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PETITIONER: STATE OF MADHYA PRADESH

       Vs.

RESPONDENT: MIR BASIT ALI KHAN & ORS.

DATE OF JUDGMENT22/03/1971

BENCH: SIKRI, S.M. (CJ) BENCH: SIKRI, S.M. (CJ) REDDY, P. JAGANMOHAN DUA, I.D.

CITATION:  1971 AIR 1620            1971 SCR  125  1971 SCC  (2)  96

ACT: Indian  Penal  Code, s. 420--Money  circulation  schemes--No cheating without misrepresentation or dishonest  concealment of facts.

HEADNOTE: The  respondents organised a money circulation scheme.   For alleged   cheating  and  misrepresentation   in   connection therewith they were convicted by the Sessions Judge,  Bhopal under s. 120B and s. 420 Indian Penal Code.  The High  Court however  acquitted  them.  The State of  Madhya  Pradesh  by special  leave  appealed to this Court.  In support  of  the appeal  the following facts were stressed: (1) None  of  the 200  odd persons who purchased the policy issued  under  the scheme  received  Rs.  2309.50, the assured  amount  in  the policy.  (2)  The  large  amounts  of  Rs.  90,750  and  Rs. 5,52,587.95 were detained by the respondents and showed  the extent of wrongful gain by them. (3) The policy holders  had no  control  over other policy holders  which  would  assure continuance  of the scheme. (4) Merely because some  persons receive some amount it could not be inferred that the scheme was  not fraudulent. (5) The evidence showed that the  names entered in columns 3, 4, 5, 6 and 7 of the pamphlet,  issued by  the  respondents were bogus and that 2696  money  orders were  sent  back to the remitter, as the  persons  were  not traceable because of wrong address on the form. HELD:     As held by the Calcutta High Court in Radha Ballav Pal’s case and Haridas Barat’s case there was an element  of speculation in money circulation schemes, but those who  ran them  could not be held guilty of cheating unless there  was misrepresentation  or  dishonest concealment of  facts.   It could  not be said in the present case that the  respondents had deceived the public and thereby induced it to contribute money  to  the scheme.  The appeal  must  accordingly  fail. [131H-132F] Radha  Ballav Pal v. Emperor, A.I.R. 1939 Cal. 327 and  Hari Das Barat v. Emperor, 1939 11 I.L.R. Cal. 81, approved. Nadir Barga Zaidi v. State of U.P. A.I.R. 1960 All. 103  and In re M.  K. Srinivasan, A.I.R. 1944 Mad. 410, referred to. It  is  for  the legislature to intervene  if  it  wants  to protect  people  who participate in these  schemes,  knowing

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that sooner or later the schemes are bound to fail. [132F-G]

JUDGMENT: CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 142  of 1968. Appeal  by special leave from the judgment and  order  dated September  8,  1967  of the Madhya  Pradesh  High  Court  in Criminal Appeal No. 81 of 1966. I.   N. Shroff, for the appellant U.   P. Singh and Nur-ud-din Ahmed, for the respondent. 126 The Judgment of the Court was delivered by Sikri,  C.J.--This appeal by special leave by the  State  of Madhya  Pradesh  is against the judgment of the  High  Court allowing  the appeal of the respondents, Mr Basi  Ali  Khan, Mir  Shahniwaz  Ali  khan and Mir  Sarfaraz  Ali  Khan,  and setting aside the conviction and sentences passed on them by the learned First Additional Sessions Judge, Bhopal, who had convicted them under Section 120B and Section 420, 1. P.  C. The respondents were, however, acquitted of the charge under Section  406,  1. P. C. We may mention that there  were  two committal  orders  made  by the  learned  Magistrate,  First Class,  Bhopal,  on April 5, 1965 and on October  12,  1965, respectively, which gave rise to two Sessions Trials, No. 90 of  1965  and No. 98 of 1965.  The  learned  Sessions  Judge disposed  of both the trials by a single judgment as he  was of  the  view that both the trials were in effect  a  single trial  of  a single conspiracy and of several  incidents  of cheating.  The respondents also filed one appeal before  the High Court and the High Court disposed of that appeal by one judgment. The  facts  are not very much in dispute.   The  prosecution case, in brief, was that Mir Basit Ali Khan, the father, and his  two sons, Mir Shahniwaz Ali Khan and Mir  Sarfaraz  Ali Khan.  entered  into a partnership which was  registered  on September 21, 1959, under the Indian Partnership Act of 1932 in   the  State  of  Andhra  Pradesh  at   Hyderabad.    The registration  number  of the firm was 1468.  Mir  Basit  Ali Khan  started  a money circulation scheme  known  as  Multi- Purpose Constructive Circulation Scheme with its head office at  Hyderabad, in the year 1960.  He, alongwith others,  was prosecuted in the City Magistrate’s Court at Hyderabad,  but they were acquitted and the acquittal was maintained in  the High Court.  The Magistrate had come to the conclusion  that though  the scheme appeared to be speculative yet  it  could not  be said that the accused were running the  said  scheme with a dishonest intention to cheat the public. It  is alleged that Mir Basit Ali Khan again  organised  the Multi-Purpose  Constructive Circulation Scheme on  September 20,’1961,  at Bhopal with its principal office  at  Bungalow No.  59,  Roshanara  Naka, T. T. Nagar,  Bhopal.   The  firm issued   policies  and  printed  pamphlets   and   handbills representing  that it was a Government of  India  Registered firm No. 1468. We may reproduce the pamphlet, Ex.-P-9 / 1, which was one of the pamphlets issued by the firm :               "1. Perform the marriage of marriageable girls               by spending only 5.50 np.               127               2.    Only  after spending once Rs.  5.50  np.               send  your  promising children to  America  or               England for Education.               3.    By spending Rs. 5. 50 nP. only once, you

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             can meet your daily necessities.               4.    By  spending  Rs. 5  50 nP.  only  once               make  provision  for  education,  and   books,               stationery, etc., etc.               5.    By  spending Rs. 5.50 nP. get a big  sum               of   Rs.  2,309  for  the  progress  of   your               business.               For  obtaining all the above mentioned  thing,               you can get a big sum of Rs. 2,309 by spending               only Rs. 5.50 nP.  Please do come and meet  on               the  address noted below so that you may  know               how  to do it and how to utilise  this  golden               opportunity.               Otherwise  please do not say that you did  not               get intimation."               It is necessary to reproduce another pamphlet,               Ex.   P-12,  because according  to  the  State               there  were clear misrepresentations  of  fact               which amounted to cheating               "Phone  : 1266.  M. C. C. Bhopal M.  P.  Grams               "Jansewak"  Government of  India’s  Registered         X       X Firm, 1468.               The Government of India after establishing the               social  service Department are doing  a  great               service for the public and to the nation as  a               whole by spending lacks of rupees.  The public               have  also  been  exerting  manual  labour  in               addition  to giving their valuable time.   But               this  Public  Service  scheme of  ours  is  so               unique  that  without  any  difficulty   every               individual  of  the  country  receives  direct               benefit  to  the  extent of  Rs.  2,309-50  by               sitting   at  home.   That  is,   remit   your               admission fee once through the de T. T. (sic.)               and the Government postman will knock down  at               your  doors  several times to pay you  up  the               amount.   The Founder of this  unique  formula               has  placed  before you in such a way  that  a               person  with  ordinary  intelligence  will  be               pleased to understand it.               HOW  THIS  IS POSSIBLE: Collect  Rs.5.50  from               each  of your three friends, and out  of  this               keep Rs. 5.50 for yourself and this  remaining               Rs.  11.00  may be remitted according  to  the               schedule.   It  is thus clear  that  you  have               received  your original amount of Rs. 5.50  in               full  immediately  after  the  sale  of  three               Policies. 128 From  the procedure explained above, it is very  clear  that this is neither a Gambling lottery, Riddle nor Satta.  There is not the least possibility of your losing the amount.   of course,  such  persons will be losers who will not be  in  a position  to  sell their three policies.   Therefore,  those persons  who  do not have the capacity of  selling  their  3 Policies  need not join this scheme.  But in our opinion  we are  confident that there Is no such an  unfortunate  person who  is  not  having even three  well  wishing  friends,  or relatives in this vast world.  But the question of selling 3 policies by an individual is most important. How.-You  should purchase one policy by paying Rs. 5.50  nP. from  any person who has already enrolled in this scheme  or write to the Firm for the policy, by sending M. 0. of Rs. 5. Now select three energetic and enthusiastic friends, collect

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Rs.  5.50  from  each of them and remit the M.  Os.  to  the members  and the Firm as shown in the schedule.  Write  down the  names of your selected 3 friends with their address  in full in BLOCK LETTERS ONLY.  Send the Policy along with  the M. 0. receipts to the firm by EXPRESS DELIVERY ONLY. Never send M. Os. to persons in column nos. 2 they will  not get any amount to the extent of THIS POLICY ONLY BUT as  and when this Policy goes in circulation they will automatically change their places and enjoy with their expected amount. FIRM’S RESPONSIBILITY: The firm will send you 3 policies  in which  you  will stand in column No. 2 and that of  the  new member in column No. 1. Hand over these policies immediately to your friends carefully.  As soon as you finish this  job, YOUR  RESPONSIBILITY IS OVER.  The chain of M. Os., will  be continued  in such a way that your neighbors will be fed  up with  postman’s voice.  Because the beauty of our scheme  is that  we allow 15 days period for the sale of the policy  to each of our member after the expiry of- the period we cancel such  slack members and the same cancelled policy  in  which you stand in No. 2 is sold to other new members through  our authorised  agents  and field officers, who are  spread  all over India thereby we try our utmost to continue your chain. The  cause of failure of other previous Schemes is only  due to not having this wonderful arrangement of continuation  of Chain  to  which we give much importance.  For  this  reason only we are having a very 129 good response & our to days membership number is more than a lack all over India. Under unavoidable circumstances, extension of one week  can be given on payment of extension fee of 0.37 nP.                        SCHEDULE S. NO.           No. of Policies          Amount payable Column No. 1                            1                 5.50 2                            3                 Nil 3                            9                9.00 4                           27               27.00 5                           81               81.50 6                          243              364.50 7                          729             1822.50 Total No. of Policies     1093             2309.50               MOST IMPORTANT : If your chain of M. O.s.  are               discontinued  for two weeks Please  inform  us               immediately so that they may be continued.               MEER BASITH ALI KHAN               Author of Dukhi Kisan approved by the Ministry               of Agr.  Govt. of India, Founder of full House               Talkie Formula Regd. by Govt. of India No. 104               Proprietor  M.  C. C. Govt. of  India’s  Regd.               Firm No. 1468 Bhopal.               TIME IS MONEY : If you are inclined to  become               agent,   contact   us  and  enjoy   with   the               commission of 3.50 np. per member.  The  Chief               agent  will  get 75 P. M. salary  as  well  as               commission  of  Rs.  3.50  per  member.    The               advertisement  expenses will also be borne  by               the The  learned Sessions Judge had come to the conclusion  that the respondents by using the expression "Government of India Registered  Firm No. 1468" in their policies  and  pamphlets misled  the  public  into  believing  that  the  scheme  was sponsored by the Government of India or it had its approval. He   also   came  to  the  conclusion  that  there   was   a misrepresentation  in  the  pamphlet  that  the  scheme  was

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neither  a gambling, lottery, riddle or a satta, but was  an ordinary financial scheme.  The learned 9-1 S.C. India/71 130 Sessions Judge had further found that as the remitter of the money  orders was always Mir Basit Ali Khan,respondent  No’. I and the Proprietor of M. C. C., the, member of the  policy was  left only with a small piece of paper, Ex.   P-69,  the -scheme  ’contained a misrepresentation and  suppression  of material  facts  which  made  the  respondents  liable   for conspiracy to cheat and cheating. The  High Court, however, held that it being not in  dispute that  the firm was registered and its number was 1468  there was  no  fraudulent or deceitful representation.   The  High Court  further held that most of the witnesses  had  clearly stated  that they had known the fact that it was  a  private firm and the Government had nothing to do with it.  The High Court  was  of  the  view  that  the  statement  may  be  an exaggeration  or  a puffing.  The High  Court,  after  going through the evidence and the various. pamphlets came to  the following conclusion:               "There  appears to be no misrepresentation  or               suppression of any material facts with a  view               to defraud or cheat.  How-so-ever  speculative               and unworkable the scheme may be, unless it is               shown that there is a false representation  or               suppression of the material facts which  might               render it to be fraudulent, it cannot be  said               that   the  offence  of  cheating   has   been               committed.   of course, to judge  its  effect,               the policy and the pamphlet has to be read  as               a. whole."               The   High  Court  further   observed,   after               referring  to a number of cases which we  will               presently deal with               "In  this scheme as aforesaid,  the  purchaser               also got his amount alright and one can expect               to get even more provided the Chain continued.                             As the policy with its rules and pamph let  make               it quite clear, the, appellants cannot be held               guilty  unless  it is  positively  shown  that               some,  deception  had been  practiced  on  the               public with the result that they were deceived               and they had paid the money.  The  prosecution               has not produced any witness to say that  some               money  was due from the company and they  have               been  in any way deceived and the  amount  has               not  been paid.  It is only the.  Jhua lot  of               witnesses  who could not be, paid  because  of               the police raid and the, Ms. being withheld by               the Magistrate." The  High Court further found that the name of.   Mir  Basit Ali Khan, Proprietor, M. C. C., was mentioned simply because it  was  a  chain  scheme and that it  may  go  on,  working continuously, otherwise there is every possibility that some policy  holder might not send the full amount or may not  be traceable for one reason 131 or the other.  The High Court observed that nothing was kept secret  from  the policy holders and it was  known  to  them alright that they had joined the scheme with the  conditions laid  down in the policy and the pamphlet.  The  High  Court did not think that the size, of the taken had anything to do with  cheating.   The  High Court accordingly  came  to  the concl

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usion that the respondents had committed no offence. Regarding the money which had been seized by the police  the High  Court  said  that the money  belonged  to  the  policy holders  and  the respondents and it was a  case  where  the money  in question had ’to go back to them and it could  not be  ordered to be confiscated.  The High  Court  accordingly directed that the respondents would be entitled to get  back their  amount  which had .been withheld as property  in  the Sessions Trials referred to above. It  is common ground that the Scheme is highly  speculative, and the  question which arises is whether  it  amounts  to cheating under Section 420, 1. P. C. The learned counsel for the State ,stresses the following facts               (1)None   of  the  2000  odd  persons   who               purchased the policy had received Rs. 2309.50,               the assured amount in the policy.               (2)    The large amounts of Rs. 90,750 and Rs.               5,52,587-95  were obtained by the  respondents               showed the extent of wrongful gain by them.               (3)The  policy holders had no control  over               other Policy  holders  which  would   assure               continuance of the .scheme.               (4)Merely  because  some  persons  received               some :amount it could not be inferred that the               scheme was not fraudulent               (5)The  evidence  showed  that  the   names               entered in columns 3, 4, 5, 6 and 7 were bogus               and  that 2696 money orders were sent back  to               the   remitter,  as  the  persons   were   not               traceable  because of wrong addresses  on  the               form. The learned counsel for the respondents contends that  since the  year  1939 similar schemes have been held not  to  fall within  Section 420, I. P. C. , and the legislature must  be deemed to have accepted the law as laid down in the  cases. The  learned  counsel  has  drawn  our,  attention  to   two decisions  of  the Calcutta High Court on  similar  schemes. The  earliest  case pointed out by the  learned  counsel  is Radha Ballav Pal, v. Emperor In that case (1)  A. I. R. 1939 Cal. 327. 132 the society was described as Government Registered No. 5934. registered  under Act 11 of 1932.  The High Court held  that it was not a misrepresentation as this society was  actually registered  under that Act.  Regarding the scheme  the  High Court held on the facts of that case that the scheme was one of  those  snowball schemes which were  speculative  to  the highest  degree and unworkable but it was not  dishonest  or fraudulent  in the sense that it either represented  to  the public something which was not true or, concealed from  them something which should have been disclosed.  The High  Court thought  that it was an appeal to the gambling  instinct  of humanity but this cannot per se amount to cheating. This case was followed by another Bench of the Calcutta High Court in Hari Das Barat v. Emperor (1).  The headnote brings out the decision thus :               "Promoters  of  a financial  snowball  scheme,               which could run only so long as there would be               a  continuous  uninterrupted  and   enormously               progressive increase in subscribers, but which               could  not  go on indefinitely, would  not  be               guilty  of cheating, in the absence  of  false               representations  and dishonest concealment  of               facts  either in the prospectus issued  or  in               the  conduct of the promoters,  calculated  to

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             deceive  the public and thereby induce  it  to               contribute money to the scheme." These  cases were distinguished in Nadir Barga Zaidi v.  The State of U. P. (1) as the High Court felt that on the  facts of  that  case  there were misrepresentations  made  to  the depositors and certain facts had been dishonestly  concealed from them. In re M. K. Srinivasan (3) the facts were slightly different and the case does not assist us. It  seems to us that the Calcutta cases, referred to  above, were  correctly  decided  and the High  Court  came  to  the correct conclusion.  This appeal must accordingly fail.   It is  for the legislature to intervene if it wants to  protect people who participate in these schemes knowing that  sooner or later the schemes are bound to fail. In the result the appeal fails and is dismissed. G. C. Appeal dismissal. (1)  [1939] 11 I. L. R. Cal. 81. (2)  A. 1. R. 1960 All. 103. (3)  A.I.R.1944Mad-410. 133