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.