,_ .. ---- RBME touat R. Bi>oHs [1982] 3s. c. R, 1975. Enquiry further reveals that the said firm had been offering fabulous interest @ 48% per annum to its members until very recently. The rate of interest has of late been reduced to 36% per annum.

Such high rates of interest were and are being paid even though the loan certificate receipts show the rate of interest to be 12% only. Thus, the amount in excess of 12% so paid clearly shows that ',--. I the 'Money Circulation Scheme' is being promoted and )conducted for the making of quick and/or easy money, prizes and/or gifts in cash were and are also awarded to ) /'\,~ agents, promoters and members too. In view of the above, Saravsree. Bihari Prasad Murarka Sambhu Prasad Mukherjee and Swapan Kumar Guha appear to have been carrying on business in the trade name of 'Sanch~ita Investments' in prize chits and money circulation scheme in violation of section 3 of the Prize Chits and Money Circulation Scheme (Banning) Act, 1976 are therefore, punishable under S. 4 of the said Act. Necessary action may, therefore, be kindly taken against the aforesaid offenders along with other accomplice as provided in the law. Yours faithfully Sd/- Illegible 13. 12.

1980 Commercial Tax Officer, Bureau of Investigation. " On the 13th of December, two of the partners of the firm were arrested. The office of the. firm and also the houses of the partners were searched. Various documents and papers were seized and a large amount of cash was also seized from the office and also from the risidence of one of the partners. _Two partners who were arrested were, however, thereafter enlarged on bail. The firm and its two partners, namely, Shambhu Prasad · Mukherjee and. Bihari Lal Murarka filed this writ petition in the High Court challenging the validity of the F. I. R. and the procedings arising out of the same i~luding the validity of the searches WEST BENGAt v. SWAPAN ltUMAR (A. N. Sen, },) 151 A. and seizure of documents, papers and cash. The respondents in the writ petition were six. The first respondent was the State of West Bengal, Respondents No. 2 was the Officer who had lodged the F. I. R. , Respondent No.

3 was the Assistant Commissioner of Police ·and Superintendent of Police, Bureau of Investigation, and respondent No. 4 was the Investigating Officer in the cases pending before the Chief Metropolitan Magistrate Calcutta. Respondent No. 5 was the Reserve Bank of India and Respondent No. 6 was the Union of India. In brief the case made . bY the firm and its partners in the writ petition is that the firm is a non-banking financial institution which carries on business of accepting deposits or loans from the general public on terms and conditions mentioned in the agreement of loan or deposit, pays interest to persons who invest or advance money to the firm in terms of the. agreement between the parties and repays all amounts received from the parties with~nterest in terms of the agreement between the parties.

The further case made by the writ petitioners in the writ petition is that the amounts which they r~ceive from parties are reinvested by them and out of the investments made by the firm, the firm pays the interest to the depositors and also the principal amount deposited by them in terms of the agreement between the parties. In the writ petition there is a denial of the allegations made in the F. I. R. and the case is further made that even if the allegations made in the F. I. R. are assumed to be correct, there cannot be any question of any violation of the Act and no offenc~ under the Act is disclosed. It is the positive case of the writ petitioners in the writ petition that the Act has no application to the firm. In the writ petition, the validity of the F. I. R. and the proceeding arising therefrom is challenged mainly on the ground that the F. l. R.

does not disclose any offence under the Act which does not apply to the firm and there can be question of any violation of any provisions of the Act which has no application to the firm at all. In answer to the averments made in writ petition, an affidavit affirmed by Shri Arun Kanti Roy, was filed on behalf of respondent Nos. 1 and 2, an affidavit affirmed by Shri Sunil Kumar Chakra. vorty on behalf of respondents Nos. 3 and 4 was filed and an · affidavit affirmed by. Shri Rani Annaji Rao on behalf of the Reserve Bank of India was also filed. In the affidavit affirmed by Arnn Kanti Roy, Deputy Secretary, Finance Department and Ex-officio Director 152 SUPREM" COURt REPORTS [1982] 3 s. c. K. of Small Savings, Government of West Bengal, on behalf of Respondents No. I and 2, that is, the State of West Bengal and Shri B. K. Kundu, there is an assertion that the Respondents come within the mischief of the Act and they have violated S. 3 of the Act. The .

relevant averments are contained in paragraphs 6, 7, 8 and 9 of the said affidavit and it is necessary to· set out the same in their entirety : "6. With reference to paragraphs 3 and 4 of the petition, I say that the petitioner firm accepts loans and/or deposits from all and sundry for varying periods without any authority of law. Although the professed rate of interest ,of such deposit is at the rate of 12% per annum, the petitioner firm was actually paying interest at the rate of 48% per a! mum, which was recently reduced to 36% per annum. The actual payment of such high rate of interest against the professed rate of 12% attracts huge amount of idle money into circulation and the investment of money as collected is not under the regulatory control of the Reserve Bank of India or any other agency of the State dealing with credit control in relation to the country's economy.

The receipt of such money from the members of public at such high rate of interest is without any fetters as against the case of the receipt of money by banking companies as also non-banking companies which are regulated under different provisions of law, to which I ·will crave reference at the time of hearing, tf necessary. The pooling of the purchasing power and/or the financial resources and the employment there of being unfettered has resulted in the concentration of tremendous economic power in the hands of a few posing a potential threat to > the equilibirium of the country's economy. The term of the deposit are unilaterally determined without any scrutiny by the Reserve Bank of India or with reference to the norms as to the credit control which the said Bank lays down and follows from tiiμe ! to time.

The acceptances of such deposits from the members of public with unrestricted use of the moneys so collected are completely repugnant to the accepted modes of public savings and investment thereof for generation of goods and services contributing to the economic growth of the country. The entire process is WEST BIJNOAt v. SWAPAN KUMAR (A. N. Sen, J. \ 153' . A speculative in nature and directed towards luring away the investing public to the speculative market for making quick and easy money. These are some of the activities which are sought to be banned by the banning provisions of the said Act, which has replaced similar regulatory measures , . contained in the several directions issued by the Reserve. Bank of India under the Reserve Bank of India Act, 1934, to the various financial institutions and non-banking companies, The present Act is applicable not only to such companies but also to individuals and firms. All allegations contrary to and save as aforesaid are denied. 7.

· With reference to paragraph 5 of the petition I call upon the petitioner to disclose full particulars of their deposit scheme, which is disclosed will go to show that the terms and conditions are wholly arbitrary and contrary to the economic norms. The very basis of the so called contractual arrangement between the petitioner firm and its depositors is founded on the fradulent device to assure the people with a high rate of interest, the major portion of which is paid through unaccounted for money, thereby encouraging growth of such unaccounted for money in the hands of the investing public. The professed rate of interest is a mere subterfuge to provide a cloak of bonafide and legality over the under-hand transactions through which unaccounted for money comes into play in the market generating further unaccounted for money, a part thereof goes back to the depositors in the form of the balance of interest over 12% paid in cash month by month.

All allegations contrary to and save as aforesaid are denied. 8. With reference to paragraph 8 of the petition I say that the petitioners have been very much working on the above scheme to which the depositors have subscribed. Whether such deposits are one time deposits and whether such deposits actually earn income in excess of the interest actually paid to the depositors or a matter of detailed investigation, which were in progress until the same was stopped by the order cif the learned Court of Appeal passed on 8th January, 1981. From whatever particulars are so far available to the answering respondents it can be B4 SUPIU! Mlreoukt REPoRts . J il982J 3s. c. R. stated that the firm did not have so much income as the quantum of interest that was being paid by it and the irresistibal conclusion from such state of affairs is that payment of interest was being made out of capital itself. All allegations contrary to and save as aforesaid are denied. 8 9.

With reference to paragraph 7 of the petition I reiterate the statements made· hereinbefore and deny all allegations contrary thereto. I specifically deny that no • quick or easy money is accepted or received by the depositors or lenders or that payment of any such meney is not contemplated or made by the firm as purported to be alleged. The depositor becomes a member of the invest· ment scheme of the company by subscribing to it and the payment of the quick and easy money by way ofhigh rate of interest is dependent upon the period of investment and/ or effiux of time which are very much relative and/or applicable to the membership of. the depositors of the scherr e, to which the depositor agrees to. subscribe. In the process of its working the scheme of the firm generates quick and easy money so as to render such scheme or arrangement as a money circulation scheme within the mea. ning of the said Act. All allegations contrary to and save as aforesaid are denied.

The followin~ further averments contained in paragraph 22 and in paragraph 30 of the said affidavit may also be noted : "22............... I further say that payment of interest at the clandestine rate of 36% or 46% as against the aforesaid rate of 12% is in the context of the scheme promoted and conducted by the petitioners tantamount to activity which is banned under the banking provisions of the said Act. 30............. No question of the depositors being ruined should arise if the petitioners had been runuing their business on sound economic line and had invested the fund collected from the depositors in safe and sound investment. The weSr BENGAL v. SWAPAN KUMAR (A. N. Sen, J. ) ! SS very fact that the petitioners are apprehersive of innumerable depositors being ruined goes to show that they engaged themselves and also the depositors in the spE'culative market and have rendered the investment insecure by reasons of the very nature of the business i. e.

money circulation scheme transacted by them. " In the affidavit affirmed by Shri Sunil Kumar Chakraverty, Assistant Commissioner of Police and Deputy Superintendent of Police, Bureau of Investigation, Government of West Bengal, Finance, Taxation Department and filed on behalf of Respondents Nos. 3 and 4, the deponent adopts the. statements made in the affidavit of Arun Kanti Roy and the deponent denies that the searches and seizures were unlawful and illegal. The deponent further stated that as a result of the searches effected a mass of documents and a large amount of cash had been seized and the documents were being scrutinised. In the affidavit affirmed by Shri Rani Annaji Rao, filed on behalf of Reserve Bank of Jndia, the deponent has stated that the Jl. eserve Bank of India which has no regulatory control over the firm has been unnecessarily made a party to ilie proceeding. It has been further stated in ·the said affidavit .

that as desired by the parties and the Court, the Reserve Bank of India was placing the materials which had come to the knowledge of the Reserve Bank. In this affidavit reference has been made to . certain correspondence between the State Finance Minister, Union Finance Minister and the Deputy Governor of the Reserve Bank of India and also to various queries made and the enquiries made by the Reserve Bank of India. It has been further stated that the view of the legal department of the Reserve Bank on the basis of the enquiries made had Leen indicated to the Finance Minister of the State of West Bengal. In this connection it will be relevant to set out two letters which have been annexed to the said affidavit filed on behalf of the Reserve Bank of India and are annexures D and E thereto. Annex.

ure is the copy of a letter addressed by Shri Ashok Mitra, State Finance Minister to the Union Minister for Finance and the said letter reads · as follows : "Informally handed over to DG (K) at Calcutta. Ashok Mitra D. O. No. IM. 28-2-80 Calcutta, October 1, 1980 156 SUPREME COUl!. t REPORTS [1982) 3s. c. i\.. Dear Shri Venkataraman, In the con1ext of the action being taken by the Government of West Bengal . under the Prize Chits and Money Circulation Schemes {Banning) Act, 1978, a question has arisen whether an organisation called 'Sanchaita Investments, with the address at 5 & 6, Fancy Lane, Calcutta-I come within the purview of the above Act. A reference in the matter has been made by our authorised officer under the above act to the Chief Officer, Department of Non- Banking Companies, Reserve Bank of India, Calcutta today.

I am enclosing a copy of an advertisement published by the above organisation in the local newspapers as also a copy of a loan certificate receipt issued by the said organisation. I may mention that the authorised officer has issued notice under the above Act to a "Sanchaita Savings Sch~me {P) Ltd. " which is to be distinguished from 'Sanchaita Investments'. It appears that the organisation called "Sachaita Investments" is receiving large amount of monies from the public ostensibly as loans, and in lieu they are issuing loan certificates receipts. While we have no documentary evidence, the ne~s is strongly circulating in the market that the organisation is in fact offering rates of interest as high as 30 to 40 per cent ev~n though the loan certificate receipts indicate a rate of interest of 12 per cent only. There seems reasonable grounds for suspicion that this organisation is involved in extremely high-risk investments which only can enable them to pay such rates of interest.

Since the security of monies deposited by the . public is involved, we would suggest that a thorough enquiry be conducted by the Government of India into the activities of this organisation particularly for finding out whether they are infringing provisions of any relevant status. It is felt necessary to conduct such an investigation on an urgent basis since large amounts of public monies are reported to be kept with this organisation, which does not seem as yet to have subjected to any regulatory control. We are meanwhile awaiting a reply to our reference (copy enclosed) to the Reserve Bank of India regarding the applicability of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 to this organisation. WEST BENGAL v. SWAPAN KUMAR (A. N. Sen, J. ) 157 With regards, Yours sincerely, Sd/- Ashok Mitra Shri R. V. Venkataraman, Union Minister for Finance, North Block, New Delhi-110001" Annexure E is a letter by Shri K. S. Krishnaswamy, Deputy Governor of Reserve Bank to Dr.

Ashok Mitra, State Finance Ministry. The said letter is also here further set out : "D. O. DNBC No. 2020/102 (Gen) L0-80/81 22nd Oct. , 1980 Sanchaita Investments. My Dear Ashok, You might recall that during my recent visit to Calcutta; you had sent me a copy of your D. O. Letter dated October I, 1980 to Shri Venkataraman, Union Minister for Finance as also of a letter dated September 30, 1980 addressed to our Chief Officer, DNBC, Calcutta, in connection with the above firm. I have had the position examined by our Legal Department. According to them (vide extract of the note dated 17th October, 1980, enclosed for your confidential information) the acceptance of loans simpliciter by the firm by issue of receipts (as per the specimen received by us from our Calcutta Office) without floating any scheme or arrangement would not ordinarily be covered by the definition of "Prize Chit" and hit by the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978.

However, you may also like to consult your Legal Adviser on the subject. - 2. As you may know, there are a few writ petitions pending in the Calcutta Hijjh Court where the interpreta- 158 SUPRBMB COURT REPORTS (1982] 3 S. C. R. tion of section 2 (e) of the Banning Act is involved. In ·that context I have thought it advisable to write to you on a confidential basis, rather than send a separate official reply. I shall therefore be grateful if you could leave instructions with your staff to keep this matter and the views of ollr legal department strictly confidential. With warm regards, Sd/- K. S. Krishnaswamy Dr. Ashok Mitra, Miiiister of Finance" Further supplementary affidavits had also been filed.

On consideration of the facts and circumstances of this case and the materials which were placed before the learned Judge, the learned Judge came to the conclusion that the Act did not apply to the firm and the learned Judge further held that the searches and seizures were also wrongful, illegal and i01proper; and in view of his finding the learned Judge quashed the proceedings and directed the return of all documents and the refund of cash monies seized, to tbe ·writ-·petitioners. It appears from the judgment of the learned Judge that the matter had been very fully argued before him and the learned Judge in an elaborate judgment had considered the arguments advanced before him and thereupon recorded his findings and passed the order allol' AN KUMAR (A. N. Sen, J. ) 183 any violation of S. 3 of the Act does not arise in the instant case.

As the firm is not conducting or promoting a money circulation scheme, and as no case is made that the firm is conducting or promoting a chit fund, the Act cannot be said to be applicable to the firm. In my opinion, it does not become necessary to refer . to the rules for coming to the conclusion. I may, however, add that considertion of the rules also clearly lends support to the conclusion to which I have come. I find that the learned Jud. ge has very carefully and elaborately considered all the aspects in his judgment and in the course of elaborate discussion, he has noted all the contentions raised by the parties and has careful! ~ considered them. The learned Judge on a careful consideration of all aspects and on a proper interpretation of the Act, has expressed the view that no olfence under the Act is disclosed against the firm which does not conduct or promote money circulation scheme or chit fund and the Act has no application to the firm.

It may also be noted that the learned Judge has also in his judgment referred to the report of the Reserve Bank and the opinion of the learned Advocate General of the State which lent support to the view taken by the learned Judge. The view expressed by the learned Judge that the materials do not disclose that the firm is promoting or conducting a money circulation scheme and the Act has, therefore, no application to the firm meets with my approval and I agree wiih the same. Before concluding it will be pro per to refer to the decision of . this Court in'the case of Srinivas Enterprises v. Union of India(') which were relied on before the learned Judge and has been considered by me. In this case, the validity of the Act was challenged before this Court while upholding the validity of the Act for reasons ' i stated in the judgment, Krishna Iyer, J. who spoke for the Beneh ' observed at p.

514 as follows :- "In many situations, the poor and unwary have to be saved the seducing processes resorted by unscrupulous racketeers who glamourize and prey upon the gambling instinct to get rich quick through prizes. So long as there is the restless spell of a chance, though small, of securing prize, though on paper, people change the prospect by ff c11 [1980J 4sec so1. 184 SUPREME C<il1RT REPORTS (1982) 3 s. c. a. subscribing to the speculative scheme only to lose what they had. Can you save moths from the fire except by putting out the fatal flow ? ·once this prize facet of the chit scheme is given up, it becomes substantially a 'conventional chit' and the ban of the law ceaS'es to operate. We are unable to pursuade ourselves that the State is wrong in its assertion, 8 based upon expert opinions that a complete ban of prize chits is an everall or excessive blow. Therefore, we decline to strike down the legislation on the score of Article 19 (! ) (f) and (g) of the Constitution.

" :. 1 As I have earlier noticed the materials iu the instant case do not disclose any element of chance in the matter of business carried on by the firm. It may however, be said that these observations which were made while dealing with a case of chit fund are not of very great assistance while considering what may be a money circulation scheme within the meaning of the Act. As no offence under the Act is at all disclosed, it will be manifestly unjust to allow the process of criminal code to. be issued or continued against the firm and to allow any investigation which will be clearly without any authority. In the view that I have taken, I do not consider it necessary to deal with other aspects namely, as to whether the "searches and seizures were lawfully and properly done. I, therefore, hold that the proceedings against the firm and its partners arising out of the F. I. R. must be quashed as the F. l. R.

and the other materials do not disclose any offence under the Act and as such no investigation into the affairs of the firm under the Act can be permitted or allowed to be continued. I, accordingly, quash. the proceedings against that firm and its partners and order that no investigation under the Act into affairs of the firm is to be carried on or continued. I agree with the final order proposed by the learned Chief Justice in regard to the return of the documents, books an! l cash. WBST BBNOAL v. SWAPAN KUMAR ( A. N. Sen, J. ) t 85 A The appeal, therefore, fails and is dismissed. I, however, make no order as to costs. The Judgment in Civil Appeal No. 1130 of ~1981 will also govern Civil Appeal No. 1129 of 1981. B N. V. K. Appeals dismissed. \