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Kuriachan Chacko, Achamma Chacko vs State Of Kerala(239cRpc)

Kerala High Court
Kuriachan Chacko, Achamma Chacko And Linu Joy W/O. Joy John vs State Of Kerala
19/7/2007

ORDER

R. Basant, J.

1. Man’s quest to make quick and easy money – to live not by the sweat
  of his brow, has been the cause of his fall from the halo of virtue on
  this planet. The yearning to make quick and easy money by means fair or
  foul has been central to the concepts of unfairness and criminality in
  all societies at all times. Exploiting his own superior faculties –
  physical , mental, intellectual or spiritual, man has always attempted
  to arrogate to himself what belongs legitimately to his brother beings.
  Individuals, families, communities, nations, races and generations have
  attempted to do this. Visionaries and sublime societies have always
  attempted to avoid and eliminate such exploitation of man by man. But,
  unfortunately the story of human civilisation is the tragic tale of
  such unsuccessful attempts. The result is the inequitable and unjust
  world order that we are left to face. I have said so much as I am
  called upon to interpret the Statute – ‘The Prize, Chits & Money
  Circulation Scheme (Banning) Act, 1978′ (hereinafter referred to as
  `the Act’) which in its core is an attempt by the Indian Parliament to
  curb and control this basic instinct of the beastly man to make quick
  and easy money by exploiting the same yearning of his own gullible,
  stupid and foolish brotheren.

2. The State and the accused are before me with these six revision
  petitions – all challenging the same common order and the task before
  me is to decide whether the revisional powers of superintendence and
  correction deserve to be invoked to interfere with the impugned order
  under which the learned Chief Judicial Magistrate, Ernakulam

(i) directed the framing of charges against all the accused persons
  under Section 2(c) read with Sections 3, 4 and 5 of the Act and
  Section 420 of the IPC.

(ii) refused to frame charges against the accused under Section 2(e)
  read with Sections 3, 4 and 5 of the Act.

3. Though the State has challenged the refusal to frame charges under
  the provisions of the Reserve Bank of India Act also, after discussions
  at the Bar, in the course of the arguments before me, the learned
  Special Public Prosecutor/Additional Advocate General has not chosen to
  seriously challenge the said aspect. I am hence not proceeding to
  consider that aspect in detail.

4. The basic facts are simple. The petitioners are persons – partners
  of a firm and employees, who conduct a Scheme by name “LIS
  Deepasthambham Scheme”. The scheme is apparently simple in its
  conception. A person has to pay Rs.625/- and purchase one unit from the
  promoter. The promoter will make use of Rs. 350/- to purchase 35
  lottery tickets of the Kerala State Government lotteries each for Rs.
  10/- for the unit holder for the next 35 weeks. If the unit holder wins
  any prize upto Rs. 5,000/- in the 35 draws in respect of the tickets,
  the promoter shall collect the same and pay the same to the unit
  holder. If he wins any prize above Rs. 5,000/-, the ticket shall be
  handed over to the unit holder for collection. The balance of Rs. 275/-
  will be used to make the unit holder a subscriber of a magazine by name
  “Thrikalam” for one year. The said magazine will reproduce relevant and
  important materials from other magazines. It will also furnish
  information about the lottery tickets which have won prizes.

5. The unit holder will be returned not only Rs. 625/- which he has
  initially invested, but twice his investment i.e., Rs. 1,250/- (less
  Rs. 100/- as service charges for the promoter and legal deduction for
  tax etc.,) on an early date.

6. Very attractive! The gullible would flock on hearing the proposal.
  What easy and quick money! How do you do this? A few at least may ask.
  If their queries are not satisfied, there will be no takers. The law
  does not oblige the promoter of a business venture to explain. But the
  promoter indulgently offers an explanation. To be credible, explain he
  must. Hence there is an explanation and this is the explanation that is
  offered.

7. When 35 tickets of Rs. 10/- each are purchased, the Government pays
  a commission of 28% of which the promoter is indulgently prepared to
  share 25% with the unit holders. The publisher of the magazine gives a
  commission of 30% to the promoter. The promoter indulgently shares 25%
  with the unit holder. These amounts are available with the promoter. In
  the order of strict seniority, the senior most unit holder will be paid
  Rs. 1,250/- as soon as the requisite amounts are available as
  commission with the promoter. The promoter in addition to the 28%
  commission for the lottery ticket and 30% commission for the magazine,
  may also get commission for the prizes won by tickets sold through the
  promoter. These amounts will also be entirely made available to be paid
  to the unit holders. If a unit holder is paid Rs. 1,250/- before the
  expiry of the period of 35 weeks, no lottery tickets will be purchased
  on his behalf thereafter. Similarly, if Rs. 1,250/- is paid to the
  subscriber before the expiry of the period of one year, Thrikalam
  magazine will not be sent to the subscriber thereafter. The prize of
  such unpurchased lottery tickets and unissued magazines will also be
  available to the promoter to pay this amount of Rs. 1,250/-. Therefore
  the scheme is viable and workable. All persons will double their
  investment at the earliest. No specific time limit is given. But it is
  assured that the amount will be doubled at the earliest. There are
  veiled suggestions that the return will be made before the expiry of 35
  weeks and as soon as 14 more members are enrolled. Payment shall be
  made strictly in accordance with seniority. The advantage of technology
  is also borrowed. Passwords can be chosen. There is a web site for the
  promoter. The unit holder can have access using his password and the
  site would reveal all details about the tickets purchased on behalf of
  the unit holder by the promoter. The unit holders shall thus know the
  details of the tickets purchased for them by the promoter and shall
  also be able to ascertain whether any prizes have been won by any
  ticket purchased on their behalf by the promoter.

8. The idea appears to have caught the imagination of many and the
  membership collection during a short period of time had exceeded Rs.
  450 Crores admittedly. The amounts were being paid to the unit holders
  promptly – on many occasions even before the expiry of 35 weeks. More
  and more subscribers joined the queue. There was aggressive publicity
  and marketing. The scheme was proceeding very happily. More and more
  amounts were coming into the kitty of the promoter from the unit
  holders.

9. The applecart was upset when the Inspector General of Police
  registered a crime alleging the commission of the offences punishable
  under the Act and Section 420 of the IPC. Investigation commenced. An
  attempt was made to preempt the investigation by a request to quash the
  crime registered by invoking the powers under Section 482 of the
  Cr.P.C. A Division Bench of this Court headed by the Hon’ble Chief
  Justice V.K. Bali rejected the said prayer by the common judgment in
  W.P.(c) Nos.12775 and 13152/2006 & Crl.M.C. No. 1377/06 dated 5/7/2006.
  Thereafter, after completing the investigation, final report was filed
  by the Investigating Officer.

10. Before the learned Chief Judicial Magistrate, who entertained the
  final report and took cognizance, a contention was raised at the stage
  of Section 239/240 of the Cr.P.C. that charges are not liable to be
  framed under Section 2(c) and 2(e) read with Sections .3, 4 and 5 of
  the Act and Section 420 of the IPC. As stated earlier, I am not
  referring to the charges under the provisions of the R.B.I. Act. The
  learned Magistrate proceeded to hold that the charges are liable to be
  framed for the offences punishable under Section 2(c) read with Secs.3,
  4 and 5 of the Act and Section 420 of the IPC. The charges are not
  liable to be framed under Section 2(e) read with Secstions 3, 4 and 5
  of the Act, it was further held.

11. The anxiety of the State to properly defend the charges is evident
  from the fact that the learned Additional Advocate General has been
  specially appointed as the Special Public Prosecutor for the conduct of
  this case. Detailed arguments have been advanced. Following questions
  do arise for determination:

(i) Is the questions concluded by any earlier decision of this
  Court?

(ii) Are the charges which are directed to be framed groundless as
  to warrant discharge under Section 239 of the Cr.P.C.?

(iii) Did the learned Magistrate err in coming to the conclusion
  that the charges levelled against the petitioners under Section 2(e)
  read with Section 3, 4 and 5 of the Act are groundless as to justify
  discharge?

(iv) Is the Investigating Officer prompted by mala fides?

12. Before proceeding to consider these contentions specifically it
  will only be apposite to refer to the quality of consideration of
  materials by a criminal court at the stage of Section 239/240 of the
  Cr.P.C. In a warrant case instituted on a police report, the Magistrate
  is obliged to consider the police report and the documents sent with it
  under Section 173 of the Cr.P.C. and come to a conclusion as to whether
  the charge against the accused is groundless. In that event, the
  accused has to be discharged. In all other cases it will have to be
  held that there is ground to presume that the accused has committed the
  offence and charges must be framed under Section 240 of the Cr.P.C. I
  extract below Sections 239 and 240 of the Cr.P.C:

239. When accused shall be discharged.– If, upon considering the
  police report and the documents sent with it under Section 173 and
  making such examination, if any, of the accused as the Magistrate
  thinks necessary and after giving the prosecution and the accused an
  opportunity of being heard, the Magistrate considers the charge
  against the accused to be groundless, he shall discharge the
  accused, and record his reasons for so doing.

240. Framing of charge.– (1) If, upon such consideration,
  examination, if any, and hearing, the Magistrate is of opinion that
  there is ground for presuming that the accused has committed an
  offence triable under this Chapter, which such Magistrate is
  competent to try and which, in his opinion, could be adequately
  punished by him, he shall frame in writing a charge against the
  accused.

(2) The charge shall then be read and explained to the accused, and
  he shall be asked whether he pleads guilty of the offence charged or
  claims to be tried.

13. It is important that there can be no third category of cases. All
  cases must either fall under Section 239 or Section 240 of the Cr.P.C.
  Once it is found that the charges are groundless, it will have to be
  presumed that there is sufficient ground at that stage to show that the
  accused has committed an offence triable under the law. The quality of
  consideration under Sections 239 and 240 of the Cr.P.C. has often been
  referred to loosely as verifying whether there is a prima facie case.
  The question of framing charges does arise in three different
  situations in the Code depending on the nature of the offence alleged
  and the manner in which the proceedings are initiated. Sections 227/228
  (sessions trial), 239/240 (warrant trial – police charge) and
  245(1)/246 (warrant trial – private complaint) are the situations. I
  extract the relevant provisions.

227. Discharge.– If, upon consideration of the record of the case
  and the documents submitted therewith, and after hearing the
  submissions of the accused and the prosecution in this behalf, the
  Judge considers that there is not sufficient ground for proceeding
  against the accused, he shall discharge the accused and record his
  reasons for so doing.

228. Framing of charge.– (1) If, after such consideration and
  hearing as aforesaid, the Judge is of opinion that there is ground
  for presuming that the accused has committed an offence which….

245(1) When accused shall be discharged.– (1) If, upon taking all
  the evidence referred to in Section 244, the Magistrate considers,
  for reasons to be recorded, that no case against the accused has
  been made out which, if unrebutted, would warrant his conviction,
  the Magistrate shall discharge him.

(2) x x x x x x x x

246. Procedure where accused is not discharged.– (1) If, when such
  evidence has been taken, or at any previous stage of the case, the
  Magistrate is of opinion that there is ground for presuming that the
  accused has committed an offence triable under this Chapter, which
  such Magistrate is competent to try and which, in his opinion, could
  be adequately punished by him, he shall frame in writing a charge
  against the accused.

14. It is important to note that the consideration under Sections 227
  and 228, 239 and 240 and 245(1) and 246 of the Cr.P.C. are identical;
  in the sense that it will first have to be decided whether the
  proceedings are liable to brought to termination at that stage and if
  not, the court is to presume guilt and proceed to the next stage of the
  proceedings. There can be no third category of cases which do not fall
  within either of the two Sections in these pairs.

15. A careful consideration of Sections 227 and 228, 239 and 240 and
  245(1) and 246 of the Cr.P.C. must show that in all these three
  instances if the cases do not fall under the former of the pairs it has
  got to fall within the latter of the pairs. Though loosely the
  requisite satisfaction is referred to as a prima facie case, to me, it
  appears that it would be idle to assume that the quality of
  consideration of the materials at these stages are identical in all
  respects. When it comes to a police charge, discharge under Section 239
  of the Cr.P.C. is possible only if the court entertains the
  satisfaction that the charge is groundless. This is evidently a shade
  different from the satisfaction which must be entertained under Section
  245(1) of the Cr.P.C. Both would come under the generic description of
  a prima facie case. The legislature appears to have realistically taken
  note of the fact that a police charge comes before the court after it
  is vetted by the instrumentality of the police which is an
  indispensable part of the criminal justice delivery system.

16. To sum up, I do note that a discharge under Section 239 of the
  Cr.P.C. is possible only when the court entertains the satisfaction
  that the allegations/charge against the accused is groundless. No
  detailed evaluation of the materials or meticulous consideration of the
  possible defences need be undertaken at this stage. The exercise of
  weighing materials in golden scales is certainly not to be undertaken
  at this stage and has to be postponed to a later date. Is the
  allegation/charge groundless? That alone need be considered at the
  stage of Section 239/240 of the Cr.P.C.

17. It will be apposite straightaway to deal with the first contention
  that two earlier decisions of this Court have held that the LIS
  Deepasthambham Scheme/Project does not fall within the mischief which
  is sought to be remedied under the Act. Reliance is placed on the
  decisions of a single Judge in Crl.M.C. No. 2912/05 and a Division
  Bench of this Court in W.P. (c) No. 33743/05. To my mind, these
  decisions cannot at all deliver any advantage to the accused as the
  relevance of those decisions and the bearing of those decisions on the
  present prosecution have been considered by a subsequent Division Bench
  ruling of this Court in W.P.(c) Nos.12775 & 13152/06 dated 5/7/06. I am
  bound by the said findings of the Division Bench (see para-18 in
  particular) which has dealt with both decisions.

18. The observations in the two earlier decisions cannot, in these
  circumstances, have any bearing on the question raised before me in the
  light of the subsequent decision of the Division Bench in which both
  those earlier decisions have been referred to in para-18 and it has
  been held categorically that those observations/decision can have no
  bearing on the present prosecution. In these circumstances, it is
  unnecessary for me to delve deeper into that contention.

19. The contentions are raised as to what exactly is the LIS
  Deepasthambham Scheme/Project. I have already extracted above what that
  Scheme means. That is the prosecution case about the Scheme. I am not
  proceeding to analyse the materials available in detail. Suffice it to
  say that I have gone through all the relevant documents to ascertain
  the prosecution case about the Scheme. In particular, I may mention
  that I have taken note of the minutes of the partners dated 16/11/02
  and the literature about the Scheme and the advertisements made about
  the Scheme. It will certainly be for the contestants in the course of
  trial to establish if there be such a contention that the Scheme really
  is not what it purports to be as revealed from these documents.

20. I shall now consider the second question whether the charge under
  Section 420 of the IPC and Section 2(c) read with Sections 3, 4 and 5
  of the Act are groundless.

21. The prosecution has built up its case on the plea that the Scheme
  is a mathematical impossibility and the promoters of the Scheme know
  for certain that this Scheme cannot function properly. It is the case
  of the prosecution that an unworkable Scheme making tall promises which
  the makers of the promise know fully well cannot work successfully has
  been offered for the public for their consumption. The very contention
  is that the Scheme is so grossly untenable that the makers of the
  promise know fully well that these promises are false. Such promises
  are made to induce persons to part with money on the lure of doubling
  the same. The Scheme would work for some period as Paul can be robbed
  to pay Peter and ultimately when there is a large mass of Peters they
  will be left in the lurch without any remedy as they would by then have
  been deceived and deprived of their money.

22. The question therefore is very important as to whether the Scheme
  is a possibility or is only a tall false claim made to fraudulently
  induce persons to part with their money. In this context, it has to be
  seen that the profitable working of the Scheme is impossible from the
  very nature of the Scheme offered. Simple arithmetics reveal that
  utilising the amount of Rs. 625/-, only an amount of Rs. 180.50 will be
  available as commission of which Rs. 24.25 is claimed by the promoter
  and Rs. 156.25 is offered for payment to the unit holders. The details
  of the same are given below:
  Commission
Head Amount Total Percentage For the Promoter For the S
ubscriber
  Amount Percentage/Amount Percentag
e/Amount
Lottery Tickets Rs. 350/- 28% (Rs. 98/-) 3% (Rs. 10.50) 25% R
s. 87.50
Magazine Rs. 275/- 30% (Rs. 82.50) 5% (Rs. 13.95) 25% R
s. 68.75
Total Rs. 625/- Rs. 180.50 Rs. 24.25 R
s.156.25
Deficit in each
If Rs. 625/- were to be returned = 625 – 156.25 = Rs. 468.75
Deficit in each
If Rs. 1250/- were to be returned = 1250 – 156.25 = Rs. 1093.75

If the amount of Rs. 625/- were to be returned, there will be a deficit
  of Rs. 468.75. If double the amount i.e., Rs. 1,250/- were to be
  returned, there will be a deficit of Rs. 1,093.75. Therefore for every
  person for whom double payment is made, the promoter will have to make
  Rs. 1,093.75 and this obviously is paid to him from the money 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 without
  any culpable motive on the honest assumption that the tickets sold
  through them will win prizes and sufficient commission will be
  available to pay double the amount to all the unit holders.

23. I take note of the fact that inherently there is merit in the
  allegation of the prosecution that the Scheme is so grossly unworkable
  that the persons who made representations to that effect and induced
  persons to part with money did entertain the contumacious intention.
  They knew fully well that unworkable false representations were being
  made. The obvious attempt, it can be presumed at this stage, was to
  induce persons by such false unworkable representations to part with
  money. Initially some subscribers can be kept satisfied to induce them
  and others similarly placed to join the long queue. But inevitably and
  inescapably later subscribers are bound to suffer unjust loss when they
  swallow the false promises and make payments.

24. The offence of cheating under Section 415 of the IPC is defined in
  the following words:

415. Cheating.– Whoever, by deceiving any person, fraudulently or
  dishonestly induces the person so deceived to deliver any property
  to any person, or to consent that any person shall retain any
  property, or intentionaloly induces the person so deceived 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,
  is said to “cheat”‘.

Explanation.– A dishonest concealment of facts is a deception
  within the meaning of this section.

The representation must be false. The maker of the representation must
  know that the representation is false. He deceives the victim to
  believe that the representation is true. He induces the victim to act
  on such false representation. The victim does or omits to do an act
  which he would not have/would have done but for the deception practised
  on him. This is the ingredient of the offence of cheating and to my
  mind, at least, at this stage, until better explanations are
  forthcoming it must be assumed and presumed that the accused have
  committed the offence of cheating punishable under Section 420 of the
  IPC.

25. The next question is as to whether the offence under Section 2(c)
  of the Act would be attracted. Section 2(c) defines a money circulation
  scheme. It does sound complicated. But there can be no better method of
  understanding the said statutory provision than to follow the
  rearrangement of the words of the Section without making any change as
  done by Justice Chandrachud in para-7 of the decision in State of West
  Bengal v. Swapan Kumar Guha . I extract the said
  rearranged Section in para-7 of the decision in State of West Bengal v.
  Swapan Kumar Guha below:

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;

26. The learned Counsel for the petitioners first of all contends that
  there is no Scheme at all. The expression “Scheme” in the definition in
  Section 2(c) of the Act has to be understood fairly and naturally
  conscious of the mischief which the enactment seeks to curb. In that
  view of the matter, the expression “Scheme” in Section 2(c) of the Act
  can only mean any arrangement venture or project which satisfies the
  other requirements of the Section. LIS Deepasthambham Scheme/Project,
  it can safely be assumed at this stage is a Scheme as contemplated by
  Section 2(c) of the Act. It, no doubt, offers great potential for
  making quick and easy money, you deposit Rs. 625/- and walk away with
  Rs. 1,250/- within a short period of time. Of course, the time is not
  specifically stipulated. But the Scheme taken as a whole as revealed
  from the literature and advertisements offers quick and easy return of
  double the investment. It is certainly a project under which money is
  received from the customer with a promise to pay a higher quantum of
  money in return. Clauses (i) and (ii) of the rearranged definition
  extracted above are both certainly satisfied by the LIS Deepasthambam
  Scheme.

27. The only question is whether the promise to pay the double amount
  is on any event or contingency relevant or applicable to the enrolment
  of members into the Scheme. All guns are trained by the learned Counsel
  for the accused on this aspect. He contends that in this case there is
  no event or contingency relevant or applicable to the enrolment of
  members to the Scheme on which payment of double the amount depends. He
  contends that the members are not called upon to enrol other members
  and there is no specific statement that on enrolment of a stipulated
  number of members, the first member shall be paid the double amount.

28. The learned Counsel for the accused borrows from the dictionary to
  explain the words “event” and “contingency”. I am of opinion that the
  expression “event” or contingency has to be understood in their plain
  meaning and not in any technical or legalistic sense. If return of the
  money would depend upon enrolment of members of the Scheme, certainly
  the requirement of the section will be satisfied. In the instant case,
  it is clear as a day light that if more members are not enrolled and
  unit price is paid by them payment of double the amount cannot be made.
  It is easy to understand if one is not gullible and naove, that the
  scheme offers double the amount on the fundamental assumption that more
  members will join and amounts shall be available with the promoter. If
  there is no further enrolment, obviously payment cannot be made. I do
  not want to encumber the records with any specific findings. But the
  conclusion is inevitable that the literature and the advertisements
  clearly and unmistakably indicate that it is only when 14 more members
  are enrolled in the scheme that the first member can think or hope of
  getting double the amount as the return promised to him. There are
  clinching indications in such publications to show that after the first
  member, two members must be enrolled and after those two members two
  each must be enrolled and under those four members two each must be
  enrolled thus making in all 15 members (1 + 2 + 4 + 8) to make it
  possible for the first member to get his amount (twice the investment).
  I do not ignore the fact that it is not specifically stated that the
  first member will get double the amount after 14 members are enrolled
  by him or through him. Instead, it is said that the commission
  available shall be placed separately and when that amount is sufficient
  to pay double the amount, such amount shall be released to the first
  member. Such payment shall be made strictly in accordance with
  seniority, it is asserted. It is important to note that there is no
  claim even that the money is invested in any other project which would
  bring better returns. Commission is the only source by which the scheme
  makes money admittedly. The same can increase only when the number of
  unit holders increase.

29. It is contended that no victim has actually come forward to
  complain about cheating. All the unit holders so far have been paid the
  amounts due to them. In these circumstances, in the absence of a
  specified person to complain about cheating the charge of cheating
  would not lie, it is contended. I find no merit in this contention. The
  allegation is of cheating by devising a scheme. In the initial days of
  the scheme all the unit holders may be richly rewarded. Any such
  devious scheme of deception must initially catch the imagination of the
  gullible. With this end in view it is possible that money will be
  pumped in at the initial stages to induce the gullible to purchase the
  idea. The mere fact that no specific individual unit holder has raised
  any complaint yet, even if the same were to be accepted as true, cannot
  in any way affect the allegation of cheating when the cheating is
  directed against a large section of humanity though not specifically
  ascertained and though none of them has come forward yet to make a
  specific complaint.

30. It is contended that unless there is reciprocity, there cannot be
  any money circulation scheme. In short, the contention is that any such
  scheme to be culpable must be a scheme in which the alleged victim does
  also have a positive and dominant role to play in the implementation of
  the scheme. The learned senior counsel Sri. M.K. Damodaran contends
  that in the scheme in question there is even allegedly no specific
  obligation/burden on the shoulders of any unit holder to enrol any
  further members/unit holders. The unit holder has no obligation in the
  scheme to enrol more members/unit holders. Such a scheme will not fall
  within the mischief of Section 2(c) of the Act, it is vehemently
  contended. The following observations in para-8 of State of West Bengal
  v. Swapan Kumar Guha is relied on with great
  vehemence by the learned Counsel for the petitioners. I extract the
  said Para-8 below:

The systematic programme of action to be a consensual arrangement
  between two or more 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 conducts the programme promises, on receipt of an
  advance or loan, to pay more money on the happening of such event of
  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 Act, however 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. That
  explains why Section 3 makes it an offence to “participate” in the
  scheme or to remit any money “in pursuance of such scheme”. He who
  conducts or promotes a money- spinning project may have manifold
  resources from which to pay fanciful interest by luring the unwary
  customer. But, unless the project envisages a mutual arrangement
  under which, the happening or non-happening of an event or
  contingency under which, the happening or non-happening of an event
  or contingency 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.

31. Inasmuch as there is no obligation on the part of the unit holder
  to enlist/enrol more members to the scheme, the scheme in question must
  be reckoned as one that is not objectionable under Section 2(c) of the
  Act, it is contended.

32. I am unable to accept this contention at all. The passage referred
  above cannot lead me to the conclusion that the subscriber/unit holder
  must have a positive and dominant part to play in the
  implementation/popularisation of the scheme. I have already extracted
  the Section above. The crucial requirement is that the payment of money
  – double the amount in this case, must be “on an event or contingency
  relative or applicable to the enrolment of members into the scheme”.
  The plain language of the section does not mean or insist that such
  enrolment of members must be by the member already enrolled. It is
  impossible to read into the section such a requirement which would
  oblige the court to insist on subsequent enrolment of members into the
  scheme by such members already enrolled. The event or contingency on
  the happening of which the amount would become payable must be relative
  or applicable to enrolment of members into the scheme. Such enrolment
  of further members may be by the promoter himself or the agents of the
  promoter or members already enrolled or voluntarily by the gullible
  sections of society. The crucial question is that the payment of money
  must be dependent on an event or contingency relative or applicable to
  the enrolment of more members into the scheme. Who enrols them,
  according to me, is irrelevant. In the instant case the payment of
  double the amount to the unit holder is notified by the literature to
  be depended on and is actually found to be dependent on enrolment of
  further members into the scheme. Reciprocity or mutuality referred to
  in para-8 of Swapan Kumar Guha is certainly not the obligation of the
  already enrolled member to enroll more members. Such a stipulation
  cannot be spelt out from the plain language of Section 2(c) of the Act.

33. Crocodile tears are shed for the unfortunate gullible subscriber
  who may innocently have got himself enrolled under the lure for
  handsome returns. Such person will also be liable to culpable
  consequences in view of Sections 3 and 4 of the Act, it is lamented.
  Reliance was placed on para-9 of Swapan Kumar Guha in support of the
  contention that unless the one who is already enrolled is also guilty
  of contumacious behaviour, the scheme cannot be a scheme. I extract
  para-9 below:

9. 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 a high-risk
  investment made by them as the cost of the credulous lenders fails,
  the entire arrangement founders on the rock of foolish optimism. The
  promoters, of course, have easy recourse to gadgets of the law of
  insolvency. It is difficult to hold that the tender, 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.

34. I am not concerned in this case with the prosecution of a member
  already enrolled. It is not necessary for me to consider the defences
  which would be available to him. The scheme of the Act is very clear.
  It declares what a money circulation scheme is. The law prohibits such
  a scheme. It further says that the promoter as well as a participant in
  such a scheme shall be guilty under the Act and shall be exposed to
  penal consequences. The culpability of a promoter is different from the
  culpability of a mere member. The culpability of a member who enrolls
  others and in the bargain acts as an agent of the promoter is certainly
  different from a member pure and simple. All those different shades of
  culpability can be considered when the question of sentence of such
  persons has to be decided under Section 4 of the Act. The courts must
  realise the real distinction between the one who runs the scheme and
  the one who was a mere member to the scheme. Law makes it punishable
  for a promoter as well as a participant under Sections 3 and 4 of the
  Act. The mere fact that a participant is also made liable does not in
  any way throw light on the nature of the scheme. The law does not
  obviously want any one to promote and run a scheme. In its anxiety to
  prevent such schemes the law makes even mere participation an offence.
  Under Sections 3 and 4 of the Act even mere remitting of money in such
  a scheme is punishable. That is no reason to assume that the scheme in
  order to be objectionable must be one in which the gullible subscribers
  must also have an equally contumacious mind as the wily promoter.

35. It is contended that there is nothing available so far to indicate
  that enrolment of 14 members is sine qua non for payment of the amount.
  The learned C.J.M. has adverted to this aspect. The literature shows
  that the scheme works when 14 persons are enrolled in the scheme. It
  is, of course, true that it is not specified that the date of payment
  shall be the date on which the 14th member is enrolled. But such a
  candid admission of culpability is not necessary. The very scheme is
  that when commission received is sufficient to pay double the amount
  for the first unit holder, the same shall be paid. It shall never be
  sufficient unless more and more persons are enrolled. Sufficient amount
  being available is a contingency or event which can normally happen
  only when 14 or more members are enrolled. That the obvious is stated
  in different language is no reason for a court to come to the
  conclusion that payment of double the amount is not dependent or
  relative to the contingency of enrolment of new members.

36. Even the penal law must receive a purposive interpretation. It
  would be idle to attempt to interpret the law without being conscious
  of the mischief which it seeks to prevent. The fight against injustice
  must be inherent in the interpreter also. Injustice/mischief which law
  seeks to prevent must be correctly ascertained. Any interpretation
  without understanding such mischief/injustice would be an exercise in
  emptiness. The collection of money from many Pauls to pay one Peter,
  fraudulently taking away substantial portion of the amount so collected
  is the crux or gravamen of the money circulation scheme prohibited
  under the Act. The interpreter must have the yearning to prevent the
  mischief. If he does not have that, he will miss the bus and will not
  be able to perform what is expected of him in the task of
  interpretation.

37. In these circumstances, I find no merit in the contention that the
  allegations under Section 420 of the IPC and Section 2(c) read with
  Sections 3, 4 and 5 of the Act are not made out and the charges on
  those aspects are groundless.

38. In the revision filed by the State the third question is raised
  that the scheme answers the description of `prize chit’ defined under
  Section 2(e) of the Act. I extract Section 2(e) of the Act below:

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

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

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

39. The learned Additional Advocate General/Special Prosecutor fairly
  submits that both limbs [i.e., (i) and (ii)] have to be satisfied in
  order to bring an activity within the sweep of the definition of “prize
  chit” under Section 2(e) of the Act. The learned Additional Advocate
  General was requested to explain how the element of “determination by
  lot, draw or in any other manner” insisted by limb (i) of the
  definition can be satisfied. There is no argument that there is any
  element involved in this case of draw of lots to determine the person
  to whom payment is to be made. Though no concession is specifically
  made, I find there is no serious contention with conviction urged that
  the LIS Deepasthambham Scheme would answer the definition of “prize
  chit” under Section 2(e) of the Act. The challenge raised by the State
  against the refusal to frame charges under Section 2(e) read with
  Sections 3, 4 and 5 of the Act must, in these circumstances, fail.

40. It is finally contended that the police officer who registered the
  crime had acted mala fide. These petitions are not under Section 482 of
  the Cr.P.C. and are filed with a prayer to invoke the revisional
  jurisdiction. That technicality notwithstanding, no reason is shown as
  to why and how it is alleged and assumed that the police officer is
  actuated by mala fides. The Inspector General of Police had got the
  crime registered. It is contended that this shows his mala fides. The
  crime has has been registered after the declaration of elections to the
  State Legislature. Why did he not register the crime earlier? Why did
  he not wait for the popular Government come into power before he
  registered the crime? Probably the police officer felt that when the
  political executive takes over he may not have the freedom and liberty
  to register such a crime and initiate action. Whatever be the reason, I
  am certainly of opinion that the Inspector General of Police who
  registered the crime has not acted beyond his jurisdiction in
  registering the crime. He has the obligation under Section 149 of the
  Cr.P.C. to interpose the commission of cognizable offences. The
  aggressive advertisement campaign resorted to by the accused must have
  aroused doubts and dissatisfaction in the mind of right thinking
  members of the polity as to why the State and its functionaries were
  sleeping and inactive. That the Inspector General of Police registered
  the crime during the transition of power from one Government to the
  other – after the elections were declared, does not, in any way, affect
  the validity of the charges raised. That at least one police officer
  opened his eyes and swung into action belatedly while all the other
  powers that be feigned slumber is no evidence of his mala fides. That
  he thought that he could not do the same when one popular Government
  was in power and may not be able to do so after the next assumes office
  may be a sad commentary on such Governments but does not certainly
  point to his mala fides. That he may be acting at the behest of other
  financial institutions envious of the petitioners is not an argument
  which has been rendered probable by materials to even reckon the same
  as a contention.

41. Lastly, there is a contention raised that other similar schemes are
  in vogue and no action has been taken against such schemes. If such
  other similar schemes are in vogue, it is certainly for the State and
  its officials to immediately plunge into action to prevent the gullible
  being defrauded. The reasons for failure to initiate action against
  such other schemes will have to be probed into; but, at any rate, that
  other such schemes are being permitted to operate now is no reason to
  interfere with the charges framed. A Government or police force cannot,
  if they act bona fide, naively be witnesses to the fraud played by the
  wily promoters on the gullible humanity on the mere ground that no
  specific complaint is received. Elected Governments and servants of the
  people cannot take shelter behind the plea that the helpless righteous
  or the defeated avaricious have not taken upon themselves the burden to
  complain.

42. In the result, these revision petitions are dismissed. I may,
  however, hasten to observe that the dismissal of these revision
  petitions will not, in any way, fetter the rights of the
  petitioners/accused to raise all relevant and appropriate contentions
  before the learned Magistrate in the course of the trial. I have only
  chosen to take the view that the charges do not deserve to be set aside
  on the ground that they are groundless. The exercise of weighing
  materials in golden scales must certainly be performed by the courts at
  the end of the trial.

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