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PETITIONER: STATE OF WEST BENGAL & ORS.

       Vs.

RESPONDENT: SWAPAN KUMAR GUHA & ORS.

DATE OF JUDGMENT02/02/1982

BENCH: CHANDRACHUD, Y.V. ((CJ) BENCH: CHANDRACHUD, Y.V. ((CJ) VARADARAJAN, A. (J) SEN, AMARENDRA NATH (J)

CITATION:  1982 AIR  949            1982 SCR  (3) 121  1982 SCC  (1) 561        1982 SCALE  (1)38  CITATOR INFO :  R          1987 SC1023  (40)  D          1991 SC1260  (69)  R          1991 SC2176  (51)  R          1992 SC 604  (23,52,61,74,101)  RF         1992 SC1930  (2)

ACT:      Prize Chits and Money Circulation Schemes (Banning) Act 1978 (43  of 1978)  Ss.  2(c),  2(e),  3,  7  and  13-’Money Circulation Scheme’-What  is-Firm  Accepting  deposits  from public-Payment of  interest at  48% per annum though deposit receipt  indicate   only  12%-Whether   promotion  of  money circulation scheme’-Whether  ’offence’ committed  under  the Act.      Criminal Procedure  Code 1973,  S.154,  156,157-F.I,R.- Cognizable offence-  Necessity of  disclosure-No  cognizable of-  fence   disclosed-Court  justified   in  quashing   the investigation.      Criminal    Trial-F.I.R.-Condition     precedent     to commencement  of  investigation-Police  have  no  unfettered discretion to commence investigation-Power to investigate to be exercised as provided in Cr. P.C.      Interpretation    of     Statutes-Rule    of     strict interpretation of  penal  statutes-Whether  affects  primary test that language used in enactment when clear and plain to apply.      Words &  Phrases-’Money  circulation  scheme’-What  is- Meaning of.

HEADNOTE:      The  firm   ’Sanchaita  Investments’,   commenced   its business on  July 1,1975,  its  three  partners,  the  three respondents in  the appeal  contributing a  total capital of Rs. 7,000/-. The firm carried’ on business as financiers and investors and  in its  business the  firm accepted  loans or deposits from  the  general  public  for  different  periods repayable with interest at 12% per annum. Under the terms of deposits, the depositors had a right to withdraw the deposit with the  firm at  any time. In case of premature withdrawal the depositors  were to lose interest of 1%. Under the terms and conditions  of the deposit the firm had also the liberty

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to repay  the amount  with interest  to any depositor at any time before  the expiry  of the stipulated period of deposit without giving  any reason.  The firm  was carrying  on  its business on a very extensive scale.      In the  year 1978 Parliament passed the Prize Chits and Money Circulation  Schemes (Banning)  Act 1978. The Act came into force  on December  13, 1978  and section 12 provided a two years  period ’’for  winding up  every kind  of business relating to prize chits and money circulation schemes. 122      On 13th  December,  1980  the  Commercial  Tax  officer lodged a  complaint of violation of the Act by the firm with the police.  The FIR  stated that the firm had been offering fabulous interest  at 48%  per annum  lo its  members, later reduced to  36% though  the loan certificate receipts showed the rate of interest to be 11% only. The amount in excess of 12% clearly  indicated that  the ’Money  Circulation Scheme’ was being  promoted and  conducted for  the making  of quick and/or easy money and that prizes and for gifts in cash were also awarded  to agents, promoters and members, and that the firm  and  its  three  partners  in  conducting  such  money circulation schemes  had violated  section 3  of the Act and were therefore  punishable under  section 4. On tho same day the office  of the firm was searched by the police and a sum of Rs.  42  lakhs  was  recovered.  The  residences  of  the partners were also searched and large amount of cash as well as documents  were seized.  Certain lists  of agents  seized during the  investigation  showed  that  code  numbers  were assigned to  many of  the agents  and that  the  agents  had acquired large  properties at  various places  and had  also started new  business activities. The partners were arrested and enlarged on bail.      The firm  and its partners filed a writ petition in the High Court  challenging the  validity of  the F.I.R. and the proceedings arising  out of it including the validity of the searches and  seizure of  documents, papers and cash. It was contended that  the F.I.R.  does not  disclose  any  offence under the  Act which  does not  apply to  the firm  and that there was  no violation  of any  provisions of  the Act. The petition was  contested by  the State  Government contending that the payment of interest by the firm and its partners at the clandestine  rate of 36% against the bank rate of 12% in the context of the scheme promoted and conducted by the firm was tantamount  to an  activity which  was banned  under the Act. and  that in  the process of its working, the scheme of the firm generated quick and easy money so as to render such scheme or  arrangement a  ’money circulation  scheme’ within the meaning of the Act. The High Court held that the Act did not apply  to the  Firm and  that the  searches and seizures were  wrongful,   illegal  and   improper  and  quashed  the proceedings and directed the return of all documents and the refund of the cash seized.      In the appeals to this Court it was contended on behalf of  the   State  Government   that:  (I)   the  question  of applicability of the Act will only come up for consideration after the  investigation has been completed and all relevant materials have  been gathered on such investigation and that at the investigation stage, the Court does not interfere and also does not quash any proceedings before the investigation has been completed, (2) materials which had been gathered as a result  of the investigation indicate that though the loan certificate stipulate  interest to be paid @ 12% much larger sum by  way of  interest ranging  between  36@  to  48%  was actually paid  to the  depositions, in cash in a clandestine manner,  depriving   and  defrauding   the  revenue  of  its

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legitimate dues,  (3) the  nature of  business carried on by the firm  indicates that  the firm  is conducting  a  ’Money circulation scheme’  thereby violating  s. 3 of the Act, and (4) the searches have been carried out in accordance with s. 7 of  the Act  and  the  cash  money  and  other  books  and documents have been lawfully seized 123      On behalf of the respondents it was contended that: (I) Investigation has  to be  done when  an offence is disclosed for collecting materials for establishing an offence and any investigation when no offence is disclosed by the F.I.R. and the other  materials, means  unnecessary harassment  for the firm and  its partners  and illegal and improper deprivation of  their   liberty  and  property,  (2)  even  if  all  the allegations in  the F.I.R. and in the other materials before the Court are accepted to be correct, the said allegation do not  go  to  show  that  the  firm  is  conducting  a  money circulation scheme and do not disclose any offence under the Act, (3)  if no  offence under  the Act is disclosed and the Act has  no application, there cannot be any question of any search or  seizure under  the Act, and (4) to be a chit fund or a  money circulation scheme, an element of uncertainty or luck is  essential and in so far as the transactions carried on by the firm are concerned, the said element is nowhere.      Dismissing the appeals. ^      HELD: By the Court      1. The  investigation which has been commenced upon the First Information  Report is  without jurisdiction and must, therefore, be  quashed. No  further investigation shall take place in  pursuance or  on the  basis of  the  F.I.R.  dated December 13,  1980 lodged  by the  Commercial  Tax  officer, Bureau of Investigation. [143 D]      2.  The   documents,  books,  papers,  cash  and  other articles seized  during the  investigation shall be retained by the  police in  their custody  for a period of two months and will  be returned,  on the  expiry of  that  period,  to persons from whom they were seized. [148 C]      [Per Chandrachud, C.J. and Varadarajan J.]      1. Two conditions must be satisfied before a person can be held  guilty of  an offence  under section  4  read  with sections 3 and 2 (c) of the Act. In the first place, it must be proved  that he  is promoting  or conducting a scheme for the making  of quick  or easy money and secondly, the chance or opportunity  of making  quick or easy money must be shown to  depend   upon  an   event  or  contingency  relative  or applicable to  the enrollment  of members  into that scheme. [132 P-G]      2. Besides  the prize  chits,  what  the  Act  aims  at banning is  money circulation  schemes. The activity charged as falling  within the  mischief of the Act must be shown to be a  part of  a scheme  for making  quick  or  easy  money, dependent upon  the happening  or non-happening of any event or contingency  relative or  applicable to the enrollment of members into that scheme. [133 E-F]      3. 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 tho agreed rate of interest cannot, without more, be a ’money circu- 124 lation scheme’  within the  meaning of  section 2 (c) of the Act, howsoever  high the promised rate of interest may be in comparison with the agreed rate. What section 2 (c) requires is that  the reciprocal  promises, express  or implied, must depend for their performance on the happening of an event or

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contingency relative  or applicable  to  the  enrollment  of members into the scheme. [134 A-B]      In the  instant case it seems impossible to hold on the basis of  the allegations in the F.I.R. that any offence can be said  to be  made out  prima facie under section 3 of the Act. In  the  first  place,  the  F.I.R.  does  not  allege, directly or  indirectly, that  the  firm  was  promoting  or conducting a  scheme for  the making of quick or easy money, dependent on any event or contingency relative or applicable to the  enrollment of members into the scheme. Secondly, the F.I.R. does  not  contain  any  allegation  whatsoever  that persons who advanced or deposited their monies with the firm were participants  of a  scheme for  the making  of quick or easy money,  dependent upon  any such  event or contingency. The F.I.R.  bears the  stamp of  hurry and  want of care. It seems to  assume, that  it is  enough for  the  purposes  of section 2  (c) to  show that  the accused  is  promoting  or conducting a  scheme for  the making of quick or easy money, an assumption  which is  fallacious. An essential ingredient of section 2 (c) is that the scheme for making quick or easy money must be dependent on any event or contingency relative or applicable  to the enrollment of members into the scheme. [135 D-G]      4. A  First Information Report which does not allege or disclose  that  the  essential  requirements  of  the  penal provision  are   prima  facie  satisfied,  cannot  form  the foundation or  constitute the  starting point  of  a  lawful investigation. [135 G]      5. There is no allegation even in any of the affidavits filed on  behalf of  the State  and its  officers  that  the depositors and  the promoters are animated by a community of interest in  the matter  of the  scheme being dependent upon any event  or contingency  relative  or  applicable  to  the enrollment of  members into  it.  That  being  an  essential ingredient of  the offence charged, it cannot be said in the absence of  any allegation  whatsoever in  that behalf, that there is  "reason to suspect" the commission of that offence within the  meaning of  section 157  of the Code of Criminal Procedure, so  as to Justify the investigation undertaken by the State authorities. [138 B-D]      6. The  rule of strict interpretation of penal statutes does not  In any  way affect  the fundamental  principle  of interpretation, that  the primary  test which  can safely be applied is  the language used in the Act and, when the words are clear  and plain,  the court  must accept  the expressed intention of the legislature. [139 B]      7. The  investigation can  be quashed  if no cognizable offence is  disclosed by the F.I.R. The judiciary should not interfere with  the police in matters which are within their province It  is surely not within the province of the police to .  investigate into  a Report which does not disclose the commission of  a cognizable  offence and  the Code  does not impose upon  them the duty of inquiry in such cases. [142 B- C] 125      8. The  condition  precedent  to  tho  commencement  of investigation under  section 157  of the  Code is  that  the F.I.R. must disclose, prima facie, that a cognizable offence has been  committed. It  is wrong to suppose that the police have an  unfettered  discretion  to  commence  investigation under section  157 of  the Code.  Their right  of inquiry as conditioned by  the  existence  of  reason  to  suspect  the commission  of   a  cognizable   offence  and  they  cannot, reasonably, have  reason so  to suspect  unless  the  F.I.R. prima facie,  discloses the  commission of  such offence. If

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that condition  is satisfied,  the investigation must go on. The Court has then no power to stop the investigation for to do so would be to trench upon the lawful power of the police to investigate  into cognizable  offences on the other hand, if  the  F.I.R.  does  not  disclose  the  commission  of  a cognizable offence, the Court would be justified in quashing the investigation on the basis of the information as laid or received. [142 D-F]      W.H. King  v. Republic  of India  [1952] SCR  418, 424; M.V. Joshi v. M.U. Shimpi, [1961] (3) SCR 986, 993-994; R.P. Kapur v.  The State  of Punjab  [1960] (3) SCR 388, 392-393; S.N. Sharma  v. Bipen Kumar Tiwari [1970] (3) SCR 946; State of West  Bengal v. S.N. Basak [1963] (2) SCR 52; Jehan Singh v. Delhi  Administration [1974] (3) SCR 794 and King-Emperor v. Khwaja Nazir Ahmed 71 I.A. 203, referred to.      9. The  power to  investigate into  cognizable offences must be  exercised strictly  on the condition on which it is granted by the Code. [142 G]      Prabhu Dayal Deorah v. The District Magistrate, Kamrup, [1974] 2 SCR 12, 22-23, referred to.      10. The  State Government,  the Central  Government and the Reserve  Bank  of  India  must  be  given  a  reasonable opportunity to  see if  it is  possible, under  the law,  to institute an inquiry into the affairs of the firm and in the meanwhile to  regulate its affairs. Such a step is essential in  the   interests  of   countless  small  depositors  who, otherwise will  be ruined  by being deprived of their life’s savings. [147 H; 148 A-B]      [Per A.N. Sen, J.]      1. Once  an offence is disclosed, an investigation into the offence  must necessarily  follow  in  the  interest  of justice.  If,   however,  no   offence  is   disclosed,   an investigation cannot  be permitted, as any investigation, in the absence  of any  offence being disclosed, will result in unnecessary  harassment   to  a  party,  whose  liberty  and property may be put to jeopardy for nothing. The liberty and property of any individual are sacred and sacrosanct and the Court  zealously   guards  them   and  protects   them.   An investigation is  carried on  for the  purpose of  gathering necessary materials  for establishing and proving an offence which is  disclosed. When  an offence is disclosed, a proper investigation in  the interest  of justice becomes necessary to collect  materials for  establishing the offence, and for bringing the  offender to  book. In  the absence of a proper investigation in  a case  where an offence is disclosed, the offender may  succeed in  escaping from the consequences and the offender  may go  unpunished to  the deteriment  of  the cause of justice and the society at large. [170 F-H; 171 A] 126      2. Justice  requires  that  a  person  who  commits  an offence has  to be  brought to book and must be punished for the  same.   If  the   Court  interferes   with  the  proper investigation in a case where an offence has been disclosed, the offence  will go unpunished to the serious deteriment of the welfare  of the  society and  the cause  of the  justice suffers. It is on the basis of this principle that the Court normally does not interfere with the investigation of a case where an offence has been disclosed. [171 A-C]      3. Whether  an offence  has been  disclosed or not must necessarily depend  on the  facts and  circumstances of each particular case.  In considering  whether  an  offence  into which an investigation is made or to be made is disclosed or not, the  Court has  mainly to  take into  consideration the complaint of  the F.I.R.  and the  Court may  in appropriate cases  take   into  consideration  the  relevant  facts  and

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circumstances of  the case.  On a  consideration of  all the relevant materials.  the Court has to come to the conclusion whether  an   offence  is   disclosed  or   not.  If   on  a consideration  of  the  relevant  materials,  the  Court  is satisfied that  the offence  is  disclosed  the  Court  will normally not  interfere  with  the  investigation  into  the offence and  will generally allow the investigation into the offence to be completed for collecting materials for proving the  offence.   If,  on  the  other  hand  the  Court  on  a consideration of the relevant materials is satisfied that no offence ii  disclosed, it  will be  the duty of the Court to interfere with  any investigation  and to  stop the  same to prevent any  kind of uncalled for and unnecessary harassment to an individual. [171 G-H; 172 A-B]      W.H. King  v. Republic  of India  [1952] SCR  418, 424; M.V. Joshi v. M.U. Shimpi, [1961] (3) SCR 986, 993-994; R.P. Kapur v.  The State  of Punjab  [1960] (3)  SCR 388,392-393; S.N. Sharma  v. Bipen  Kumar Tiwari [1970](3) SCR 946; State of West  Bengal v. S.N. Basak [1963] (2) SCR 52; Jehan Singh v. Delhi  Administration [1974] (3) SCR 794 and King-Emperor v. Khwaja Nazir Ahmed 71 I.A. 203 referred to.      4. The  word ’scheme’  has not been defined in the Act. It has  however, has been defined in the Rules. Cl. 2 (g) of the Rules  state that  a "scheme  means a  money circulation scheme or  as the case may be a prize chit as defined in cl. (c) and  (e) respectively  of s.  2". The  word ’scheme’  as contemplated in  s. 2  (c) of  the Act  is therefore,  to be money circulation  scheme within  the meaning of the Act. To be money circulation scheme, a scheme must be for the making of quick  or easy money on any event or contingency relative or applicable  to the  enrollment of  the members  into  the scheme. The  scheme has necessarily to be judged as a whole, both from  the view  point of  the promoters and also of the members. [181 B-D]      In the  instant case investment of monies with the firm have been made with the expectation of getting interest @48% and a  big part  of in  black in  a clandestine  manner. The transaction cannot  be considered  to be  a scheme  for  the making of  quick or easy money, though it may offend against revenue laws  or any  other law. Transactions in black money do not come within the mischief 127 Of  this   Act.  Judged  from  the  point  of  view  of  the depositors,  it   cannot.  therefore,  be  said  that  their investment in  the firm  for high  return by way of interest part of  which is  above  board  and  a  part  of  which  is clandestine, will  form any part or a scheme for making easy or quick money, [t 81 D-H; 182 A-B]      5. There is nothing to indicate that the firm makes any investment  ill   consultation  with   its  depositors.  The materials indicate  that the  firm  indulges  in  high  risk investments and  also advances  monies to political parties. Neither of these acts are illegal and do not go to show that the firm  makes easy  or quick  money. The materials however show that  the firm  pays a larger amount by way of interest than payable  on the  basis of  the rates  stipulated in the loan certificate  and the  excess amount of interest is paid to the  depositor in a clandestine manner. This does not, in any way,  indicate the  existence of  any scheme  for making quick or easy money. [182 C-E]      In  the  instant  case  the  requirements  of  a  money circulation scheme  are not  satisfied. As there is no money circulation scheme,  there can  be no scheme as contemplated in the Act in view of the definition of scheme in the Rules. The materials, appear to disclose violation of revenue laws.

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The materials  do not disclose that the firm is promoting or circulating  money  circulation  scheme  and  the  question, therefore, of  any violation  of s.  3 of  the Act  does not arise. [182 G-H]      In the  instant case  as the  firm is not conducting or promoting a money circulation scheme, and as no case is made that the  firm is  conducting or  promoting a chit fund, the Act cannot be said to be applicable to the firm. [183 A]      6. As  no offence under the Act is at all disclosed, it will be  manifestly unjust  to allow the process of criminal code to be issued or continued against the firm and to allow any  investigation   which  will   be  clearly  without  any authority. [184 E]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11 29 of 1981.      (Appeal by  special leave  from the  judgment and order dated the  12th March,  1981 of  the Calcutta  High Court in Matter No. 2829 of 1981.                             AND                CIVIL APPEAL No. 1130 OF 1981      (Appeal by  special leave  from the  judgment and order dated the  5th March,  1981 of  the Calcutta  High Court  in Matter No. 2829 of 1980)      Somnath Chatterjee, M. Ramamurthi, S. C. Birla, for the Appellants in C.A.. 1129/81 and C.A. 1130/81 128      A.R. Sen, (For r.1 in C.A. 1130/81) S. S. Ray, (For r.2 in CA. 1130/81), Kapil Sibal, (For r.1 in C. A. 1129/81), B. Gupta &  T.R. Bose,  (for r.1 in CA. 1130/81) and Rathin Das with them.      S.S. Ray, (For r. 6), Tarun Kumar Bose, D. Mandal, Miss Bina Gunpta & O.P. Khaitan with him for Respondents Nos. 5 & 6 in the Appeals.      K. L.  Hathi &  Mrs. H.  Wahi for  the  Intervener-Mrs. Sarla Sahedad Puri.      The following judgments were delivered:      CHANDRACHUD, C.  J. My  learned Brother  A.N.  Sen  has dealt fully  with the  various points  argued before  us.  I agree respectfully  with his  judgment, but  desire to add a few words  in view  of the  importance which this matter has acquired by  reason of  the immense  circulation  of  ’black money’ clearly and almost concededly involved in the affairs of the firm which is facing a prosecution.      These  appeals  by  special  leave  arise  out  of  the judgment dated  March 5,  1981 of  a learned single Judge of the Calcutta  High Court in Matters Nos. 2829 of 1980 and 37 of 1981. The appeals are, in substance, by the State of West Bengal while  the contesting  respondents are  a firm called ’Sanchaita Investments’ and its three partners, Swapan Kumar Guha, Sambhu Prasad Mukherjee and Beharilal Murarka. The two Matters in  the Calcutta  High Court  were in  the nature of writ petitions  under article  226 of the Constitution which were filed  by the  firm and  its partners  for quashing  an investigation commenced  against the firm. Allowing the writ petitions,  the   High  Court  issued  a  writ  of  Mandamus directing the State Government and its concerned officers to "forthwith recall, cancel and withdrew the First Information Report ..  and all  proceedings taken on the basis thereof", since the  searches, seizures  and arrests made in pursuance of the said F.I.R. are, according to the High Court, illegal and without  jurisdiction. It  has directed  that the books,

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documents and moneys seized during the search be returned to the firm and its partners, including a sum of Rs. 52,11,930.      The short  question for  consideration in these appeals by special  leave is  whether  the  F.I.R..  Lodged  by  the commercial Tax officer, 129 Bureau of  Investigation, against  the firm and its partners discloses an offence under section 3 of "The Prize Chits and Money Circulation  Schemes (Banning)  Act", 43  of 1978. The Act, which  was passed by the Parliament, came into force on December 13,  1978 and  the two  years’  period  allowed  by section 12 for winding up every kind of business relating to Prize  Chits   and  Money  Circulation  Schemes  expired  on December 12,  1980. The  F.I.R.., which  was lodged the next day on December 13. reads thus: "To           The Deputy Superintendent of Police,           Bureau of Investigation,           10, Madan Street,           Calcutta-72.      Sir,           On   a    secret   information   that   ’Sanchaita      Investments’ of  5-6, Fancy Lane, Calcutta, is carrying      on business  of promoting  and/or conducting prize chit      and/or money  circulation scheme  enrolling members  of      such chit and/or scheme, participating in those, and/or      receiving and  remit- ting  monies in pursuance of such      chits and/or  scheme in  violation of the provisions of      the  Prize   Chits  and   Money  (Circulation   Schemes      (Banning) Act,  1978,  inquiry  was  held  secretly  to      verify correctness or otherwise of the aforesaid secret      information. Enquiry  reveals that  the said ’Sanchaita      Investments’ is a partnership firm, partners being Shri      Bihari Prasad  Murarka, Shri  Sambhu Mukherjee and Shri      Swapan Kumar  Guha and that it was floated in or around      1975. Enquiry  further reveals  that the  said firm had      been offering  fabulous interest @ 48% per annum to its      members until  very recently.  The rate of interest has      of late  been reduced to 36% per annum. Such high rates      of interest  were and  are being  paid even  though the      loan certificate  receipts show the rate of interest to      be 12%  only. Thus, the amount in excess of 12% so paid      clearly shows  that the  ’Money Circulation  Scheme’ is      being promoted  and conducted  for the  making of quick      and/or easy money. Prizes and/or gifts in cash were and      are also awarded to agents, promoters and members too. 130           In view  of the  above,  Sarvashri  Bihari  Prasad      Murarka, Sambhu  Mukherjee and Swapan Kumar Guha appear      to have  been carrying on business in the trade name of      Sanchaita  Investments’   in  prize   chits  and  money      circulation scheme  in violation  of section  3 of  the      Prize Chits  and Money  Circulation Schemes l,(Banning)      Act, 1978 and are therefore, punishable under section 4      of the  said Act.  Necessary action  may therefore,  be      kindly taken against the aforesaid offenders along with      other accomplices as provided in the law.      Yours faithfully,      Sd/-                                      Commercial Tax officer,                                    Bureau of Investigation."           Section  4   of  the  Act  provides  that  whoever      contravenes  the  provisions  of  section  3  shall  be      punishable with  imprisonment  for  a  term  which  may      extend to three years, or with fine which may extend to

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    five thousand  rupees, or  with both,  provided that in      the absence  of special  and adequate  reasons  to  the      contrary to  be mentioned in the judgment of the court,      the imprisonment  shall not  be less  than one year and      the fine  shall not  be less  than one thousand rupees.      Though the  F.I.R. is riddled with the "and/or" clauses      more appropriate  in deeds of conveyancing, it is clear      firm its  tenor and  is common ground that the gravamen      of the  accusation against the accused is that they are      conducting a  ’money circulation scheme’. The reference      in the  F.I.R. to  ’prize chits’  rejects but  a common      human failing to err on the safe side and the notorious      effort of  draftsmen to  embrace as much as possible so      that no argument may be shut out for want of pleading.           Since the  sole question for consideration arising      out of  the F.I.R., as laid, is whether the accused are      conducting a  money circulation scheme, it is necessary      to understand what is comprehended within the statutory      meaning of that expression.           Section 2(c) of the Act provides:                "  ’Money   circulation  scheme’   means  any           scheme, by whatever name called, for the making of           quick or  easy money,  or for  the receipt  of any           money or valuable thing 131      as the consideration for a promise to pay money, on any      A event  or contingency  relative or  applicable to the      enrollment 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."      Grammar and punctuation are hapless victims of the pace of life  and I  prefer in  this case not to go merely by the commas used in clause (c) because, though they seem to me to have been  placed both  as a  matter of  convenience and  of meaningfulness, yet,  a more  thoughtful use  of commas  and other gadgets  of punctuation  would have  helped  make  the meaning of the clause clear beyond controversy. Besides, how far a clause which follows upon a comma governs every clause that precedes  the comma is a matter not free from doubt. I, therefore,  consider   it  more  safe  and  satisfactory  to discover the  true meaning of clause (c) by having regard to the substance  of the  matter as  it emerges from the object and purpose  of the Act, the context in which the expression is used  and the consequences necessarily following upon the acceptance  of   any  particular   interpretation   of   the provision, the  contravention of  which is  visited by penal consequences.      Commas or no commas, and howsoever thoughtfully one may place them  if they are to be there, I find it impossible to take clause (c) to mean that any and every activity "for the making of  quick or  easy money"  is comprehended within its scope. For  the matter  of that, I cannot believe any law to ban every  kind of  activity for making quick or easy money, without more,  on pain  of penal consequences. It is far too vague and arbitrary to prescribe that "whosoever makes quick or easy  money shall  be liable  to be punished with fine or imprisonment". For  then, in  the absence of any demarcation of legitimate  money-making activities from those which fall within the  ban, the question whether the penal provision is attracted in  a given  case will  depend upon  the will  and temper, sweet  or sour, of the magistracy. Besides, speaking of law  and morals,  it does not seem morally just or proper to say  that no  person shall  make  quick  or  easy  money, especially quick.  A person  who makes quick money may do so

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legitimately by  the use of his wits and wisdom and no moral turpitude may  attach to  it. One  need not  travel after to find speaking examples of this. Indeed, there are honourable men (and now women) in all professions re- 132 cognised traditionally  as noble, who make quite quick money by the  use of their talents, acumen and experience acquired over the  years by  dint of hard work and industry. A lawyer who charges  a thousand  rupees for a Special Leave Petition lasting  five   minutes  (that   is  as  far  as  a  Judge’s imagination can  go), a  doctor  who  charges  a  couple  of thousands  for  an  operation  of  tonsillitis  lasting  ten minutes, an  engineer, an  architect, a chartered accountant and other  professionals who  charge likewise, cannot by any stretch of imagination be brought into the dragnet of clause (c) Similarly,  there are  many other vocations and business activities in  which, of  late, people have been notoriously making quick  money as,  for example,  the builders and real estate brokers.  I cannot  accept  that  the  provisions  of clause (c) are directed against any of these J categories of persons. I  do not  suggest that  law is  powerless to reach easy or quick money and if it wills to reach it, it can find a way  to do it. But the point of the matter is that it will verge upon  the ludicrous  to say that the weapon devised by law to  ban the  making  of  quick  or  easy  money  is  the provision contained  in section 2(c) of the "Prize Chits and Money Circulation Schemes (Banning) Act".      In order  to give meaning and content to the definition of  the  expression  ’money  circulation  scheme’  which  is contained in section 2(c) of the Act, one has, therefore, to look perforce  to the  adjectival clause which qualifies the words "for  the making  of quick  or easy  money".  What  is within the  mischief of  the Act  is  not  "any  scheme,  by whatever name called, for the making of quick or easy money" simpliciter, but  a scheme  for the  making of quick or easy money, "on  any event  or contingency relative or applicable to the,  enrollment of members into the scheme", (whether or not such  money or  thing is derived from the entrance money of  the   members  of   such  scheme   or  their  periodical subscriptions). Two conditions must, therefore, be satisfied before a  person can be held guilty of an offence under sec. 4 read with secs. 3 and 2(c) of the Act. In the first place, it must  be proved  that he  is promoting  or  conducting  a scheme for  the making  of quick or easy money and secondly, the chance or opportunity of making quick or easy money must be shown  to depend upon an event or contingency relative or applicable to  the enrollment  of members  into that scheme. The legislative  draftsman could  have thoughtfully foreseen and avoided  all reasonable  controversy over the meaning of the expression  ’money circulation  scheme’ by  shaping  its definition in this form: 133      ’money  circulation   scheme’  means   any  scheme,  by      whatever name called,      (i)  for the making of quick or easy money, or      (ii) for the  receipt of any money or valuable thing as           the consideration for a promise to pay money, B      On any  event or  contingency relative or applicable to      the enrollment  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      subscription;      I have  reshaped the  definition, in order to bring out its meaning  clearly, without  adding or  deleting a  single word or  comma from  the original text of section 2 (c). The

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substance of  the matter  is really  not in  doubt: only the form of  the definition is likely to create some doubt as to the meaning  of the  expression  which  is  n  defined  and, therefore,  I   have  made  a  formal  modification  in  the definition  without  doing  violence  to  its  language  and indeed, without even so much as altering a comma.      There is another aspect of the matter which needs to be underscored, with a view to avoiding fruitless litigation in future. Besides  the prize  chits,  what  the  Act  aims  at banning is  money  circulation  schemes.  It  is  manifestly necessary and  indeed, to  say so  is to  state the obvious, that the  activity charged as falling within the mischief of the Act  must be  shown to  be a part of a scheme for making quick or  easy money,  dependent upon  the happening or non- happening of any event or contingency relative or applicable to the  enrollment of  members into that scheme. A ’scheme,’ according to  the dictionary  meaning of  that word,  is  ’a carefully arranged  and systematic  program  of  action’,  a ’systematic plan for attaining some object’, ’a project’. ’a system of  correlated  things’.  (see  Webster’s  New  World Dictionary, and Shorter oxford English Dictionary, Vol. II), The Systematic  programme of  action has  to be a consensual arrangement between  two or  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  enrollment  of members into  the programme.  Reciprocally, the  person  who promotes or con- ducts the programme promises, on receipt of an advance or loan, 134 to pay  more  money  on  the  happening  of  such  event  or contingency. Therefore, a transaction under which, one party deposits with  the other  or lends  to that  other a  sum of money on  promise of  being paid  interest at  a rate higher than the  agreed rate of interest cannot, without more, be a ’money circulation  scheme’ within  the meaning of section 2 (c) of the Act, howsoever high the promised rate of interest may be in 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 enrollment of  members into  the scheme.  Ir;  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  relative  or  applicable  to  the enrollment of  members  into  that  arrangement  is  of  the essence, there  can be  no ’money circulation scheme’ within the meaning of section 2 (c) of the Act.      Numerous persons  lend their  hard-earned monies in the hope  of   earning  high  returns.  It  is  notorious  that, eventually, quite  a few of them lose both the principal and the interest,  for no  project can succeed against the basic laws of economics. Sharp and wily promoters pay A’s money to and B’s to in order to finance interest at incredible rates, and eventually,  then high-risk  investment made  by them at the  cost   of  the  credulous  lenders  fails,  the  entire arrangement founders  on the  rock of  foolish optimism. The promoters, of  course, have  easy recourse to gadgets of the law of  insolvency. It is difficult to hold that the lender,

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himself a victim of the machinations of the crafty promoter, is intended  by the  Act to be arraigned as an accused. I do not think that any civilised law can intend to add insult to injury.      The question as to whether the First Information Report prima facie  discloses an  offence under section 4 read with section 3 of the Act has to be decided in the light of these requirements of  section 2  (c) of  the Act.  I have already reproduced in  extenso the  F.I.R. Lodged  by the Commercial Tax   officer,   Bureau   of   Investigation.   Analysing-it carefully, and even liberally, it makes the 135 following   allegations    against   the   firm   ’Sanchaita Investments’ and its three partners:      (1)  The firm  had been offering fabulous interest (48%           per annum  to its  members, which rate of interest           was later reduced to 36% per annum;      (2)  Such high  rate of  interest was  being paid  even           though the  loan certificate  receipts  show  that           interest was  liable to be paid at the rate of 12%           per annum only; and      (3)  The fact  that interest  was paid in excess of 12%           shows clearly  that a  ’Money Circulation  Scheme’           was being promoted and conducted for the making of           quick or easy money.      It seems to me impossible to hold on the basis of these allegations that  any offence  can be  said to  be made  out prima facie  under section 3 of the Act. In the first place, the F.I.R. does not allege, directly or indirectly, that the firm was  promoting or conducting a scheme for the making of quick or  easy money,  dependent on any event or contingency relative or applicable to the enrollment of members into the scheme. Secondly, the F.I.R. does not contain any allegation whatsoever that  persons who  advanced  or  deposited  their monies with  the firm  were participants of a scheme for the making of quick or easy money, dependent upon any such event or contingency.  The F.I.R.  bears on  its face the stamp of hurry and  want of care. It seems to assume, what was argued before us  by Shri  Som Nath  Chatterjee on  behalf  of  the prosecution, that it is enough for the purposes of section 2 (c) to  show that  the accused  is promoting or conducting a scheme for  the making of quick or easy money, an assumption which I have shown to be fallacious. An essential ingredient of section 2 (c) is that the scheme for making quick or easy money must be dependent on any event or contingency relative or applicable  to the enrollment of members into the scheme. A First Information Report which does not allege or disclose that the  essential requirements  of the penal provision are prima  facie   satisfied,  cannot  form  the  foundation  or constitute the starting point of a lawful investigation.      In answer to the writ petitions filed by the accused in the Calcutta  High Court, affidavits were filed on behalf of the pro- 136 secuting agency,  which do  not improve  matters in any way. The affidavit  filed by  Arun Kanti  Roy, Deputy  Secretary, Finance Department, Government of West Bengal, alleges that:      (i)  The actual payment of a very high rate of interest           against the  professed rate  of 12% attracted huge           amounts of idle money into circulation .      (ii) The investment  of money as collected is not under           the regulatory  control of  the  Reserve  Bank  of           India or  any other  agency of  the State  dealing           with credit  control in  relation to the country’s           economy;

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     (iii) The  pooling of  the purchasing  power  and  the           financial resources  and the unfettered deployment           thereof have  resulted  in  the  concentration  of           tremendous economic  power in  the hands of a few,           posing a  potential threat  to the  equilibrium of           the country’s economy;      (iv) The entire  process is  speculative in  nature and           directed towards  luring away the investing public           to the  speculative market  for making  quick  and           easy money;      (v)  The  very   basis  of  the  so-called  contractual           arrangement between the firm and its depositors is           founded on  the fraudulent device to assure to the           people a  high rate of interest, the major portion           of which  is paid  through unaccounted  for money,           thereby encouraging the growth of such unaccounted           money in the hands of the investing public;      (vi) The  professed   rate  of   interest  is   a  mere           subterfuge to  provide a  cloak of  bona fides and           legality to  the under  hand transactions, through           which unaccounted for money comes into play in the           market generating further unaccounted for money, a           part whereof  goes back  to the  depositors in the           form of  the balance  of interest over 12% paid in           cash, month by month;     (vii) The firm  did not  have enough income or resources           so as  to be  able to  pay interest  at such  high           rates;    (viii) The irresistible  conclusion, therefore,  is  that           interest was being paid out of the capital itself; 137      (ix) "The depositor  becomes a member of the investment           scheme of  the firm  by subscribing  to it and the           payment of the quick and easy money by way of high           rate of  interest is  dependent upon the period of           investment and/or  efflux of  time which  are very           much relative  and/or applicable to the membership           of the  depositors of  the  scheme  to  which  the           depositor agrees to subscribe"; and      (x)  In the  process of  its working, the scheme of the           firm generates  quick and  easy  money  so  as  to           render  such   scheme  or   arrangement  a  ’money           circulation scheme’ within the meaning of the Act.      The Assistant  Commissioner of  Police Shri Sunil Kumar Chakravarty has  adopted these  pleas and  statements in his own affidavit      It is clear from these averments that even at the stage when the  State of  West Bengal  and its  concerned officers submitted detailed  affidavits to  the High Court, there was no clear basis for alleging and no material was disclosed to show that, prima facie, the firm was promoting or conducting a scheme  for making quick or easy money which was dependent upon an  event or  contingency relative or applicable to the enrollment of  members into  that scheme.  The burden of the State’s song  is that  the scheme  conducted by  the accused generates black  money and  will paralyse the economy of the country.  These   are  serious  matters  indeed  and  it  is unquestionable that  a private  party cannot be permitted to issue bearer  bonds by  the back  door. The  fact  that  the accused are  indulging in  an  economic  activity  which  is highly detrimental  to national  interests is a matter which must engage  the prompt  any serious  attention of the State and Central  Governments. But  the narrow  question for  our consideration is  whether on  the basis  of the  allegations made against  the accused,  there is  reason to suspect that

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they are  guilty of  an offence  under section  4 read  with sections 3  and 2  (c) of  the Act.  The allegation which we have reproduced  in clause  (ix) above from the affidavit of Arun Kanti  Roy  is  the  nearest  that  can  be  considered relevant for  the purpose  of section 2 (c) of the Acts. But even that  allegation does  not meet the requirement of that section since,  what it  says is  that "the payment of quick and easy  money by way of high rate of interest is dependent upon the period 138 of investment  and/or efflux  of time  which are  very  much relative  and/or   applicable  to   the  membership  of  the depositors of  the scheme  to which  the depositor agrees to subscribe". This  is too  tenuous to show that the scheme is dependent upon  an event  or contingency  of the description mentioned in section 2(c), apart from the fact that the only participation which  is alleged as against the depositors is that they  become members  of  the  "investment  scheme"  by subscribing to it. There is no allegation even in any of the affidavits filed  on behalf  of the State of West Bengal and its concerned officers that the depositors and the promoters are animated by a community of interest in the matter of the scheme  being   dependent  upon  any  event  or  contingency relative or applicable to the enrollment of members into it. That being  an essential  ingredient of the offence charged, it  cannot   be  said  in  the  absence  of  any  allegation whatsoever in that behalf, that there is "reason to suspect" the commission of that offence within the meaning of section 157 of  the Code of Criminal Procedure, so as to justify the investigation undertaken by the State authorities.      My  learned   Brother,  A.N.  Sen  J.,  has  considered exhaustively the  various authorities  cited at  the Bar  by both the sides on the question as to the power of the courts to quash  an investigation.  I fully concur with his careful analysis of  those authorities and would content myself with a broad  indication of  the trend  of  law  bearing  on  the subject.      Shri Ashok  Sen and Shri Siddhartha Shankar Ray pressed upon  us   with  considerable   insistence   the   principle reiterated in  W.H. King  v.  Republic  of  India,  (that  a statute which  creates an  offence and  imposes a penalty of fine and  imprisonment must  be construed strictly in favour of the  subject. The  principle that no person can be put in peril of  his life  and liberty  on an  ambiguity  is  well- established. But,  as observed in M. V. Joshi v. M.U. Shimpi when it  is said  that  penal  statutes  must  be  construed strictly, what  is meant is that the court must see that the thing charged  is an offence within the plain meaning of the words used  and it  must not strain the words: "To put it in other words,  the rule  of strict construction requires that the language of a statute 139 should be  so construed  that no  case shall be held to fall within  it   which  does  not  come  within  the  reasonable interpretation of  the statute",  and that in case of doubt, the  construction   favourable  to  the  subject  should  be preferred. But  I do  not think  that this  rule  of  strict interpretation of  penal statutes  in any  way  affects  the fundamental principle  of interpretation,  that the  primary test which can safely be applied is the language used in the Act and,  therefore, when the words are clear and plain, the court  must   accept  the   expressed   intention   of   the Legislature. It  is unnecessary  to pursue  this matter  any further in  view of  the fact  that the  language of section 2(c) is,  in my  opinion, clear  and admits  of no  doubt or

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difficulty.      In R.P.  Kapur v.  The State  of Punjab,  the  question which  arose   for  consideration   was  whether   a   first information report can be quashed under section 561-A of the Code of  Criminal Procedure.  The Court  held on  the  facts before it that no case for quashing the proceedings was made out but  Gajendragadkar J.,  speaking for the Court observed that  though  ordinarily,  criminal  proceedings  instituted against an accused must be tried under the provisions of the Code, there  are some categories of cases where the inherent jurisdiction of  the Court  can and  should be exercised for quashing the  proceedings. One  such category,  according to the Court,  consists of  cases where  the allegations in the F.I.R. Or  the complaint,  even if  they are  taken at their face value and accepted in their entirety, do not constitute the  offence   alleged;  in   such  cases,  no  question  of appreciating evidence  arises and  it is  a matter merely of looking at  the F.I.R.  Or the  complaint in order to decide whether the  offence alleged  is disclosed  or not.  In such cases, said  the Court,  it would be legitimate for the High Court to  hold that  it would  be manifestly unjust to allow the process  of the  criminal court to be issued against the accused.      In  S.N.   Sharma  v.   Bipen  Kumar  Tiwari,  a  first information report  was lodged naming an Additional District Magistrate  (Judicial)   as  the   principal  accused.   His application under section 159 of the Criminal Procedure Code asking that the Judicial Magistrate should himself conduct a preliminary inquiry  was dismissed,  but the  Court observed that though the Code of Criminal 140 Procedure  gives   to  the   police  unfettered   power   to investigate all  cases where  they suspect that a cognizable offence  has   been  committed,  in  appropriate  cases,  an aggrieved person  can always  seek a  remedy by invoking the power of  the High  Court under Art. 226 of the Constitution and that  the High  Court could  issue a  writ  of  mandamus restraining the police from misusing their legal powers.      Shri Som  Nath Chatterjee  has placed great reliance on the decision  of this  Court in State of West Bengal v. S.N. Basak, in  which it was held that the statutory powers given to the  police under  sections 154  and 156  of the  Code of Criminal Procedure  to investigate into the circumstances of an alleged  cognizable  offence  without  authority  from  a Magistrate cannot  be interfered  with by  the  exercise  of powers under  section  439  or  under  the  inherent  powers conferred  by  section  561  A  of  the  Code.  It  must  be remembered that  no  question  arose  in  that  case  as  to whether, the  allegations contained  in the F.I.R. disclosed any offence  at all.  The contention  of the accused in that case was  that the statutory power of investigation given to the police under Chapter XIV of the Code is not available in respect of an offence triable under the West Bengal Criminal Law Amendment  (Special Courts)  Act 1949 and that being so, the investigation  undertaken  by  the  police  was  without jurisdiction. That  contention was negatived and, therefore, the application  filed by the accused under sections 439 and 561A of the Code was dismissed .      In Jehan Singh v. Delhi Administration, the application filed by  the accused  under section  561-A of  the Code for quashing the  investigation was dismissed as being premature and incompetent,  but that  was because the Court found (per Sarkaria J.  page 797)  that prima  facie, the allegation in the F.I.R., if taken as correct, disclosed the commission of a cognizable offence by the accused.

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    The only  other decision  to which I need refer is that of the  Privy Council in King-Emperor v. Kawaja Nazir Ahmad, which  constitutes,   as  it   were,  the   charter  of  the prosecution all  over for  saying that  no investigation can ever be quashed. In a passage oft- 141 quoted but  much-misunderstood, Lord  porter, delivering the opinion of the Judicial Committee, observed;           "In their  Lordships’ opinion,  however, the  more      serious aspect  of the  case is  to  be  found  in  the      resultant interference  by the court with the duties of      the police.  Just as  it is  essential that  every  one      accused of  a crime  should have free access to a court      of justice  so that  he may  be duly acquitted if found      not guilty  of the offence with which he is charged, so      it is  of the  utmost  importance  that  the  judiciary      should not  interfere with  the police in matters which      are within  their  province  and  into  which  the  law      imposes on  them the  duty of inquiry. In India, as has      been shown,  there is  a statutory right on the part of      the police  to  investigate  the  circumstances  of  an      alleged  cognizable   crime   without   requiring   any      authority from  the judicial authorities, and it would,      as their  Lordships think,  be an unfortunate result if      it should  be held  possible to  interfere  with  those      statutory  rights   by  an  exercise  of  the  inherent      jurisdiction  of   the  court.  The  functions  of  the      judiciary  and   the  police   are  complementary,  not      overlapping, and  the combination of individual liberty      with a  due observance  of law  and order is only to be      obtained by  leaving each to exercise its own function,      always, of course, subject to the right of the court to      intervene in  an  appropriate  case  when  moved  under      section 491  of the  Criminal procedure  Code  to  give      directions in  the nature  of habeas  corpus. In such a      case as  the present,  however, the  court’s  functions      begin when  a charge  is preferred  before it,  and not      until then.’ (pp. 212-213) I  do  not  think  that  this  decision  supports  the  wide proposition canvassed before us by Shri Som Nath Chatterjee. In the  case before the Privy Council, similar charges which were levelled  against the accused in an earlier prosecution were dismissed.  The High  Court quashed  the  investigation into fresh  charges after  examining the previous record, on the basis  of which  it came  to  the  conclusion  that  the evidence against  the accused was unacceptable. The question before the  Privy Council  was not whether the fresh F.I.R.. disclosed any offence at all. In fact, immediately after the passage which  I have  extracted above,  the  Privy  Council qualified its statement by saying; 142           "No doubt,  if no cognizable offence is disclosed,      and still more, if no offence of any kind is disclosed,      the police  would have  no authority  to  undertake  an      investigation." If  anything,   therefore,  the   judgment  shows   that  an investigation can  be quashed  if no  cognizable offence  is disclosed by  the F.I.R.  It shall  also have  been noticed, which is  sometimes overlooked,  that the Privy Council took care to  qualify its statement of the law by saying that the judiciary should  not interfere  with the  police in matters which are within their province. It is surely not within the province of  the police  to investigate  into a Report which does not disclose the commission of a cognizable offence and the Code  does not  impose upon  them the duty of inquiry in

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such cases.      The position which emerges from these decisions and the other decisions  which are  discussed by Brother A.N. Sen is that  the   condition  precedent   to  the  commencement  of investigation under  section 157  of the  Code is  that  the F.I.R. must disclose, prima facie, that a cognizable offence has been  committed. It  is wrong to suppose that the police have an  unfettered  discretion  to  commence  investigation under section  157 of  the Code.  Their right  of inquiry is conditioned by  the  existence  of  reason  to  suspect  the commission  of   a  cognizable   offence  and  they  cannot, reasonably, have  reason so  to suspect  unless the  F.I.R., prima facie,  discloses the  commission of  such offence. If that condition  is satisfied,  the investigation  must go on and the  rule in  Khwaja Nazir Ahmed (supra) will apply. The Court has then no power to stop the investigation, for to do so would be to trench upon the lawful power of the police to investigate into  cognizable offences. On the other hand, if the F.I.R.  does not disclose the commission of a cognizable offence, the  Court  would  be  justified  in  quashing  the investigation on  the basis  of the  information as  laid or received.      There is  no such  thing like  unfettered discretion in the  realm   of  powers  defined  by  statutes  and  indeed, unlimited discretion  in that  sphere can  become a ruthless destroyer of personal freedom. The power to investigate into cognizable offences  must, therefore,  be exercised strictly on the  condition on which it is granted by the Code. I may, in this  behalf, usefully  draw  attention  to  the  warning uttered by  Mathew J.  in his  majority judgment  in  Prabhu Dayal Deorah  v. The  District  Magistrate,  Kamrup  to  the following effect: 143           "We say,  and we  think it is necessary to repeat,      that the gravity of the evil to the community resulting      from  anti-social   activities  can  never  furnish  an      adequate reason  for invading the personal liberty of a      citizen,  except   in  accordance  with  the  procedure      established by  the  Constitution  and  the  laws.  The      history of  personal liberty  is largely the history of      insistence on  observance of  procedure. Observance  of      procedure has  been the bastion against wanton assaults      on  personal   liberty  over   the  years.   Under  our      Constitution, the  only guarantee  of personal  liberty      for a  person is  that he  shall not  be deprived of it      except in  accordance with the procedure established by      Law."      For these  reasons, which,  frankly, are  no  different from those given by my learned Brother A.N. Sen, I am of the opinion that the investigation which has been commenced upon the First  Information Report  is without  jurisdiction  and must, therefore,  be quashed.  I do  accordingly and  direct that no further investigation shall take place in pursuance. Or on the basis of the F.I.R. dated December 13, 1980 lodged by the Commercial Tax Officer, Bureau of Investigation, with the   Deputy    Superintendent   of    Police,   Bureau   of Investigation, Madan Street, Calcutta.      I am  free to  confess that  it  is  with  considerable regret  that   I  have  come  to  the  conclusion  that  the investigation must  be quashed. If the State authorities had applied their  mind carefully to the requirements of section 2 (c)  of the  Act, this  appeal might  have had a different story to tell, the bare outlines of which I must now proceed to narrate.      The firm ’Sanchaita Investments’ commenced its business

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on July  1, 1975,  its three  partners contributing  a total capital of Rs. 7000 (Rupees seven thousand). On December 25, 1978 an advertisement appeared in the "Hindu" in the name of firm, claiming  falsely that  its business  was "approved by the Reserve  Bank of  India". Since  the representation  was likely to  mislead the  public, the Reserve Bank advised the firm in May 1979 too issue a suitable corrigendum, which the firm did.      On July  6, 1979, Shri Rudolph L. Rodrigues a Member of the Lok  Sabha, wrote  a confidential  letter to Shri Charan Singh, the  then Deputy Prime Minister, complaining that the business of the firm 144 was "a  cover-up for  a parallel  banking system  for  black money". A  copy of  Shri Rodrigues’  letter was forwarded by the Director,  Department of  Economic Affairs,  Ministry of Finance, to  the Chief  Officer, Department  of  Non-Banking Companies, Reserve  Bank of India, Calcutta, for inquiry. By his letter  dated August  7, 1979  the Chief officer pointed out the  difficulty  in  directing  investigation  into  the affairs of  the firm  since, its capital being less than Rs. One lakh,  it did  not come  within the definition of a Non- Banking institution  as provided  in section  54 (c)  of the Reserve Bank  of India  Act, 1934. On September 13, 1980 the Deputy  Secretary  Finance  Department  Government  of  West Bengal, wrote  a letter  to the Chief Officer requesting him to examine  the question  whether the  business of  the firm came within  the  purview  of  the  prize  Chits  and  Money Circulation Schemes  (Banning) Act,  1978 and  if not, under which Act  the affairs  of the  firm could  be regulated. On October 1,  1980, Shri Ashok Mitra, Finance Minister for the State of  West Bengal,  wrote a letter to Shri Venkataraman, Finance Minister  to the  Government of  India,  complaining that the firm was involved in high-risk investments and that large amounts of public moneys were kept in deposit with the firm, which  were not  subjected to  any regulatory control. The letter  of Shri  Ashok Mitra appears to have been handed over informally to Dr. K.S. Krishnaswamy, Deputy Governor of the Reserve  Bank, who, by his reply dated October 22, 1980, informed Shri Mitra that the legal department of the Reserve Bank was of the opinion that the mere acceptance of loans by the firm  would not ordinarily be covered by the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. There was further  correspondence   on   the   subject   between   the authorities  of  the  Government  of  India  and  the  State Government, but nothing came out of it.      The Act  came into  force  on  December  13,  1978  and immediately on  the expiry of the two years’ period of grace allowed by  it, the  F.I.R. was  lodged against  the firm on December   13, 1980.  On that day, the office of the firm at 5-6, Fancy  Lane, Calcutta,  was  searched  by  the  police, during the  course of  which a  sum of Rs. 42,16,530 (Rupees forty two  lacs, sixteen  thousand, five hundred and thirty) was recovered.  The amount  was tied  in separate bundles of notes of  different denominations. Several books of accounts were also seized during the search. 145      On the  same date,  a search  was carried  out  at  the residence of  Shambbu Prasad  Mukherjee, a  partner  of  the firm, when the following articles were seized:      (1)  One pass-book  of Syndicate Bank, Gariahat Branch,           Calcutta, in the name of "Apcar Ave Toon", 9, Royd           Street,  Calcutta-17.   (The  account   was  in  a           fictitious name and the pass-book shows that a sum           of Rs.  Twenty-eight crores was lying in credit in

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         that account).      (2)  A sum of Rs. 9,95,000 (Rs. nine lacs ninety-five           thousand) tied in separate bundles of notes of the           denomination of Rs. 100 and 50.      (3)  A country-made 6 chamber revolver, with one bullet           inside.      From the  house of  another partner, Biharilal Murarka, certain account books were seized.      During the  course of  investigation until  January  8, 1981 when  it was stopped by an order of this Court, as many as eighty  places were  searched by  the police  and a large number of  documents were  seized. It is apparent from these documents  that  the  firm  was  paying  to  its  depositors interest at  the rate of 48 per cent upto September 1979 and 36 per  cent thereafter for a short period. The interest was paid to  each depositor every month by the agents who called on each  depositor personally for that purpose. The interest in excess of 12 per cent was invariably paid in cash. The on coming elections  to legislative  bodies in  1980 appear  to have led  to reduction  in the  rate of  interest, since the firm’s  circulating   capital  was   needed  by   "political parties". Which  parties, I  do not  know, but  this much is fairly certain  from the  facts which have emerged before us that  the   funds  available   to  the  firm  were  diverted frequently for the use of political parties.      Certain  lists   of  agents   were  seized  during  the investigation which  show that Code numbers were assigned to at  least  84  of  them.  The  agents  have  acquired  large properties  at   various  places,   consisting   of   lands, apartments, cars  etc. Some  of the  agents have started new business activities. 146      A staggering revelation which came to light as a result of the  searches at  the office  of the  firm is that, as of September 1, 1980, the firm was holding deposits to the tune of Rs.  73,51,23,000 (Rupees seventy-three crores, fifty-one lacks,  twenty-three   thousand  and  five  hundred).  These deposits were  received by  the firm from persons drawn from all parts  of the  country, the  pride of place belonging to Calcutta, Bombay,  Delhi, Madras  and Hyderabad. Remittances also appear  to have been received by the firm from overseas clients. A  compilation prepared by the State authorities in pursuance of  an interim  order passed  by this  Court shows that the  total amount  of deposits  made by persons who had deposited a  sum of  Rs. 10,000  or less  each comes  to Rs. 11,49,40,950 (Rupees  eleven crores, forty-nine lacs, forty- thousand, nine hundred and fifty).      The documents relating to the account in the fictitious name of  "Apcar Ave Toon" show that a person alleged to bear that name  was introduced  to the  Syndicate Bank,  Gariahat Branch,  Calcutta   by  the  firm’s  partner  Sambhu  Prasad Mukherjee. The  pass-book relating  to the  account (Current Account No.  210) shows  that the  account was opened with a cash deposit  of Rs.  28 lacs.  A total sum of Rupees twenty seven crores,  ninety seven lacs eighty six thousand and odd was deposited  in that  account until  December 6,1980,  all deposits being  in cash.  Such cash  deposits  varied  often between 50 to 80 lacs at a time. The amount of nearly Rs. 28 crores was withdrawn from the account steadily from November 11, 1980.  The account  was closed on December 6, 1980, that is, a  week before  the F.I.R.  was lodged  on December  13, 1980. Some of the entries in the pass-book do not tally with the Bank’s Ledger.      A study of Current Account No. S-5O2 in the name of the firm with  the United  Bank of  India,  High  Court  Branch,

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Calcutta, shows  that the  firm had invested several lacs of rupees in  various concerns  numbering about  forty. Lacs of rupees  have   been  transferred  by  the  firm  to  various concerns.      Documents seized  from the  office premises of the firm show that  the partners and their family members are insured with the  L.I.C. in  heavy amounts. They have acquired large properties, particularly in Bombay. 147      Several offices and concerns in Bombay were searched by the police  and interesting  discoveries  were  made.  Their magnitude and  variety are  too large  for the scope of this judgment. I  will close  this narrative  by saying  that the income-tax returns  of Shambhu  Prosad Mukherjee reveal that he had  shown a  sum of Rs. 8,00,000 as prizes received from Delhi Lotteries  in 1979 and that the firm has not filed any income-tax return  after the  financial year ending June 30, 1977. It  had asked  for an  extension of time on the ground that its  accounts were  not finalised  but  the  Department rejected that  prayer on  December  9,  1980.  With  further indulgence they  have managed  cleverly to secure is not yet known.      These facts  disclose a  bizzare state  of  affairs.  A token capital of Rs 7,000 has begotten a wealth of crores of rupees within a span of five years. A bank account opened by the firm  in a fictitious name had a sum of Rs. twenty-eight crores in  it, which  was withdrawn within a week before the lodging of  the F.I.R. Interest was being paid to depositors at the  incredible rate  of 48  p.c. p.a.  The firm  had  no ostensible source  of  income  from  which  such  exorbitant amounts could  be paid  and its  account books, such as were seized from  its head-office,  give no clue to its income or its  assets.   The  partners   of  the   firm  have   become millionaires overnight.  Clerks and  Chemists that  they and some  of   their  agents  were  in  1975,  to-day  they  own properties which  will put  a  prince  to  shame.  "Rags  to riches" is  how one  may justly describe this story of quick and easy  enrichment. There  is no  question that  this vast wealth has  been acquired  by the  firm  by  generating  and circulating black  money. Indeed, rightly did Shri Ashok Sen appearing for  the firm, ask us to be free to proceed on the assumption that  the exorbitant amount of interest was being Paid from out of unaccounted money.      In these circumstances though I see no alternative save to stop all further investigation on the basis of the F.I.R. as laid, no offence being disclosed by it under section 4 of the Act,  I am unable to accept the contention of Shri Ashok Sen that  all documents, books papers and cash seized so far during the  investigation should be returned to the firm and its partners  forthwith. The firm appears to be on the brink of an  economic crisis,  as any  scheme of  this  nature  is eventually bound  to be. Considering the manner in which the firm has manipulated its accounts and its affairs, I have no doubt that  it will  secret the  large funds and destroy the incriminating documents  if they  are returned  to  it.  The State Government, 148 the Central Government and the Reserve Bank of India must be given a  reasonable opportunity  to see  if it  is possible, under the  law, to  institute an inquiry into the affairs of the firm  and, in the mean while, to regulate its affairs. I consider such a step essential in the interests of countless small depositors  who, otherwise,  will be  ruined by  being deprived of their life’s savings. The big black money bosses will take  any loss  within their  stride but  the small man

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must receive  the protection  of the State which must see to it that  the small  dopositors are  paid back their deposits with the agreed interest as quickly as possible. I therefore direct that  the documents,  books, papers,  cash and  other articles seized  during the  investigation shall be retained by the  police in  their custody  for a period of two months from to-day  and will  be returned,  on the  expiry of  that period, to  persons from  whom they  were seized, subject to any lawful  directions which may be given or obtained in the meanwhile regarding their custody and return.      With  this  modification,  I  agree  respectfully  with Brother A.N. Sen that the appeals be dismissed.      VARADARAJAN J.  I agree with the judgment and the final order proposed by the learned Chief Justice.      AMARENDRA NATH SEN, J. This appeal by special leave has been filed by the State of West Bengal and three officers of the State  against an order passed by a learned single Judge of the  Calcutta High  Court. The  facts  material  for  the purpose of  this appeal  have been  fully  set  out  in  the judgment of  the learned  single Judge  of the Calcutta High Court. The  facts material  for the  purpose of  this appeal may, however, be briefly indicated :      Sanchaita  Investments   is  a  partnership  firm  duly registered  under  the  Indian  Partnership  Act.  Sanchaita Investments (hereinafter  referred to  as the  firm) has its principal place  of business  at Nos.  5 and  6 Fancy  Lane, Calcutta. Shambhu  Prasad Mukherjee,  Bihari Lal Murarka and Swapan Kumar  Guha are  the three  partners of the Firm. The capital of  the partnership  firm is  Rs. 7,000/-.  The firm carries on  the business  as financiers and investors and in its business  the firm  accepts loans  or deposits  from the general public for different periods repayable with interest @ 12% per annum. Under the terms of deposits, the depositors have a right to withdraw their deposits with the firm at any time before the expiry of the fixed 149 period of  the deposit. In case of premature withdrawal, the depositors however loses interest of 1% and is paid interest @ 11%  per annum.  Under the  terms and  conditions  of  the deposits, the  firm has also the liberty to repay the amount with interest to any depositor at any time before the expiry of the  stipulated period of the deposit and in the event of such repayment  by the  firm, the firm is not required under the terms and conditions of the deposit or loan, to give any reason. It  appears that  the firm  has been carrying on its business on a very extensive scale.      In the  year 1978,  the Parliament passed an Act called the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (hereinafter referred to as the Act).      On the 13th December, 1980, the Commercial Tax Officer, Bureau of  Investigation, lodged a complaint of violation of the Act by the firm with the Police. The F.I.R. has been set out in  full in  the judgment of the learned Trial Judge and the same reads as follows :      "    13.12.1980      The Deputy Superintendent of Police,      Bureau of Investigation,      10, Madras Street.      Calcutta-72      Sir,           On   a    secret   information   that   ’Sanchaita      Investments’ of  5  and  6  Fancy  Lane,  Calcutta,  is      carrying on  business of  promoting  and/or  conducting      prize chit  and/or money  circulation scheme  enrolling      members of  such chit  and/or scheme  participating  in

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    these,  and/or   receiving  and   remitting  monies  in      pursuance of  such chits  and/or scheme in violation of      the provisions of the prize chits and money circulation      scheme (Banning)  Act, 1978.  Inquiry was held secretly      to verify  correctness or  otherwise of  the  aforesaid      secret  information.  enquiry  reveals  that  the  said      ’Sanchita Investments’  is a Partnership firm, partners      being Shri Bihari Prasad Murarka, Shri Sambhu Mukherjee      and Swapan  Kumar Guha  and that  it was  floated in or      around 150      1975. Enquiry  further reveals  that the  said firm had      been offering  fabulous interest @ 48% per annum to its      members until  very recently.  The rate of interest has      of late  been reduced to 36% per annum. Such high rates      of interest  were and  are being  paid even  though the      loan certificate  receipts show the rate of interest to      be 12%  only. Thus, the amount in excess of 12% so paid      clearly shows  that the  ’Money Circulation  Scheme’ is      being promoted  and conducted  for the  making of quick      and/or easy money, prizes and/or gifts in cash were and      are also awarded to agents, promoters and members too.           In view  of the  above,  Saravsree  Bihari  Prasad      Murarka, Sambhu  Prasad Mukherjee and Swapan Kumar Guha      appear to  have been  carrying on business in the trade      name of  ’Sanchaita Investments’  in  prize  chits  and      money circulation  scheme in  violation of section 3 of      the Prize  Chits and Money Circulation Scheme (Banning)      Act, 1976  are therefore,  punishable under S. 4 of the      said Act.  Necessary action  may, therefore,  be kindly      taken against  the aforesaid offenders along with other      accomplice as provided in the law.           Yours faithfully           Sd/- Illegible      13.12.1980           Commercial Tax Officer,      Bureau of Investigation."      On the  13th of  December, two  of the  partners of the firm were  arrested. The  office of  the firm  and also  the houses of  the partners were searched. Various documents and papers were  seized and  a large  amount of  cash  was  also seized from the office and also from the residence of one of the partners.  Two partners who were arrested were, however, thereafter enlarged on bail.      The firm  and its  two partners, namely, Shambhu Prasad Mukherjee and Bihari Lal Murarka filed this writ petition in the High  Court challenging  the validity  of the F.I.R. and the proceedings  arising  out  of  the  same  including  the validity of the searches 151 and seizure  of documents,  papers and cash. The respondents in the  writ petition were six. The first respondent was the State of  West Bengal, Respondents No. 2 was the officer who had lodged  the F.I.R..,  Respondent No. 3 was the Assistant Commissioner of  Police and Superintendent of Police, Bureau of Investigation, and respondent No. 4 was the Investigating officer in  the cases  pending before the Chief Metropolitan Magistrate Calcutta.  Respondent No.  S was the Reserve Bank of India and Respondent No. 6 was the Union of India.      In brief  the case made by the firm and its partners in the  writ  petition  is  that  the  firm  is  a  non-banking financial institution which carries on business of accepting deposits or  loans from  the general  public  on  terms  and conditions mentioned  in the  agreement of  loan or deposit, pays interest  to persons who invest or advance money to the

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firm in  terms of  the agreement  between  the  parties  and repays all  amounts received  from the parties with interest in terms  of the  agreement between the parties. The further case made  by the  writ petitioners  in the writ petition is that  the  amounts  which  they  receive  from  parties  are reinvested by  them and  out of  the investments made by the firm, the  firm pays the interest to the depositors and also the principal  amount deposited  by them  in  terms  of  the agreement between the parties. In the writ petition there is a denial of the allegations made in the F.I.R.. and the case is further  made that  even if  the allegations  made in the F.I.R.. are  assumed to  be correct,  there  cannot  be  any question of  any violation  of the  Act and no offence under the Act  is disclosed.  It is  the positive case of the writ petitioners in  the  writ  petition  that  the  Act  has  no application to  the firm. In the writ petition, the validity of the  F.I.R.. and  the  proceeding  arising  therefrom  is challenged mainly  on the  ground that  the F.I.R.  does not disclose any  offence under  the Act which-does not apply to the firm  and there  can be question of any violation of any provisions of  the Act  which has no application to the firm at all.      In answer  to the  averments made  in writ petition, an affidavit affirmed  by Shri  Arun Kanti  Roy, was  filed  on behalf of  respondent Nos. 1 and 2, an affidavit affirmed by Shri Sunil Kumar Chakravorty on behalf of respondents Nos. 3 and 4  was filed  and an  affidavit affirmed  by  Shri  Rani Annaji Rao  on behalf  of the Reserve Bank of India was also filed. In  the affidavit  affirmed by Arun Kanti Roy, Deputy Secretary, Finance Department and Ex-officio Director 152 of Small  Savings, Government  of West  Bengal, on behalf of Respondents No.  1 and  2, that is, the State of West Bengal and  Shri  B.K.  Kundu,  there  is  an  assertion  that  the Respondents come  within the  mischief of  the Act  and they have violated  S. 3  of the  Act. The relevant averments are contained in  paragraphs 6, 7, 8 and 9 of the said affidavit and it is necessary to set out the same in their entirety:           "6. With  reference to  paragraphs 3  and 4 of the      petition, I  say that the petitioner firm accepts loans      and/or deposits from all and sundry for varying periods      without any  authority of  law. Although  the professed      rate of  interest of such deposit is at the rate of 12%      per annum,  the petitioner  firm  was  actually  paying      interest at  the rate  of  48%  per  annum,  which  was      recently reduced  to 36%  per annum. The actual payment      of such  high rate  of interest  against the  professed      rate of  12% attracts  huge amount  of idle  money into      circulation and the investment of money as collected is      not under the regulatory control of the Reserve Bank of      India or  any other  agency of  the State  dealing with      credit control  in relation  to the  country’s economy.      The receipt of such money from the members of public at      such high  rate of  interest is  without any fetters as      against the  case of  the receipt  of money  by banking      companies  as  also  non-banking  companies  which  are      regulated under different provisions of law, to which I      will  crave  reference  at  the  time  of  hearing,  if      necessary The  pooling of  the purchasing  power and/or      the financial  resources  and  the  employment  thereof      being unfettered  has resulted  in the concentration of      tremendous economic  power in the hands of a few posing      a potential  threat to the equilibrium of the country’s      economy. The  term  of  the  deposit  are  unilaterally      determined without  any scrutiny by the Reserve Bank of

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    India or  with reference  to the norms as to the credit      control which  the said Bank lays down and follows from      time to time. The acceptances of such deposits from the      members of  public with  unrestricted use of the moneys      so collected  are completely  repugnant to the accepted      modes of  public savings  and  investment  thereof  for      generation of  goods and  services contributing  to the      economic growth of the country. The entire process is 153      speculative in  nature and directed towards luring away      the investing  public to  the  speculative  market  for      making quick  and easy  money. These  are some  of  the      activities which are sought to be banned by the banning      provisions of  the said Act, which has replaced similar      regulatory measures contained in the several directions      issued by  the Reserve  Bank of India under the Reserve      Bank of  India Act,  1934,  to  the  various  financial      institutions and non-banking companies. The present Act      is applicable  not only  to such  companies but also to      individuals and  firms. All allegations contrary to and      save as aforesaid are denied.           7. With reference to paragraph 5 of the petition I      call upon  the petitioner  to disclose full particulars      of their  deposit scheme, which is disclosed will go to      show that the terms and conditions are wholly arbitrary      and contrary  to the  economic norms. The very basis of      the  so  called  contractual  arrangement  between  the      petitioner firm  and its  depositors is  founded on the      fraudulent device to assure the people with a high rate      of interest, the major portion of which is paid through      unaccounted for  money, thereby  encouraging growth  of      such  unaccounted   for  money  in  the  hands  of  the      investing public.  The professed  rate of interest is a      mere subterfuge  to provide  a cloak  of bona  fide and      legality over the under-hand transactions through which      unaccounted for  money comes  into play  in the  market      generating  further   unaccounted  for  money,  a  part      thereof goes  back to the depositors in the form of the      balance of  interest over  12% paid  in cash  month  by      month.  All   allegations  contrary   to  and  save  as      aforesaid are denied.           8. With reference to paragraph 8 of the petition I      say that the petitioners have been very much working on      the  above   scheme  to   which  the   depositors  have      subscribed. Whether such deposits are one time deposits      and whether  such  deposits  actually  earn  income  in      excess of  the interest actually paid to the depositors      or a  matter of  detailed investigation,  which were in      progress until the same was stopped by the order of the      learned Court  of Appeal  passed on  8th January, 1981.      From whatever  particulars are  so far available to the      answering respondents it can be 154      stated that the firm did not have so much income as the      quantum of  interest that  was being paid by it and the      irresistible conclusion  from such  state of affairs is      that payment  of interest was being made out of capital      itself.  All   allegations  contrary  to  and  save  as      aforesaid are denied.           9. With reference to paragraph 7 of the petition I      reiterate the statements made hereinbefore and deny all      allegations contrary  thereto. I specifically deny that      no quick  or easy  money is accepted or received by the      depositors or lenders or that payment of any such money      is not contemplated or made by the firm as purported to

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    be alleged.  The depositor  becomes  a  member  of  the      investment scheme  of the  company by subscribing to it      and the  payment of  the quick and easy money by way of      high rate  of interest  is dependent upon the period of      investment and/or  efflux of  time which  are very much      relative and/or  applicable to  the membership  of  the      depositors of the scheme, to which the depositor agrees      to subscribe.  In the process of its working the scheme      of the  firm generates  quick and  easy money  so as to      render  such   scheme  or   arrangement  as   a   money      circulation scheme  within the meaning of the said Act.      All allegations  contrary to  and save as aforesaid are      denied.      The following  further averments contained in paragraph 22 and  in paragraph  30 of  the said  affidavit may also be noted:      "22 .........           I further  say that  payment of  interest  at  the      clandestine rate of 36% or 46% as against the aforesaid      rate of  12% is  in the  context of the scheme promoted      and conducted by the petitioners tantamount to activity      which is  banned under  the banking  provisions of  the      said Act.      30 .........           No question  of the depositors being ruined should      arise  if   the  petitioners  had  been  running  their      business on  sound economic  line and  had invested the      fund collected  from the  depositors in  safe and sound      investment. The 155      very fact  that the  petitioners  are  apprehensive  of      innumerable depositors  being ruined  goes to show that      they engaged  themselves and also the depositors in the      speculative market  and have  rendered  the  investment      insecure by  reasons of the very nature of the business      i.e. money circulation scheme transacted by them.      In  the   affidavit  affirmed   by  Shri   Sunil  Kumar Chakraverty, Assistant  Commissioner of  Police  and  Deputy Superintendent   of   Police,   Bureau   of   Investigation, Government of  West Bengal, Finance, Taxation Department and filed on  behalf of  Respondents Nos.  3 and 4, the deponent adopts the  statements made  in the  affidavit of Arun Kanti Roy and  the deponent  denies that the searches and seizures were unlawful  and illegal. The deponent further stated that as a result of the searches effected a mass of documents and a large  amount of  cash had  been seized  and the documents were being scrutinised.      In the  affidavit affirmed  by Shri  Rani  Annaji  Rao, filed on  behalf of  Reserve Bank of India, the deponent has stated  that   the  Reserve  Bank  of  India  which  has  no regulatory control over the firm has been unnecessarily made a party to the proceeding. It has been further stated in the said affidavit that as desired by the parties and the Court, the Reserve  Bank of  India was  placing the materials which had come  to the  knowledge of  the Reserve  Bank.  In  this affidavit reference  has been made to certain correspondence between the  State Finance  Minister, Union Finance Minister and the  Deputy Governor  of the  Reserve Bank  of India and also to  various queries  made and the enquiries made by the Reserve Bank  of India.  It has been further stated that the view of  the legal  department of  the Reserve  Bank on  the basis of  the enquiries  made  had  Been  indicated  to  the Finance Minister  of the  State  of  West  Bengal.  In  this connection it  will be relevant to set out two letters which have been  annexed to  the said affidavit filed on behalf of

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the Reserve  Bank of  India and  are annexures  and thereto. Annexure is  the copy  of a  letter addressed  by Shri Ashok Mitra, State  Finance Minister  to the  Union  Minister  for Finance and the said letter reads as follows:      "Informally handed over to      DG (K) at Calcutta.      Ashok Mitra      D.O. No. IM. 28-2-80     Calcutta, October 1, 1980 156      Dear Shri Venkataraman,           In the  context of  the action  being taken by the      Government of  West Bengal  under the  Prize Chits  and      Money  Circulation   Schemes  (Banning)  Act,  1978,  a      question has  arisen  whether  an  organisation  called      ’Sanchaita Investments,  with the  address at  5  &  6,      Fancy Lane,  Calcutta-1 come  within the purview of the      above Act.  A reference  in the matter has been made by      our authorised officer under the above act to the Chief      officer, Department  of Non. Banking Companies, Reserve      Bank of India, Calcutta today. I am enclosing a copy of      an advertisement published by the above organisation in      the  local   newspapers  as  also  a  copy  of  a  loan      certificate receipt  issued by the said organisation. I      may mention  that the  authorised  officer  has  issued      notice under  the above  Act to  a  "Sanchaita  Savings      Scheme (P)  Ltd." which  is to  be distinguished’  from      ’Sanchaita   Investments’.    It   appears   that   the      organisation   called    "Sanchaita   Investments"   is      receiving  large  amount  of  monies  from  the  public      ostensibly as  loans, and in lieu they are issuing loan      certificates receipts.  While we  have  no  documentary      evidence, the  news  is  strongly  circulating  in  the      market that  the organisation is in fact offering rates      of interest  as high  as 30  to 40 per cent even though      the  loan  certificate  receipts  indicate  a  rate  of      interest of  12 per  cent only.  There seems reasonable      grounds  for   suspicion  that   this  organisation  is      involved in  extremely high-risk investments which only      can enable  them to  pay such  rates of interest. Since      the security  of monies  deposited  by  the  public  is      involved, we  would suggest  that a thorough enquiry be      conducted  by   the  Government   of  India   into  the      activities  of   this  organisation   particularly  for      finding out  whether they  are infringing provisions of      any relevant  status. It  is felt  necessary to conduct      such an  investigation on  an urgent  basis since large      amounts of  public monies  are reported to be kept with      this organisation,  which does  not seem as yet to have      subjected to  any regulatory  control. We are meanwhile      awaiting a  reply to  our reference  (copy enclosed) to      the Reserve  Bank of  India regarding the applicability      of  the  Prize  Chits  and  Money  Circulation  Schemes      (Banning) Act, 1978 to this organisation. 157      With regards,           Yours sincerely,           Sd/- Ashok Mitra      Shri R.V. Venkataraman,      Union Minister for Finance,      North Block,      New Delhi-110001"           Annexure is  a letter  by Shri  K.S. Krishnaswamy,      Deputy Governor  of Reserve  Bank to  Dr. Ashok  Mitra,      State Finance  Ministry. The  said letter  is also here      further set out:

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    D.O. DNBC No. 2020/102 (Gen) LO-80/81           22nd Oct., 1980           Sanchaita Investments      My Dear Ashok,           You might  recall that  during my  recent visit to      Calcutta, you  had sent  me a  copy of  your o.  Letter      dated October  1,  1980  to  Shri  Venkataraman,  Union      Minister  for   Finance  as  also  of  a  letter  dated      September 30,  1980 addressed  to  our  Chief  Officer,      DNBC, Calcutta,  in connection  with the  above firm. I      have had the position examined by our Legal Department.      According to  them (vide extract of the note dated 17th      October,   1980,   enclosed   for   your   confidential      information) the acceptance of loans simpliciter by the      firm by issue of receipts (as per the specimen received      by us  from our  Calcutta Office)  without floating any      scheme or  arrangement would  not ordinarily be covered      by the  definition of  "Prize  Chit"  and  hit  by  the      provisions of  the Prize  Chits and  Money  Circulation      Scheme (Banning)  Act, 1978. However, you may also like      to consult your Legal Adviser on the subject           2. As you may know, there are a few writ petitions      pending  in   the  Calcutta   High  Court   where   the      interpreta- 158      tion of  section 2  (e) of the Banning Act is involved.      In that context I have thought it advisable to write to      you  on  a  confidential  basis,  rather  than  send  a      separate official  reply. I shall therefore be grateful      if you could leave instructions with your staff to keep      this matter  and the  views  of  our  legal  department      strictly confidential. With warm regards,           Sd/- K.S. Krishnaswamy      Dr. Ashok Mitra, Minister of Finance"      Further supplementary  affidavits had  also been filed. On consideration of the facts and circumstances of this case and the  materials which  were  placed  before  the  learned Judge, the learned Judge came to the conclusion that the Act did not apply to the firm and the learned Judge further held that the  searches and  seizures were also wrongful, illegal and improper;  and in  view of his finding the learned Judge quashed the  proceedings and  directed  the  return  of  all documents and the refund of cash monies seized, to the writ- petitioners. It  appears from  the judgment  of the  learned Judge that  the matter had been very fully argued before him and  the   learned  Judge   in  an  elaborate  judgment  had considered the  arguments advanced  before him and thereupon recorded his findings and passed the order allowing the said writ petition.      Against the  judgment and  order passed  by the learned Judge, the  State of West Bengal and its three officers have preferred this  appeal with  special leave  granted by  this Court. The  writ petitioners,  the Reserve Bank of India and Union of India have been made respondents in this appeal. It does not  appear that Union of India has participated in the proceedings before  the learned  Judge and  no affidavit  on behalf of  the Union  of India  appears to  have been  filed before the learned Judge.      Mr. Som  Nath Chatterjee,  learned counsel appearing on behalf of  the appellant  has attached  the  judgment  under appeal on  the main  ground that  the learned  Judge in this extraordinary jurisdiction should not have held that the Act has no  application to  the Respondent  Firm and  should not have on  the basis  of the  said finding interfered with the investigation into  the affairs  of the firm. Mr. Chatterjee

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contends that the question of applicability 159 of the  Act will  only  come  for  consideration  after  the investigation has  been completed and all relevant materials have  been   gathered  on  such  investigation.  It  is  the contention of  Mr.  Chatterjee  that  at  the  investigation stage, the  Court does  not interfere and does not quash any proceedings before  the investigation has been completed. In support of this contention, Mr. Chatterjee has referred to a number of  decisions of  this Court.  I shall  consider  the relevant decisions  referred to  by Mr.  Chatterjee  at  the appropriate time.  Mr. Chatterjee  has submitted  that after the  investigation  has  been  completed  and  all  relevant materials have  been gathered  a charge under the Act may or may not  be framed  against the appellant firm for violation of the  provisions of  the Act. It is his submission that if the materials  collected do not indicate any infringement of the Act,  no charge  against the firm will be preferred, and all the accused persons will be discharged; if, on the other hand, materials gathered disclose an offences under the Act, proper charge against the accused persons will be framed and it will  be open to the accused persons to raise the plea in the course  of the prosecution that no offence under the Act has been committed by them and the Act has no application to the transactions of the firm and to the firm.      In the case of State of West Bengal v. S.N. Basak, this Court held at page 55-56 as follows:-           "The  powers   of  investigation  into  cognizable      offences are  contained in  Chapter XIV  of the Code of      Criminal  Procedure.  Section  154  which  is  in  that      Chapter deals  with information  in cognizable offences      and s.  156 with  investigation into  such offences and      under these  section the police has the statutory right      to investigate  into the  circumstances of  any alleged      cognizable offence  without authority from a Magistrate      and this  statutory power  of the Police to investigate      cannot be  interfered with  by the  exercise  of  power      under s.  561-A of  Criminal Procedure  Code. As to the      powers of the Judiciary in regard to statutory right of      the police  to investigate,  the Privy  Council in Ring      Emperor v. Khawaja Nazir Ahmed (1944) L.R.I.A. 203, 212      observed as follows :- 160           ’The functions of the judiciary and the police are      complementary, not  overlapping, and the combination of      individual liberty  with a  due observance  of law  and      order is  only  to  be  obtained  by  leaving  each  to      exercise its  own function,  always, of course, subject      to  the   right  of   the  Court  to  intervene  in  an      appropriate  case  when  moved  under  s.  491  of  the      Criminal Procedure  Code  to  give  directions  in  the      nature of habeas corpus. In such a case as the present,      however, the  court’s functions  begin when a charge is      preferred  before  it,  and  not  until  then.  It  has      sometime been  thought that s. 561A has given increased      powers to  the Court  which it  did not  possess before      that section  was enacted.  But this  is  not  so,  the      section give no new powers, it only provides that those      which the  Court already  inherently possesses shall be      preserved and  is inserted  as their  Lordships  think,      lest it  should be  considered  that  the  only  powers      possessed by the Court are those expressly conferred by      the Criminal Procedure Code and that no inherent powers      had survived the passing of that Act.’           With the  interpretation which has been put on the

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    statutory, duties  and powers  of the police and of the      powers of the Court, were in accord. The High Court was      in error  therefore in  interfering with  the powers of      the police  in investigating into the offence which was      alleged in the information sent to the officer incharge      of the police station".      In the  case of  State of  Bihar  and  Anr.  v.  J.A.C. Saldhana and Ors., this Court at p. 39-40 observed:           "The next contention is that the High Court was in      error in  exercising jurisdiction  under Art.  226 at a      stage when  the Addl. Chief Judicial Magistrate who has      jurisdiction to  entertain and  try the  case  has  not      passed upon  the issues  before  him,  by  taking  upon      itself the  appreciation of  evidence  involving  facts      about which there is an acrimonious dispute between the      parties and  given a clean bill to the suspects against      whom the  first information  report was  filed.  By  so      directing the learned Addl. Chief 161      Judicial Magistrate  the judgment  of  the  High  Court      virtually disposed  of the  case  finally.  As  we  are      setting aside  the judgment  of the High Court with the      result that  the case  would go  back  to  the  learned      Additional  Chief  Judicial  Magistrate,  it  would  be      imprudent for  us to  make  any  observation  on  facts      involved in  the case.  There is  a clear  cut and well      demarcated sphere  of activity  in the  field of  crime      detection and  crime punishment.  Investigation  of  an      offence is  the  field  exclusively  reserved  for  the      executive   through    the   police   department,   the      Superintendent  over   which   vests   in   the   State      Government. The  executive which is charged with a duty      to keep  vigilance over  law  and  order  situation  is      obliged to  prevent crime  and if an offence is alleged      to have  been committed  it  is  its  bounden  duty  to      investigate into  the offence and bring the offender to      book. Once  it investigates and finds an offence having      been committed  it is  its duty to collect evidence for      the purpose  of  proving  the  offence.  Once  that  is      completed and  the investigating officer submits report      to the Court requesting the Court to take cognizance of      the offence  under S. 190 of the Code its duty comes to      an end.  on a  cognizance of the offence being taken by      the Court the police function of investigation comes to      an end  subject to  the provision  contained in  S. 173      (B), there  commences the  adjudicatory function of the      judiciary to  determine whether  an  offence  has  been      committed and  if so,  whether by the person or persons      charged with  the crime  by the police in its report to      the Court,  and to  award adequate punishment according      to law  for the  offence proved  to the satisfaction of      the Court.  There is  thus  a  well  defined  and  well      demarcated function in the field of crime detection and      its subsequent  adjudication between the police and the      Magistrate".      Same views  have been  reiterated by  this Court in the other decisions  which were  cited by Mr. Chatterjee. In the case of  S.N. Sharma v. Bipan Kumar Tiwari, this Court at p. 951 referred to the observations of the Privy Council in the case of  King Emperor  v. Khwaja Nazir Ahmed which have been quoted in the judgment of 162 this Court  in the earlier decision and then proceed to hold at pp. 951-952:           "Counsel appearing  on  behalf  of  the  appellant

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    urged that  such an interpretation is likely to be very      prejudicial particularly  to officers  of the judiciary      who have  to deal  with cases  brought up by the police      and frequently give decisions which the police dislike.      In such  cases, the  police may engineer a false report      of a  cognizable offence  against the  judicial officer      and may  then harass  him by  carrying on  a  prolonged      investigation of the offence made out by the report. It      appears  to  us  that,  though  the  Code  of  Criminal      Procedure gives  to  the  police  unfettered  power  to      investigate  all   cases  where  they  suspect  that  a      cognizable person  can always seek a remedy by invoking      the power  of the  High Court  under Art.  226  of  the      Constitution under  which, if  the High  Court could be      convinced that  the power  of  investigation  has  been      exercised by  a police officer mala fide the High Court      can always  issue a  writ of  mandamus restraining  the      police officer from misusing his legal powers".      Relying  on   these  decisions   and   the   principles enunciated therein,  Mr.  Chatterjee  has  argued  that  the learned  Judge   clearly  erred   in  interfering  with  the investigation and  quashing the  proceedings at the stage of investigation before  framing of charges against the accused persons. Mr.  Chatterjee argues  that there is no allegation of mala  fide in  the instant case and the learned Judge has also come  to a conclusion that there is no case of any mala fide on  the part  of the  appellants.  Mr.  Chatterjee  has submitted that  the materials  which have been gathered as a result of  the investigation  which could be carried on only for a  short while  go to  indicate that the transactions of the firm  are not  above board  and they  are not  what they pretend  or  purport  to  be.  It  is  his  submission  that materials gathered  clearly indicate  that though  the  loan certificates stipulate  interest to  be paid  @ 12%  a  much larger sum  by way of interest ranging between 36% to 48% is actually paid  to the  depositors, and  the amount  which is paid  in   excess  of   the  rate  stipulated  in  the  loan certificates is  paid  in  cash  in  a  clandestine  manner, depriving and defrauding revenue of its legitimate dues. Mr. Chatterjee comments  that the  payment of  interest in  this clandestine manner at a very high rate which is not shown or other- 163 wise accounted  for results not only in generation of black- money,  but   paralyses  the   economy  of  the  State.  Mr. Chatterjee has  further  commented  that  in  view  of  this allurement to  the depositors  of payment  of large  sums of money in  a clandestine  manner, the firm which has a share- capital  of   only  Rs.   7000  has  succeeded  in  alluring depositors and  the deposits  received by  the firm with the capital of  Rs.  7000  now  exceed  crores  of  rupees.  Mr. Chatterjee submits  that a firm which carries on clandestine business of this nature is not entitled to invoke the extra- ordinary jurisdiction  conferred on the Court under Art. 226 of the Constitution.      Mr. Chatterjee has contended that the violation of S. 3 of the  Act has  been alleged  and it is his contention that the nature of business carried on by the firm indicates that the  firm   is  conducting  a  ’Money  Circulation  Scheme’. According to  Mr. Chatterjee,  ’Money Circulation Scheme’ by virtue of  its definition  in S.  2 (c) of the Act means any scheme’ by  whatever name called, for the making of quick or easy  money.  It  is  his  argument  that  the  transactions disclose that the firm and the depositors are both trying to make  quick  or  easy  money,  the  scheme  being  that  the

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depositors   will    deposit   money   against   certificate stipulating interest  to be paid @ 12% but they will in fact be paid  interest at  a much  higher rate  and thereby  make quick or  easy money and the firm invests the money received from the  depositors in  such transactions as to enable them to earn  easy or  quick money.  Mr. Chatterjee  has  further argued that  money circulation  scheme has to be interpreted to mean any scheme for the making of quick or easy money, or 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  enrollment  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  subscription.  Further  investigation according to  Mr. Chatterjee,  can  only  show  whether  the scheme  of  making  quick  or  easy  money  depends  on  any contingency relative  in the  enrollment of members into the scheme. Mr.  Chatterjee submits  that the question of proper interpretation of the provisions of the Act and also of what money circulation  scheme means,  should come  up only after investigation has  been completed and all relevant materials have been  collected. It is Mr. Chatterjee’s submission that the  interpretation   of  the  provisions  of  the  Act  aud particularly what  ’Money Circulation  Scheme’ means, is not to be made in a 164 hypothetical way  in the absence of relevant materials being gathered on  completion of investigation. Mr. Chatterjee has argued that  after all  the materials have been collected on completion of  the investigation,  it may  be that materials may show that the firm is not conducting a Money Circulation Scheme and  no  charge  against  the  firm  may  at  all  be preferred; if  however, on  the other  hand, the  materials, indicate that  the firm  is conducting  a money  circulation scheme and  a charge  is preferred,  it will  be open to the accused persons  to  take  the  defence  that  the  business conducted by  them is not one which will be considered to be a money circulation scheme within the meaning of the Act. As I  have   earlier  observed,   the  main  grievance  of  Mr. Chatterjee is  that the  Court should have interfered at the stage of investigation and quashed the proceedings.      Mr. Chatterjee has next contended that S. 7 of the Act, clearly empowers  a Police  officer not below the rank of an officer-in-charge of  a police  station to enter, search and seize in  the manner provided in the said section. It is Mr. Chatterjee’s contention  that the searches have been carried out duly  in terms  of the  provisions contained in the said section and  cash money  and other  books and documents have been lawfully seized in terms of the provisions contained in the said  section. Mr. Chatterjee has further submitted that even if  there had  been any  irregularity in  the matter of searches and  seizure, the  searches  and  seizure  are  not rendered illegal  and void  as  a  result  thereof.  Various decisions were also referred to by Mr. Chatterjee in support of his submissions.      Mr. A.K.  Sen, learned  counsel appearing  on behalf of the firm  has submitted  that the  learned Judge on a proper consideration  of   all  the   relevant  materials  and  the provisions of  the Act  has correctly come to the conclusion that no  offence under  the Act is disclosed and the Act has no application  to the  firm and  in that view of the matter the Learned  Judge was  perfectly justified  in quashing the proceeding against  the firm, and in directing the return of the documents  and cash  money seized  by the  police to the firm. Mr.  Sen has  argued that investigation has to be done

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when an  offence is  disclosed for  collecting materials for establishing an  offence. It is the argument of Mr. Sen that if no offence is disclosed there cannot be any investigation and any  investigation when  no offence  is disclosed by the F.I.R. and the other materials, 165 means unnecessary  harassment for  the firm and its partners and illegal  and improper  deprivation of  their liberty and property. Mr. Sen submits that it is no doubt true that when an  offence  is  disclosed,  the  Court  normally  does  not interfere  with  the  investigation  into  an  offence.  He, however, contends  that when  no offence  is disclosed,  it, indeed, becomes  the duty of the Court to interfere with any investigation which  is improperly  and illegally carried on to the  serious prejudice of the persons. In support of this contention Mr.  Sen has  referred to  the  decision  of  the Judicial Committee  in the  case of  King Emperor  v. Khwaja Nazir  Ahmed   (supra)  and  has  relied  on  the  following observations at p. 213:           "No doubt,  if no  cognizable offence is disclosed           and still  more, if  no offence  of  any  kind  is           disclosed, the  police would  have no authority to           undertake investigation.      In this  connection,  Mr.  Sen  also  referred  to  the decision of this Court in the case of R.P. Kapur v. State of Punjab and  has placed very strong reliance on the following observations at p. 393:           "Cases may also arise where the allegations in the           First Information Report or the complaint, even if           they are taken at their face value and accepted in           their entirety,  do  not  constitute  the  offence           alleged; in such cases no question of appreciating           evidence arises;  it is a matter merely of looking           at the  complaint or  the First Information Report           to decide whether the offence alleged is disclosed           or not.  In such  cases it would be legitimate for           the High Court to hold that it would be manifestly           unjust to  allow the process of the criminal court           to be issued against the accused person." Mr. Sen  has also  referred to the decision of this Court in Jehan Singh  v. Delhi Administration; in which the aforesaid observations made  by Gajendragadkar, J. in the case of R.P. Kapur v.  State of  Punjab, (supra) have been reproduced and reiterated. Mr. Sen 166 further points  out that in the case of S.N. Sharma v. Bipin Kumar Tiwari  (supra), this  Court at p. 951 recognises that "in appropriate  cases the  aggrieved person can always seek remedy by  invoking powers  of the High Court under Art. 226 of the  Constitution under which, if the High Court could be convinced that the power of investigation has been exercised by a  police officer  mala fide,  the High  Court can always issue a writ of mandamus restraining the police officer from misusing his legal powers".      Mr. Sen  has  argued  that  the  Learned  Judge  having properly appreciated the legal position has made the correct approach to the consideration of the present case. It is his argument that the Learned Judge has carefully considered the materials which  have been  placed before  him including the F.I.R. and  he has  properly analysed  the provisions of the Act and  on a  proper interpretation  of the  Act and  on  a proper appreciation of the materials which were there before the Learned  Judge,  the  Learned  Judge  has  come  to  the conclusion that  no offence  under the  Act is disclosed and the Act  has no application to the firm. Mr. Sen argues that

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for a  proper  appreciation  of  the  question  whether  the materials  disclose   any  offence  under  the  Act,  it  is imperative to  interpret the  Act. He  contends that it will not  be   a  proper   approach  to  leave  the  question  of interpretation to  the  stage  after  the  investigation  is complete,  as   according  to  Mr.  Sen,  there  can  be  no investigation unless  an offence has been disclosed. Mr. Sen argues that if the materials do not disclose any offence, no investigation can be permitted to find out whether as result of the investigation an offence may be disclosed or not. Mr. Sen submits  that investigation can legitimately go on, once an  offence   is  disclosed  for  collecting  materials  for establishing and  proving the  offence. It is the contention of Mr.  Sen that the case of the-appellants is that the firm is conducting  money circulation  scheme which  is banned by the Act. Mr. Sen argues that to find out whether the firm is conducting a  money circulation  scheme, it  is necessary to consider what  a money  circulation  scheme  is  within  the meaning of  the Act and to find out whether on the materials alleged in the F.I.R.. and also in the affidavits, it can be said that  the business carried on by the firm is one in the nature of conducting a money circulation scheme. Mr. Sen has argued that  the learned Judge in his judgment has correctly interpreted  what  constitutes  ’money  circulation  scheme’ within the meaning of the Act, and it is the argument of Mr. Sen that such interpretation is absolutely essential to find out whether the allegations made in the F.I.R. make out 167 a case  that the  firm is  conducting  a  money  circulation scheme.  Mr.  Sen  submits  that  the  materials  on  record including the  allegations made  in the  F.I.R. even if they are all  assumed to  be correct,  do not go to show that the firm is  conducting a money circulation scheme; and, in that view of  the matter  there can  be no  investigation, if  no offence under the Act is disclosed. Analysiag the F.I.R. and the other materials which have been placed before the Court, Mr. Sen  submits that  the materials go to indicate-(1) that the firm  is accepting deposits or loans from the public for a term  against loan certificates which stipulate payment of interest @ 12%; (2) though interest is stipulated to be paid @ 12%,  the firm,  in fact,  is paying  interest at  a  much higher rate.  It used to pay interest @48% previously and is now paying  interest @  36%. The  amount of interest paid in excess of  the stipulated  rate of  12% is paid in cash in a clandestine manner  to the  depositors. The excess amount of interest  paid   is  not   accounted  for   and  results  in accumulation of black-money; (3) the firm invests the monies received  from  the  depositors  in  high  risk  investments earning huge  amount of unaccounted profits. The investments made by the firm and the earnings from the investments made, also result in generation of black-money; (4) because of the allurement  of   high  rate   of  interest  offered  to  the depositors, a  major part  of which  is given in unaccounted black-money, the firm which has a share-capital of about Rs. 7000 only has received deposits over crores of rupees.      It is  the contention of Mr. Sen that even if all these allegations which  are there  in the  F.I.R. and also in the other materials  which have been placed before the Court are accepted to  be correct,  the said  allegations do not go to show that  the firm is conducting a money circulation scheme and do  not disclose  any offence  under the Act. Mr. Sen in this connection  has commented  that though in the F.I.R. it has been  alleged that  the firm  is carrying on business of promoting Prize  Chits; no  such case  was sought to be made out before  the Learned Judge or before this Court and there

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are no  allegations or  materials to  show that  the firm is carrying on  business of  promoting prize chit; and the only case that  has been sought to be made before the Trial Court and also this Court is that the firm is carrying on business of conducting or promoting money circulation scheme. Mr. Sen has argued  that  the  money  circulation  scheme  has  been defined in  S. 2  (c) of  the Act  to mean  "any scheme,  by whatever name called, for the making of quick or easy money, or for  the receipt  of any  money or  valuable thing as the considera- 168 tion for a promise to pay money, on any event or contingency relative or applicable to the enrollment 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  subscription".   According  to   Mr.  Sen,   the essential requirements of a money circulation scheme are (1) There must be a scheme for the making of quick or easy money on any  event of  contingency relative  or applicable to the enrollment of  members into  the scheme  whether or not such money is  derived from  the entrance money of the members of such scheme or periodical subscription; or (2) there must be a scheme  for the  receipt of any money or valuable thing as the consideration  for promise  to pay money on any event or contingency relative  or applicable  to  the  enrollment  of members into a scheme, whether or not such money or thing is derived from  the entrance  money of  the  members  of  such scheme or from periodical subscription. Mr. Sen submits that neither F.I.R.  nor any  of the  other materials  go to show that the  business carried on by the firm is, in any way, in the nature  of conducting  or promoting  a money circulation scheme. In  this connection  Mr. Sen has drawn our attention to  the  statement  of  objects  for  the  passing  of  this enactment. Mr. Sen has further submitted that this enactment which is  in the  nature of penal one has to be construed in the event  of doubt  or ambiguity  in a manner beneficial to the party against whom any accusations is made.      Mr. Sen  has further argued that the rules framed under the Act  can also  be taken  into consideration  for  proper interpretation of  the Act  and the  learned  Judge  in  the instant case  was justified  in referring  to the  rules  in construing the provisions of the Act. In this connection Mr. Sen has referred to the decision in Ex parte Wier In re Wier and has relied upon the following observations at p. 879;           "We do not think that any other section of the Act      throws any  material light upon the proper construction      of this  section, and if the question had depended upon      the Act  alone we  should have had great doubt what the      pro per  construction was;  but we are of opinion that,      where the  construction of  the Act  is  ambiguous  and      doubtful on any point, recourse may be had to the rules      which have been 169      made by  the Lord Chancellor under the authority of the      Act, and  if we  find that  in the rules any particular      construction has  been put  on the  Act, that it is our      duty to adopt and follow that construction". Mr. Sen  in this  connection has  drawn our attention to the relevant rules  and he  has argued  that the  rules leave no room for  doubt that  the Act has no application to the firm and no offence under the Act has been disclosed by the firm. Mr. Sen  has submitted  that the  construction of the Act by the Learned  Judge is correct and it is his submission. that in view  of the  provisions of the Act properly interpreted, there cannot be any doubt that the Act has no application to

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the interest  case and  there can  be  no  question  of  any violation of  the said Act by the firm. It is the submission of Mr.  Sen that  the approach  and  the  reasoning  of  the learned Judge  are both  sound. Mr.  Sen has  next contended that the  search and  seizure carried on in the instant case are also  illegal and unjustified. It is the argument of Mr. Sen that  if no  offence under  the Act is disclosed and the Act has  no application, there cannot be any question of any search or seizure under the Act. Mr. Sen has argued that the search and  seizure. done  in the instant case have also not been done  in confirmity with the provisions of law. Mr. Sen has submitted  that learned  judge has correctly come to the conclusion that  the search  and seizure in the instant case were also  illegal. In this connection Mr. Sen referred to a number of decisions.      Mr. Ray  and Mr.  Sibal who  followed  Mr.  Sen  mainly adopted the  submissions made  by Mr.  Sen. Mr. Ray, further contended  that  to  be  a  chit  fund  or  to  be  a  money circulation scheme,  an element  of uncertainty  or luck  is essential. It  is the  argument of Mr. Ray that in so far as the transactions  carried on by the firm in the instant case are concerned,  the said element is no where there. Mr. Ray, in  this   connection  referred   to   the   definition   of conventional chit and has argued that the conventional chits have not  been brought  within the  purview of this Act. Mr. Ray has drawn our attention to the decision of this Court in the case of Srinivasa Enterprises v. Union of India in which the validity  of the Act came to be challenged in this Court and was upheld by this Court. 170      The appeal before us has been argued at great length. A number of  decisions have  also been  cited from  the Bar. I have already  referred to  some of  the decisions which were cited before  us. I  do not propose to consider all the case which were  referred to  in the  course of  argument by  the learned counsel  appearing on  behalf of the parties as I do not consider  the same  to be  necessary. As  I have already stated that  the matter  appears to  have  been  elaborately argued before  the learned  Trial Judge  who in his judgment has fully  set out  the relevant  facts and circumstances of the case  has noted the arguments which were advanced before him and  the learned  Judge has also referred to a number of decisions.  I   may,  however,  note  that  Mr.  Chatterjee, appearing on  behalf of the appellants, has made a grievance before us  that some  of the decisions cited by him have not been considered  by the learned Judge. Though the matter has been argued  at great  length, yet,  to my  mind,  the  case appears to rest, in a fairly short compass.      In my  opinion, the legal position is well-settled. The legal  position   appears  to  be  that  if  an  offence  is disclosed, the  Court will  not normally  interfere with  an investigation into  the case  and will  permit investigation into the  offence alleged  to be completed; if, however, the materials do  not  disclose  an  offence,  no  investigation should  normally  be  permitted.  The  observations  of  the Judicial Committee and the observations of this Court in the various decisions  which I  have earlier  quoted, make  this position abundantly  clear. The  prepositions enunciated  by the  Judicial  Committee  and  this  Court  in  the  various decisions which  I have  earlier noted,  are based  on sound principles of  justice. Once  an offence  is  disclosed,  an investigation into  the offence  must necessarily  follow in the  interests  of  justice.  If,  however,  no  offence  is disclosed, an  investigation cannot  be  permitted,  as  any investigation,  in   the  absence   of  any   offence  being

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disclosed, will  result  in  unnecessary  harrassment  to  a party, whose liberty and property may be put to jeopardy for nothing. The  liberty and  property of  any  individual  are sacred and  sacrosanct and  the Court  zealously guards them and protects  them. An  investigation is  carried on for the purpose of  gathering necessary  materials for  establishing and proving  an offence  which is disclosed. When an offence is disclosed,  a proper  investigation in  the  interest  of justice  becomes   necessary  to   collect   materials   for establishing the  offence, and  for bringing the offender to book. In  the absence  of a  proper investigation  in a case where an  offence is  disclosed, the offender may succeed in escaping from the consequen- 171 ces and  the offender may go unpunished to the deteriment of the cause  of justice  and the  society  at  large.  Justice requires that  a person  who commits  an offence  has to  be brought to  book and  must be  punished for the same. If the Court interferes  with the  proper investigation  in a  case where an  offence has  been disclosed,  the offence  will go unpunished to  the serious  deteriment of the welfare of the society and  the cause  of the justice suffers. It is on the basis of  this principle  that the  Court normally  does not interfere with  the investigation of a case where an offence has been disclosed. The decision on which Mr. Chatterjee has relied are  based on  this sound principle, and in all these cases, an  offence had  been disclosed. Relying on the well- settled and  sound  principle  that  the  Court  should  not interfere with an investigation into an offence at the stage of investigation  and should  allow the  investigation to be completed, this  Court had made the observations in the said decisions  which  I  have  earlier  quoted  reiterating  and reaffirming the  sound principles  of justice. The decisions relied on  by Mr.  Chatterjee, do not lay down, as it cannot possibly be laid down as a broad proposition of law, that an investigation must  necessarily be permitted to continue and will  not  be  prevented  by  the  Court  at  the  stage  of investigation  even   if  no  offence  is  disclosed.  While adverting  to  this  specific  question  as  to  whether  an investigation can go on even if no offence is disclosed, the judicial Committee  in the  case of  King Emperor  v. Khwaja Nizam Ahmed (supra) and this Court in R.P. Kapur v. State of Punjab (supra), Jehan Singh v. Delhi Administration (supra), S.N. Sharma  v. Bipin Kumar Tiwari (supra) have clearly laid down that  no investigation  can be  permitted and have made the observations  which I have earlier quoted and which were relied on  by Mr.  Sen. As  I  have  earlier  observed  this proposition is  not only  based on  sound logic  but is also based on  fundamental principles  of  justice  as  a  person against whom  no offence  is disclosed, cannot be put to any harassment by  the process  of investigation which is likely to put  his personal  liberty and  also property  which  are considered sacred and sacrosanct into peril and jeopardy.      Whether an  offence has  been  disclosed  or  not  must necessarily depend  on the  facts and  circumstances of each particular case.  In considering  whether  an  offence  into which an  investigation is  made or to be made, is disclosed or not,  the Court has mainly to take into consideration the complaint or  the F.I.R.  and the  Court may  in appropriate cases  take   into  consideration  the  relevant  facts  and circumstances of  the case.  On a  consideration of  all the relevant 172 materials, the  Court has  to come to the conclusion whether an offence is disclosed or not. If on a consideration of the

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relevant materials,  the Court  is satisfied that an offence is disclosed, the Court will normally not interfere with the investigation into  the offence and will generally allow the investigation  into   the  offence   to  be   completed  for collecting materials  for proving  the offence.  If, on  the other hand,  the Court  on a  consideration of  the relevant materials is satisfied that no offence is disclosed, it will be the duty of the Court to interfere with any investigation and to stop the same to prevent any kind of uncalled for and unnecessary harassment to an individual.      In the  instant case,  the  offence  complained  of  is violation of  the Act. For a proper adjudication of the case and  for   a  proper   appreciation  of  the  question,  it, therefore,  becomes   necessary  to  consider  the  relevant materials and  also the  provisions of  the  Act  for  being satisfied  as  to  whether  the  relevant  materials  go  to indicate any  violation of  the Act and disclose any offence under the  Act. The  materials are  mainly contained  in the F.I.R. which  has been  earlier set  out in its entirety. An analysis of the F.I.R. mentions the following allegations on the basis of which the said F.I.R. has been lodged: -      1.   Sanchaita Investments  is a  partnership Firm. Its           partners are  Behari Prasad  Murarka,  Sri  Sambhu           Mukherjee and  Sri Swapan  Kumar Guha The firm was           started in and around 1975.      2.   The Firm had been offering fabulous interest @ 48%           to its  members until  very recently.  The rate of           interest has  of late  been  reduced  to  36%  per           annum.      3.   Such high rate of interest were and are being paid           even though  the loan  certificate  receipts  show           rate of interest to be 12% only.      4.   Thus, the  amount in excess of 12% so paid clearly           shows that  ’Money Circulation  Scheme’  is  being           promoted and  conducted for  the making  of  quick           and/or easy money, prizes and/or gifts      5.   Prizes or  gifts in cash are also being awarded to           agents promoters and members too. 173      6.   In view  of  the  above,  Sarvshri  Behari  Prasad           Murarka, Sambhu  Mukherjee and  Swapan Kumar  Guha           appears to  have been  carrying on the business in           the trade name of ’Sanchaita Investments’ in prize           chits and money circulation Scheme in violation of           S. 2  of the  Prize Chits  and  Money  Circulation           Scheme (Banning) Act, 1978.      The other  materials are  contained in paragraphs 6, 7, 8, 9,  22, 27 and 30 of the affidavit and the two documents, namely, the  article published  in the  Newspaper  ’Business Standard’ dated  1611.1980 and  the documents  seized in the course of  searches. I  have earlier  set out in extenso the statement made in the said paragraphs of the affidavit filed on behalf  of the  State. A  copy of  the article  has  been enclosed to  the affidavit filed on behalf of the State. The document seized in the course of searches and handed over to Court in  the course of the arguments was a letter addressed by an  officer of  the Air  Force to  the firm  in which the officer makes  a grievance  that the  Firm which  was paying interest @  48% has  now reduced  the same to 36% in view of advances made  to  political  parties.  The  letter  further records the  fact that  the firm  hopes to  pay the enhanced rate of  interest of  48% in the near future. An analysis of these  materials  suggest  that  the  firm  is  carrying  on activities of  accepting deposits from the members promising to pay  them interest  on such deposits at an agreed rate of

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12% as  stipulated in the loan certificate; but, in fact, it has been  paying interest  to them  at much  higher rate  of interest The  materials further  indicate that  the firm  is making high risk investments of the monies received from the depositors and  has also  been advancing monies to political parties.      The crux  of  question  is  whether  these  allegations disclose an  offence under the Act namely, violation of S. 3 of the  Act even  if all  these allegations are deemed to be correct.      The question  whether  these  allegations  disclose  an offence under the Act and can be the basis for any suspicion that an  offence under S. 3 of the Act has been committed or not, must  necessarily depend  on the  provisions of the Act and its proper interpretation.      The  Act   has  been   enacted  for   implementing  the recommendations of  a Study  Group of  the Reserve  Bank  of India under the 174 Chairmanship of  Shri James  S. Raj the then Chairman of the Unit Trust  of India, constituted for examining in depth the provisions of Chapter IIIB of the Reserve Bank of India Act, 1934 and  the directions  issued thereunder  to  Non-Banking Companies in  order to  assess their adequacy in the context of ensuring the efficacy of the monetary and credit policies of the  country and  affording a degree of protection to the interests of  the depositors  who place  their savings  with such companies.  Paragraph 2 of the Statement of objects and Reasons of the Act states:           "Prize chits  would cover  any kind of arrangement      under  which   moneys   are   collected   by   way   of      subscriptions, contributions,  etc. and  prizes, gifts,      are awarded.  The  prize  chit  is  really  a  form  of      lottery. Its  basic feature  is  that  the  foreman  or      promoter who  ostensibly charges no commission collects      regular subscriptions  from the  members. Once a member      gets the  prize, he  is very  often not required to pay      further  instalments  and  his  name  is  dropped  from      further lots.  The institutions  conducting prize chits      are private  limited companies  with a very low capital      base contributed  by the  promoters, directors or their      close relatives.  Such schemes  confer monetary benefit      only on  a few  members and  on the promoter companies.      The Group  had, therefore, recommended that prize chits      or money  circulation schemes, by whatever name called,      should be totally banned in the larger interests of the      public and  suitable  legislative  measures  should  be      undertaken for purpose."      The relevant portion of paragraph 3 of the Statement of objects and Reasons reads as follows:-           The  Bill   proposes  to   implement   the   above      recommendation  of  the  Group  by  providing  for  the      banning of  the promotion  or conduct of any prize chit      or money  circulation scheme,  by whatever name called,      and of  the participation of any person in such chit or      scheme. The  Bill provides  for a  period of  two years      within  which   the  existing  units  carrying  on  the      business of  prize chits  or money  circulation schemes      may be  wound up  and provides  for penalties and other      incidental matters." 175 It is,  therefore, clear  that the main object of the Act is to ban  promotion or  conduct of  any Prize  Chit  or  money circulation scheme,  by whatever  name called,  and  of  the participation of  any person in such chit or scheme. S. 2 of

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the Act  deals with definitions. Money Circulation Scheme is defined in S. 2 (c) in the following words:-           "Money circulation  Scheme’ means  any scheme,  by      whatever name  called. for  the making of quick or easy      money, or  for the  receipt of  any money  or  valuable      thing as  the consideration for a promise to pay money,      on any  event or  contingency relative or applicable to      the enrollment  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."      Prize Chit  is defined  in S.  2 (e)  in the  following terms:-           "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 lump sum or in      instalments by way of contributions or subscriptions or      by sale  of unit,  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 benefits, thrift or any other scheme or      arrangement by  whatever name  called, and utilises the      monies so  collected or  any part thereof cr 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 termina- 176           tion of  the scheme or arrangement, or on or after           the expiry  of the  period stipulated therein, but           does not include a conventional chit.      A Conventional  Chit which  is specifically excluded in the definition of prize chits in S. 2 (c) (ii) is defined in S. 2 (a) as follows -           "Conventional Chit"  means a  transaction  whether      called chit, chit fund, kuri or by any other name by or      under which a person responsible for the conduct of the      chit enters  into an  agreement with a specified number      of persons  that every  one of  them shall  subscribe a      certain sum  of money  (or certain  quantity  of  grain      instead)  by   way  of  periodical  instalments  for  a      definite period  and that each subscriber shall, in his      turn, as  determined by  lot or by auction or by tender      or in  such other  manner as may be provided for in the      chit agreement, be entitled to a prize amount". S. 3 of the Act the violation of which alleged reads:-           "No person shall promote or conduct any prize chit      or money  circulation scheme,  or enrol  as a member to      any  such   chit  or   scheme,  or  participate  in  it      otherwise, or  receive or  remit any money in pursuance      of such chit or scheme." S. 7 of the Act provides:           "(1) It shall be lawful for any police officer not

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    below the  rank of  an officer  in charge  of a  police      station:      (a)  to enter, if necessary by force, whether by day or           night  with   such  assistance   as  he  considers           necessary any  premises which  he  has  reason  to           suspect, are  being used  for  purposes  connected           with the promotion or conduct of any prize chit or           money circulation  scheme in  contravention of the           provisions of this Act;      (b)  to search  the said  premises and the persons whom           he may find therein; 177      (c)  to  take  into  custody  and  produce  before  any           judicial  Magistrate   all  such  persons  as  are           concerned or  against whom  a complaint  has  been           made or  credible information has been received or           a reasonable suspicion exists of their having been           concerned with  the use  of the  said premises for           purposes connected  with, or with the promotion or           conduct  of,   any  such   prize  chit   or  money           circulation scheme as aforesaid;      (d)  to seize  all things  found in  the said  premises           which are  intended  to  be  used,  or  reasonably           suspected to  have been  used, in  connection with           any such  prize or  money  circulation  scheme  as           aforesaid.           (2) Any officer authorised by the State Government may:-      (a)  at all reasonable times, eater into and search any           premises which he has reason to suspect, are being           used for  the purposes  connected with, or conduct           of, any  prize chit or money circulation scheme in           contravention of the provisions of this Act;      (b)  examine any  person  having  the  control  of,  or           employed in  connection with,  any such prize chit           or money circulation scheme;      (c)  order the  production of  any documents,  books or           records in  the possession  or power of any person           having the  control of,  or employed in connection           with, any  such prize  chit or  money  circulation           scheme; and           (3) All  searches under this section shall be made      in accordance  with  the  provisions  of  the  Code  of      Criminal Procedure, 1973".      S. 13  confers necessary powers to make rules and reads as under:-           "(1) The  State Government may, by notification in      the Official  Gazette  and  in  consultation  with  the      Reserve Bank,  make rules  for the  purpose of carrying      out the provisions of the Act. 178           (2) In  particular and  without prejudice  to  the      generality of  the  foregoing  power,  such  rules  may      provide for:-      (a)  the office  of  the  Reserve  Bank  to  whom  full           information regarding  any  prize  chit  or  money           circulation scheme  may  be  furnished  under  the           first proviso  to sub  section (1)  of Section 12,           and the  form in which and the period within which           such information may be furnished;      (b)  the particulars relating to the winding up plan of           the business  relating to  prize  chits  or  money           circulation schemes."      The complaint  alleges violation of S. 3 of the Act. In other words,  the complaint is that the firm is promoting or

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conducting a  prize chit  or a money circulation scheme. The definition of  prize chit  has been  earlier set out. I have also earlier  analysed the F.I.R. and the other materials on the basis  of which  the complaint is made and the materials which have  been placed  before the  Court. The materials do not  indicate  any  thing  to  disclose  that  the  firm  is promoting or conducting any prize chit. I may also here note that no  arguments have  been  advanced  on  behalf  of  the appellants that  the firm  is promoting  or  conducting  any prize chit;  and in  my opinion, rightly, as the allegations do not give any indication whatsoever of any case of a prize chit being  promoted or  conducted by the firm. The argument on behalf  of the  appellants has  been  that  the  firm  is promoting or  conducting a  money circulation scheme. Though the Statement  of objects and Reasons of the Act may suggest that the  prize chit and a money circulation scheme are more or less  of like  nature,  yet,  in  view  of  the  separate definitions of these two being given in cl. 2 of the Act and in view  of the  further fact that S. 3 speaks of prize chit or money  circulation scheme,  each of the aforesaid must be considered to  be separate  and distinct for the purposes of the Act;  and promoting  or conducting  either prize chit or any money  circulation scheme  or both must be held to he an offence under the Act.      I shall  now proceed  to consider whether the materials disclose that  the firm  is promoting  or conducting a money circulation scheme  I have already set out the definition of money circulation scheme 179 as given  in S.  2 (c) of the Act. On a plain reading of the said definition,  the requirements  of a  money  circulation scheme are:      (i)  there must be a scheme;      (ii) there must be members of the scheme;      (iii)the scheme must be for the making of quick or easy           money on  any event  or  contingency  relative  or           applicable to  the enrollment  of members into the           scheme or  there must  be a scheme 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           enrollment of members into the scheme;      (iv) the event of contingency relative or applicable to           the enrollment  of members  into the  scheme  will           however not  he in  any way  affected by  the fact           whether or not such money or thing is derived from           the entrance  money of  the members of such scheme           or periodical subscription.      On a  proper  interpretation  of  this  definition,  it clearly appears  that the  condition in  the said definition ’on any  event or  contingency relative or applicable to the enrollment 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 subscription’ qualifies both the  provisions contained  therein, namely,  (i)  money circulation scheme  means a  scheme by whatever name called, for the  making of  quick  or  easy  money,  (ii)  or  money circulation scheme  means any  scheme for the receipt of any money or valuable thing as the consideration for the promise to pay money. Taking into consideration the language used in the section  and particularly  the two commas, one after the words "easy  money" and  the  other  after  the  words  "pay money", it  becomes clear  that this stipulation is intended to cover  both; and  the interpretation contended for by Mr. Chatterjee that  the further  provision  in  the  definition

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namely, "on  any event or contingency relative or applicable to the enrollment of members into the scheme, whether or not such money  or thing  is derived from entrance money of such scheme or  periodical  subscription"  applies  only  to  the second part,  namely, money  circulation scheme  ’means  any scheme, by whatever name called, for the receipt 180 of any  money or  valuable thing  as the consideration for a promise  to   pay  money,   is  not   sound   ’.   On   this interpretation, of  Mr. Chatterjee,  the  provision  in  the definition, namely,  ’money  circulation  scheme  means  any scheme by  whatever Dame  called for  the making of quick or easy money’ will indeed become vague and meaningless.      For  properly   appreciating  whether  the  offence  of promoting  or  conducting  a  money  circulation  scheme  is disclosed or  not, it  becomes necessary to consider whether the materials,  even if they are all accepted to be correct, indicate that  the business carried on by the firm satisfies the requirements of money circulation scheme and disclose an offence under the Act.      The materials  show that  the  firm  accepts  loans  or deposits  from  general  public  for  a  term  against  loan certificates  which  stipulate  payment  of  interest  @12%. Materials also indicate that the firm pays stipulated amount of interest  and  further  pays  a  much  larger  amount  of interest in  a clandestine  manner to the persons who invest their monies  in the  firm against  loan  certificates.  The materials  further   indicate  that  the  persons  who  have invested  their   monies  with   the   firm   against   loan certificates used to receive, in fact, the stipulated amount of interest @ 12% and also used to receive an additional sum as further  interest @  36% in  a  clandestine  manner.  The materials also indicate that this further rate of interest @ 36% paid  clandestinely in additional to the stipulated rate of 12%  has been  reduced now to 24%, because of investments by the  firm with  political parties.  In other  words,  the materials go  to show  that  though  the  rate  of  interest stipulated in  the loan certificate was 12% the firm used to pay altogether  interest @  48% previously and is now paying interest @  36% inclusive  of payment of interest stipulated in the  loan certificate.  The materials  also indicate that the firm  invest the  deposits or  loans received  from  the general public  in high  risk  investments.  The  materials, however, do  not show  that the  payment of  interest at the stipulated rate  of 12% or at any enhanced rate in excess of the stipulated  rate depends  on any event or contingency or relative  or   applicable  to  the  enrollment  of  any  new depositors. The materials also do not indicate that the firm makes  any  discrimination  in  the  matter  of  payment  of interest to  its  depositors.  The  materials  also  do  not indicate that  the payment  of interest  to  the  depositors whether at  the stipulated  rate or  at the enhanced rate is dependent on any element of chance and the 181 materials do  not indicate that any kind of gifts is made by the firm  to the  depositors in  addition to  the payment of interest.      The first  question that  requires to  be considered is whether these  materials go  to indicate  that there  is any scheme The  word ’scheme’  has not  been defined in the Act. The word  ’scheme’, however,  has been defined in the Rules, in cl.  2 (g)  thereof. Cl.  2 (g) of the Rules state that a "scheme means  a money circulation scheme or as the case may be a  prize chit  as defined in cl. (c) and (e) respectively of s.  2". The  word ’scheme’ as contemplated in S. 2 (c) of

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the Act  is therefore, to be money circulation scheme within the meaning  of the Act. To be a money circulation scheme, a scheme must  be for the making of quick or easy money on any event  or   contingency  relative   or  applicable   to  the enrollment of  the members  into the  scheme. The scheme has necessarily to be judged as a whole both from the view point of the  promoters and  also of  the members.  Even if  it be assumed that  the firm  may be considered to be the promoter and the  persons who  invest their  monies in  the firm  are members, the  question has  still to  be considered  whether investments of  the monies  with the  firm in expectation of getting interest  @ 48%  and a  big part  of it  in black in clandestine manner,  can be  said from the view point of the depositors that the investment is for the making of quick or easy  money.   If  any   individual  invests   is  money  in expectation of  getting a  high return,  say 50% or more and there is  nothing clandestine  in the  transaction which  is above board,  can it  be said  that the  investment  is  for making easy  money or  quick money ? Various individuals may invest their  monies in  their business which may yield very high  profits.   Many  individuals   also  may   indulge  in speculative business  in expectation of high return of their money and  may succeed  or may  not succeed  in  speculative transactions. If  such transactions  are made openly and not in violation  of any law, I have no doubt in my mind that it can never  be said  that such  investment has  been made for making quick  or easy money, and such transactions can never come within  the scheme  for making  easy or  quick money as enumerated in  the Act.  The further question that, however, arises for consideration is whether the position will be any different, if  a part  of the transaction is not above board and is  secretive in  nature. To my mind, that will not make any difference  and the  transaction cannot be considered to be a  scheme for  the making  of quick or easy money, though the transaction may offend against revenue laws or any other law. Transactions in black money do not come within the 182 mischief of  this Act.  Judged from the point of view of the depositors,  it   cannot,  therefore,  be  said  that  their investment in  the firm  for high return by way of interest, part of  which is  above  board  and  a  part  of  which  is clandestine, will  form any part of a scheme for making easy or quick  money. It  is further to be noted that this return on investment  by way  of interest  is not  dependent on any event or  contingency whatsoever  and has nothing to do with any event  or contingency  relative  or  applicable  to  the enrollment of  any new  members, even  if the  depositors be assumed to be members.      Judged from  the point  of view  of the  firm, there is nothing to  indicate that  the firm  makes any investment in consultation  with   its  depositors.   The  materials  only indicate that the firm indulges in high risk investments and also advances  monies to political parties. Neither of these acts appears  to be  illegal and they do not go to show that the firm makes easy or quick money. lt is no doubt true that the materials go to show that the firm plays a larger amount by way  of interest  than payable  on the basis of the rates stipulated in  the loan  certificate and  the firm  pays the excess amount of interest to the depositors in a clandestine manner. The  clandestine manner  of payment  of interest  in excess of the stipulated rate does not, in any way, indicate the existence  of any scheme for making quick or easy money. It is  again to  be pointed  out that  in any event the mate rials do  not indicate  that the  payment of interest by the firm in  excess  of  the  stipulated  rate  is  in  any  way

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dependent on  any event  or contingency. There is nothing to indicate any scheme for the receipt of the money by the firm from its  depositors as  a consideration  for promise to pay the interest  in excess  of the  stipulated rate and also to pay  back  principal  amount  on  the  expiry  of  the  term dependent in any way on any event or contingency relative or applicable to  the enrollment of new depositors, considering the depositors  to be  members.  I  am,  therefore,  of  the opinion, that  not any,  of  the  requirements  of  a  money circulation scheme  is satisfied  in the  instant  case.  As there is no money circulation scheme, there can be no scheme as contemplated  in the  Act in  view of  the definition  of scheme in  the Rules.  The  materials,  appear  to  disclose violation of  revenue laws.  They, however,  do not disclose any violation of the Act. The materials do not disclose that the firm is promoting or conducting money circulation scheme and the question, therefore, of 183 any violation  of S.  3 of  the Act  does not  arise in  the instant case.  As the  firm is not conducting or promoting a money circulation  scheme, and  as no  case is made that the firm is  conducting or promoting a chit fund, the Act cannot be said to be applicable to the firm. In my opinion, it does not become necessary to refer to the rules for coming to the conclusion. I  may, however, add that a consideration of the rules also  clearly lends support to the conclusion to which l have  come.  I  find  that  the  learned  Judge  has  very carefully and  elaborately considered all the aspects in his judgment and  in the  course of elaborate discussion, he has noted all  the contentions  raised by  the parties  and  has carefully considered  them. The  learned Judge  on a careful consideration of  all aspects and on a proper interpretation of the Act, has expressed the view that no offence under the Act is  disclosed against the firm which does not conduct or promote money  circulation scheme or a chit fund and the Act has no  application to  the firm.  It may also be noted that the learned  Judge has  also in his judgment referred to the report of  the Reserve  Bank and  the opinion of the learned Advocate General of the State which lent support to the view taken by  the learned  Judge.  The  view  expressed  by  the learned Judge  that the  materials do  not disclose that the firm is  promoting or  conducting a money circulation scheme and the Act has, therefore, no application to the firm meets with my approval and I agree with the same.      Before concluding  it will  be proper  to refer  to the decision of  this Court  in the case of Srinivas Enterprises v. Union  of India  which were  relied on before the learned Judge and  has been  considered by  me. In  this  case,  the validity of  the Act  was challenged before this Court while upholding the  validity of the Act for reasons stated in the judgment, Krishna  Iyer, J. who spoke for the Bench observed at p. 514 as follows:-           "In many  situations, the  poor and unwary have to      be   saved   the   seducing   processes   resorted   by      unscrupulous racketeers  who glamourize  and prey  upon      the gambling instinct to get rich quick through prizes.      So long  as there  is the  restless spell  of a chance,      though small,  of securing  a prize,  though on  paper,      people change. the prospect by 184      subscribing to the speculative scheme only to lose what      they had.  Can you  save moths  from the fire except by      putting out  the fatal  flow ? Once this prize facet of      the chit scheme is given up, it becomes substantially a      ’conventional chit’  and the  ban of  the law ceases to

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    operate. We  are unable  to persuade ourselves that the      State is  wrong in  its assertion,  based  upon  expert      opinions that  a complete  ban of  prize  chits  is  an      overall or  excessive blow.  Therefore, we  decline  to      strike down  the legislation on the score of Article 19      (1) (f ) and (g) of the Constitution."      As I  have earlier noticed the materials in the instant case do  not disclose any element of chance in the matter of business carried  on by  the firm.  It may  however, be said that these observations which were made while dealing with a case of  chit fund  are not  of very  great assistance while considering what  may be  a money  circulation scheme within the meaning of the Act.      As no  offence under  the Act  is at  all disclosed, it will be  manifestly unjust  to allow the process of criminal code to be issued or continued against the firm and to allow any  investigation   which  will   be  clearly  without  any authority.      In the  view that  I have  taken, I  do not consider it necessary to  deal with  other aspects namely, as to whether the searches and seizures were lawfully and properly done.      I, therefore,  hold that  the proceedings  against  the firm and  its partners  arising out  of the  F.I.R. must  be quashed as  the  F.I.R.  and  the  other  materials  do  not disclose  any   offence  under   the  Act  and  as  such  no investigation into the affairs of the firm under the Act can be permitted  or allowed  to be  continued. I,  accordingly, quash the proceedings against that firm and its partners and order that  no investigation  under the  Act into affairs of the firm is to be carried on or continued.      I agree  with the  final order  proposed by the learned Chief Justice  in regard  to the  return of  the  documents, books and cash. 185      The appeal,  therefore,  fails  and  is  dismissed.  I, however, make no order as to costs.      The Judgment in Civil Appeal No. 1130 of 1981 will also govern Civil Appeal No. 1129 of 1981. N.V.K.    Appeals dismissed. 186