# 'STATE OF WEST BENGAL & ORS v. _SWAPAN KUMAR GUHA & ORS

- **Citation:** [1982] 3 S.C.R. 121
- **Court:** Supreme Court of India
- **Decided:** 1982-02-02
- **Case number:** Civil Appeal No. 1129 of 1981
- **Bench:** Y.V. Chandrachud, C.J. A. Varadarajan, Amarbndra Nath Sbn
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-west-bengal-ors-v-swapan-kumar-guha-ors-8951
- **Pages:** 65

## Headnote

Prize Chits and Money Circulation Scheme1 (Banning) Act 1978 (43of1978)
Ss. 2(c), 2(e), 3, 7 and 13-'Money Circulation Scheme'-What is-Firm Accepting deposits from public-Payment of interest at 48% per annnm though deposit
receipt indiCate only 12%-ll'hether promotion of'money circulation scheme'-
'Whethe~ 'offence' committed under the Act.
B
c
· Criminal Procedure Code 1973, S.154, 156, 157-F.l,R.-Cognlzable offenceD
Necessity of disclosure-No cognizable offence disclosed-Court justified in quashing the investigation.
Cri-fninal Trial-F.I.R.-Condition precedent to com~ncement cf investiga.
lion-Police have no unfettered discretion to commence investigation-Power to
investig'!le to be exercised as-provided in Cr. P.C.
Interpretation of Statutes-Rule of strict interpretation of penal statutesWhether affects primary test that language used in enactment when clear and plain
to apply.
Words & Phrases-' Money circulation scheme'-What is-Meaning of.
The firm 'Sanchaita Investments', commenced its busines·s on July 1,1975,
its three partners, the three respondents in the appeal contributii;ig a total capital
of Rs. 7,000/-. The firm carried on business as financers and investors and in
its business the firm accepted loans or deposits from the general public for
different periods repayable with interest af 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 Jose interest
of 1 %.
Under the terms and conditions -of the Cli;:posit the firm had also the
liberty to repay the amount with interest to any depositor at any time before the
expiry of the stipulated period of deposit without giving any reason. The firm
was carrying on its business on a very extensive scale.
E
F
G
In the year 1978 Parliament passed the Prize Chits and Money Circulation
Schemes (Banning) Act 1978. The Act !came info force on December 13, 1978
H
and section 12 provided a two years period ~for winding up ~verr k~nd. o~ bu.sin~~~
relating to prize chits and money circulat(Q!\ ~cb_emes •.
A
B
c.
D
E
F
G
H
122
SUPREME COURT REPORTS
[1982) 3 S.C-R.
Oo 13th December, 1980 the Commercial Tax Officer lodged a complaint
of violation of the Act by the firm with the police. The FIR stated that the firm
bad been offering fabulous interest at 48% per ~annum to its members, later
reduced to 36% though the loan certificate receipts showed the rate of interest
to be 12% only. The amount In excess of 12% clearly indicated that the
1Money
Circulation Scheme' was being promoted and conducted for the making of
quick and/or easy money and that prizes and for gifts in cash were also awarded
to agents, promoters and members, and that the firm and its three partners in
conducting such ~oney circulation schemes had violated section 3 of the Act and
were therefore punishable under section 4. On the ·same day tbJ office of the
firm was searched by the police and a sum of Rs. 42 1akhs was recovered. The
residences of the partners were also searched and large amounts of cash as well
· as documents were seized. Certain lists of agents seized during the investigation
showed that code numbers were a~signed to many of the agents and that the
agents had acquired large properties at various places and had also started; new
business activities. The partners were arrested and enlarged on bail.
The firm and its partners filed a writ petition in the High Court challenging the validity of the F.l.R. and the proceedings arising out of it including the
Validity· of the searches and seizure of docuinents, papers and cash. It was
contended that the F.I.R. does~not disclose any offence under the Act which does
not apply to the firm and that there was no violation of any provisions of the
Act. The petition was contested by the State Government contending that the
payment of interest .by the fir 1n and its partners at the clandestine rate of 36%
against the bank rate of. 12% in the contex

## Text

_Characters 0–39,613 of 153,477. This is a partial read: ask again with offset=39613 for what follows._

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121
A
'STATE OF WEST BENGAL & ORS.
v.
_SWAPAN KUMAR GUHA & ORS.
February 2, 1982
[ Y.V. CHANDRACHUD, C.J. A. VARADARAJAN, AND
AMARBNDRA NATH SBN, JJ.]
Prize Chits and Money Circulation Scheme1 (Banning) Act 1978 (43of1978)
Ss. 2(c), 2(e), 3, 7 and 13-'Money Circulation Scheme'-What is-Firm Accepting deposits from public-Payment of interest at 48% per annnm though deposit
receipt indiCate only 12%-ll'hether promotion of'money circulation scheme'-
'Whethe~ 'offence' committed under the Act.
B
c
· Criminal Procedure Code 1973, S.154, 156, 157-F.l,R.-Cognlzable offenceD
Necessity of disclosure-No cognizable offence disclosed-Court justified in quashing the investigation.
Cri-fninal Trial-F.I.R.-Condition precedent to com~ncement cf investiga.
lion-Police have no unfettered discretion to commence investigation-Power to
investig'!le to be exercised as-provided in Cr. P.C.
Interpretation of Statutes-Rule of strict interpretation of penal statutesWhether affects primary test that language used in enactment when clear and plain
to apply.
Words & Phrases-' Money circulation scheme'-What is-Meaning of.
The firm 'Sanchaita Investments', commenced its busines·s on July 1,1975,
its three partners, the three respondents in the appeal contributii;ig a total capital
of Rs. 7,000/-. The firm carried on business as financers and investors and in
its business the firm accepted loans or deposits from the general public for
different periods repayable with interest af 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 Jose interest
of 1 %.
Under the terms and conditions -of the Cli;:posit the firm had also the
liberty to repay the amount with interest to any depositor at any time before the
expiry of the stipulated period of deposit without giving any reason. The firm
was carrying on its business on a very extensive scale.
E
F
G
In the year 1978 Parliament passed the Prize Chits and Money Circulation
Schemes (Banning) Act 1978. The Act !came info force on December 13, 1978
H
and section 12 provided a two years period ~for winding up ~verr k~nd. o~ bu.sin~~~
relating to prize chits and money circulat(Q!\ ~cb_emes •.
A
B
c.
D
E
F
G
H
122
SUPREME COURT REPORTS
[1982) 3 S.C-R.
Oo 13th December, 1980 the Commercial Tax Officer lodged a complaint
of violation of the Act by the firm with the police. The FIR stated that the firm
bad been offering fabulous interest at 48% per ~annum to its members, later
reduced to 36% though the loan certificate receipts showed the rate of interest
to be 12% only. The amount In excess of 12% clearly indicated that the
1Money
Circulation Scheme' was being promoted and conducted for the making of
quick and/or easy money and that prizes and for gifts in cash were also awarded
to agents, promoters and members, and that the firm and its three partners in
conducting such ~oney circulation schemes had violated section 3 of the Act and
were therefore punishable under section 4. On the ·same day tbJ office of the
firm was searched by the police and a sum of Rs. 42 1akhs was recovered. The
residences of the partners were also searched and large amounts of cash as well
· as documents were seized. Certain lists of agents seized during the investigation
showed that code numbers were a~signed to many of the agents and that the
agents had acquired large properties at various places and had also started; new
business activities. The partners were arrested and enlarged on bail.
The firm and its partners filed a writ petition in the High Court challenging the validity of the F.l.R. and the proceedings arising out of it including the
Validity· of the searches and seizure of docuinents, papers and cash. It was
contended that the F.I.R. does~not disclose any offence under the Act which does
not apply to the firm and that there was no violation of any provisions of the
Act. The petition was contested by the State Government contending that the
payment of interest .by the fir 1n and its partners at the clandestine rate of 36%
against the bank rate of. 12% in the context of the scheme promoted and conducted by the firm was tantamount to arr activity which was banned under tb.e Act.
and that in the process of its working, the scheme of the firm generated quick
and easy money so as to render such scheme ilr arrangement a 'mo~ey circulation
scheme' within the meaning or the Act. The High Court held that the Act did
not apply to the firm and that the searches a·nd seizure:) were wrongful, illegal
and improper and quashed the pro::eedings and directed the return or all documents and the refund,of the cash seized.
In the appeals to. this Court it was contended on behalf of the State
Government that: (t) the question of applicability of the Act will only come up
for consideration after the investigation has been completed and all relevant
materials have been gathered on sOoh investigation and that at the investigation
stage, the Court does not interfere and also does not quash any proceedings
before the investigation has been comoleted, (2) materials which had been
gathered as a result of the inve.stigation indicate that though the loan certificate
s1i~ulate interest to be paid@ 12% much larger sum by way of interest ranging
between 36@ to 48% was actually paid to the depositors, in cash in a clandestine
manner, depriving and defrauding the revenue of its legitimate dues, (3) the
nature of business carried on by the tirm indicates that the firm is conducting a
'Money circulation scheme' thereby violating s. 3 of the Act, and (4) tbe s.earches
have been carried out in accordance with s. 7 of the Act and the cash money
and other books and do~uJ!lel\IS have peen !awfully seized
·-
) .,
r
WEST BENGAL v. SWAPAN KUMAR
123
On behalf of the respondents it was contended that : (I) Investigation
has to be done when an offence is disclosed for collecting materials for establish ..
ing an offence and any investigation when no offence is·disclosed by the F.I.R.
and the other materials, means unnecessary harassment for the firm and its
partners and illegal and improper deprivation of their liberty and property, (2)
even if all the aitegations in the F.l.R. and in the a·ther materials before the
Court are accepted to be correct, the said allegation do not go to show that the
firm is conducting a money circulation scheme and do Iiot disclose any offence
under the Act, (3) if 'no offence under the Act is disclosed and the Act has no
application, there cannot be any qqestion of any search or seizure under the Act,
and (4) to be a chit fund or a rnon~y circulation scheme, an element of uncer·
tainty or luck is essential and in so far as the transactions carried on by the firm
are concerned, the said element is nowhere.
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 DJ
2. The documents, books, papers, cash and other articles seized during
the investigation shall be retained by the police in their custody for a period of
two months and will be returned, on the expiry of that period, to persons from
whom they were seized. [148 CJ
[Per Chandrachud, C.J. and Varadarajan J.]
1. Two conditions must be satisfied before a person can be held guilty
of an.offence under sectioD. 4 read with sections 3 and 2 (c) of the Act. In the
first place, it must be proved that he is promoting or conducting a scheme for
the making of quick or easy money and secondly, the chance or opportuitity of
rn'aking quick or easy mon~y must be shown to depend upon an event or
contingency relative or applicable to the enrolment of members into that
scheme. [132 F-G]
A
B.
.C
D.
E
F
2. Besides the prize chits, what the Act aims at banning is money
G
circulation schemes. The activity charged as falling within the mischief of the
Act must be shown to be a part of a scheme for making quick or easy money,
dependent upon the happening or non-happening Qf any event or contingency
relative or applicatle to the enrolment of members into that scheme. [133 E-FJ
3.
A transaction under which, one party deposits with the other or
ff
lends to that other a sum of money on promise of being paid interest at a rate
higher than the agreed rate of interest cannot, without more, be a 'money circu·
si.Ji>RllMil coultt RilPoitrs
[ 1982) 3 s.c.li..
A
lation scheme' within the moaning of section 2 (c) of tho Act, howsoever high the
promised rate of interest may. be in comparison with the agreed rate. What
section 2 (c) requires is that the reciprocal promises, express or implied, must
depend for their performance on the happening of an event or contingency
relative or appJicable to the enrolment of meip.bers into the scheme. [134 A-BJ,
B
c
E
F
G
H
In the instant case it seems impossible to bold on the basis of the
allegations in the F.I.R. that any offence can be said to be made out primafacie
under section 3 of the Act. In the first place, the F.I·.R. does not allege, directly
or indirectly, that the firm was promoting or conducting a scheme for the
making of quick or easy money, dependent on any event or contingency relative
or applicable to the enrolment of members into the scheme. Secondly, the F.l.R.
does not contain any all~gation whatsoever that persons who advanced or
deposited their monies with the firm were participants of a scheme for the making
of quick or easy money, dependent upon any such event or contingency. The
F.I.R bears the stamp of hurry and want of care. It seems to assume, that it
is enough for the purposes of section 2 (c) .to show that the accused is promoting
·or cond~cting a scheme for the making of quick or easy money, an assumption
which is fallacious. An essential ingrediCnt of section 2 (c) is that the scheme
for making quick or easy money must be dependent on any event Or contingency
relative or applicable to the enrolment of members into tho scheme. [13S D·G]
4.
A First Information Report which does not allege or disclose that the
essential requirem~nts of the penal provision are prima facie satisfied, cannot
form the foundation or constitute the starting point of a lawful investigation.
[13$ O]
5. -There is no allegation even in any of the affidavits filed on behalf of
the State and its officers that the depositors and the promoters are animated by
.a community of interest in the matter of the sch~me being dependent upon any
event or contingency relative or applicable to the enrolment of members into it.
That being an essential ingredient of the offence charged, it cannot be said in
the absence of any allegation whatsoever in that behalf, that there is "reason to
suspect" the commission of that offence within the meaning of section 157 of ~
the Code of Criminal Procedure, so as to justify the investigation undertaken by
---
-
the State authorities. [138 B-D]
6. The rule of strict interpretation of penal sta_tutes does not lo any
___ ... __
way affect the fundamental principle of interpretation, that the primary test
which can safely be applied is thc_language used in the Act and, when the words
are clear and plain, the court must· accept the expressed intention of the
legislature. 1.139 Bl
7. The investigation can be quashed if no cognizable offence is disclosed
by the F .I.R. The judiciary should not interfere with the police in matters which
are within their province. It is surely not within the province of the police to
investigate into a Report which does not disclose the commission of a cognizable
·..;.-
offence and the CQde does not impose upon them the duty of inquiry in such
cases. [142 B·C]
)
~.·.
~
'\
WEST BSNOAL v. SWAPAN KUMAR
125
8. The condition precedent to the commencement of investigation under
section 157 or the Code is that the F.I.R. must disclose, prima facie, that a
cognizable offence has been committed. It is wrong to suppose that the police
have an unfettered discretion to commence investigation under section 157 of the
Code. Their right of inquiry is conditioned by the existence of reason to suspect
the commission of a cognizable offence ·and they cannot, reasonably, have
reason so to suspect unless the .F .I.R. prim a facie, discloses the commission of
such offence. If that condition is satisfied, the investigation must go on. The
Court bas then no power to stop the investigation, for to do sO would be to
trench upon the lawful power of the police to investigate into cognizable offences
On the other hand, if the F.I.R. does not disclose the commission of a cognizable
offence, the Court would be justified In quashing the investigation on the basis of
the information as laid or received. (142 D-F]
W.H. King v. R<public 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 [t970] (3) SCR 946; Stat•
of West &ngal v. S.N. Basak [1963] (2) SCR 52; Jehan Singh v. Delhi Administration [1974) (3) SCR 794 and King-Emperor v. Khwaja Nazir Ahmed 11 I.A. 203,
rererred to.
9. The power to investigate into cognizable offences must-be exercised
strictly on the coμdition on which it is granted by the Code. [ 142 G]
Prabhu Dayal Deorah v. The District Magistrate, Kamrup, (1974] 2 SCR
12, 22-23, rererred to.
10. The State Government, the Central Government and the Reserve
Bank or India must be given a reasonable opportuility 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 !ire's savings. (147 H; 148 A-BJ
[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, howei.:er, no offence is_disclosed,
an investigation cannot be permitted, as any investigation, in the absence of any
offence being disclosed, will result in unDcceSsary harassment to a party, whose
liberty and property may be put to jeopardy for nothing. Tho liberty and
property or any individual are s8.cred and sacrosanct and the Court zealously
guards them and protects them. An- -investigation· is carried on for the purpose
or gathering necessary materials for establishing and proving an offence which is
disclosed. When an offence is djsclosed, 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 or a proper investigation in a
case where an offence is disclosed, the offender may succeed in escaping from the·
consequences and the offender tnay go unpunished to the deteriment or the cause
or justlce and the society at large. (170 F-H; 171 A]
B
c
D
E
F
G
H
A
B
c
D
126
SUPREME COiiRt REPORTS
{1982] 3 s.c.R.
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 societt
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 discloi;ed 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 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 wiH generally allow the investigation into
the offence to be completed for collecting materials for prciving 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. [171 G-H; 172 A-BJ
W.H. King v. Republic of India [1952) SCR 418, 424; M.V. Joshi v. M.U.
Shimp/, [1961] (3) SCR 986, 99J.994; R.P. Kapur v. The State of Punjab [1960] (3)
E
SCR 388,392-393; S.N. Sharma v. Bipen Kumar Tiwari [1970)(3) SCR 946; State of
West Benga/v. S.N. Bosak [1963] (2) SCR 52; Jehan Singh v. Delhi Administration
[1974] (3) SCR 794 and King-Emperor v. Khwaja Nazir Ahmed 711.A. 203.
referred to.
F
G
H
4. The word 'scheme' has not been defined in the Act. It has however,
has been defined in tbe 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 ofs. 2", The word 'scheme' as contemplated ins. 2 (c)
of the Act is therefore, to be money circulation scheme witbin the meaning of
the Act. To be money circulation scheme, a scheme must be for the making of
quick or easy n1oney on· any event or contingency relative or applicable to the
cnrolinent 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
1he 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
WEST BBN'GAL V. SWAPAN' KUMAR
127
of this Act. Judged from the point of vie_w of the depositors, it cannot, therefore, be said that their investment in the firm ror high return by way of interest
part of which is above board and a part of which is clandestine, wil1 form any
part of a scheme for making easy or quick money, [181 D-H; 182 A-Bl
5. There is nothing to ind icatc that the firm makes any investment in
consultation with its depositors. The materials indicatP. that the firm indulges in
high risk investments and also advances moni~s to political parties. Neither of
these acts are illegal and do not go to show that the firm inakes 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 Joan certificate
and the excess amount of interest is paid to the depositor in a clandestine
manner. This does not, in any way, indicate the exi~tence of any scheme for
making quick or easy.money. [182 C-EJ
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. The materials do Dot 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. L182 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]
'
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1129 of
1981.
A
B
c
D
E
(Appeal by special leave from the judgment and order dated
F
the 12th March, 1981 of the Calcutta High Court in Matter No.
37 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 Cout in Matter No. 2829
of 1980)
Somnath Chatterjee, M. K. Ramamurthi, S, C. Birla, for the
Appellants in C,J\, J129/81 11n\! .C.J\, 1130/81
G
H
A
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c
D
E
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G
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128
SUPREME COURT REPORTS
[1982) 3 s.c.R.
A.K. Sen, (For r.I in CA. 1130/81) S. S. Ray, (For r.2 in
CA. 1130/81), Kapil Sibal, (For'r.1 in C.A. 1129/SI), B. Gupta &
T.K. Bose, (for r,I in CA. 1130/81) and Rathin Das with them.
S.S. Ray, (For r. 6), Tarun Kumar Bose, D. Manda/, Miss Bina
Gupta & 0.P. Khaitan with him for Respondents Nos. 5 & 6 in the
Appeals:
K.L. Hat hi & Mrs. H. Wa hi for the Intervener-Mrs. Sarla
Sahedad Puri.
The following judgments were del.ivered :
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 i.s facing a prosecution.
These appeals by special leave arise out of the judgment
dated March 5, 198 l 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 Be.ngal while the
contesting respondents are a firm called 'Sanchaita Investments'
and its three partners, Swapan Kumar Guha, Sambhu Prasad
Mukherjee and Beharilal Muratka. The two Matters in the Calcutta High Court were in the nature of w~it petitions under article
226 of the Conititution which were fileJ bt the firm and its part·
ners for quashing an investigation commenced against the firm.
Allowing the writ petitions, the High Court issued a writ of Manda·
mus 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 jurisdictioti. It
has directed that the books, 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. lod~ed by the Commercial Tax Officer,
WEST BENGAL v. SWAPAN KUMAR (Chandrachud, c. J.)
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
Sir,
The Deputy Superintendent of Police,
Bureau of Investigation,
10, Madan Street,
Calcutta-72.
On a secret information that 'Sanchaita Investments'
of 5-6, Fancy Lane, Calcutta, is carrying on business of
promoting and/or conducting prize chit and/or money
circulation scheme enrolling members of such chit and/or
scheme, participating in those, and/or receiving and remitting monies in pursuance of such chits and/or scheme in
violation of the provisions of. the Prize Chits and Money
Circulation Schemes (Banning) Act, 1978, inquiry was
held secretly to verify correctness or otherwise of the
aforesaid secret information. · Enquiry reveals that the
said 'Sanchaita Investments' is a partnership firm, partners
being Shri Bihari Prasad Murarka, Shri Sambhu Mukherjee
and Shri Swapan Kumar Guba and that it was floated in
or around 1975.
Enquiry further reveals. that the said
firm bad been offering fabulous interest @ 48% per annum
to its members until very recently. The rate of interest
has of tare been reduced to 36% per annum. Such high
rates of interest were and are being paid even though the
loan certificate receipts show the rate of interest to be 12%
only. Thus, the amount in excess of 12% so paid clearly
sb9ws that the 'Money Circulation Scheme' is being promoted and conducted for the making of quick and/or easy
money. Prizes and/or gifts in cash were and are also
awarded to agents, prornQt~rs and members too,
A
3
c
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G
A
B
c
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130
SUPREME COURT REPORTS
(1982] 3 S.C.R.
In view of the a hove, Sarvashri Bihari Prasad Murarka,
Sambhu Mukherjee and Swapan Kumar Guba appear to
have been carrying on business in the trade name of
Sanchaita Investments' in prize chits and money circulation scheme in violation of section 3 of the Prize Chits and
Money Circulation Schemes \(Banning) Act, 1978 and are
therefore, punishable under section 4 of the said Act.
Necessary action may therefore, be kindly taken against
the afores~id offenders along with other accomplices as
provided in the law.
'
Yours faithfully,
Sd/-
Commercial Tax Officer,
Bureau of Investigation."
Section 4 of the Act provides that whoever contravences the
provisions of section 3 shall be punishable with imprisonment for
a term which may extend to three years, or with fine which may
extend to five thousand rupees, or with both, provided that in the
absence of special and adequate reasons to the contrary to be 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 from
its tenor and is common ground that the gravamen of the accusation,against the accused is that they are conducting a 'money circulation scheme'. The reference in the F.I.R. to 'prize chits' reflects
but a common human failing to· err on the safe side and the notorious effort of draftsmen to embrace as much as possible so that no
argument may be shut out for want of pleading.
Since the sole question for consideration arising out of the
F.l.R., as laid, is whether the accused are conducting a mon.ey
circulation scheme, it is necessary to understand what is comprehended within the statutory meaning of that expression.
Section 2(c) of the Act provides :
" 'Money circulation scheme' means any scheme, by
H
whatever name called, for the making of quick or ·easy
money, or for the receipt of any money or valuable thin!!
"
'
•
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f.
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WBST BENGAL v. SWAPAN KUMAR (Chandrachud, c. J.)
as the consideration for a promise to pay money, on any
event or contingency relative or applicable to the enrolment of members into tlie scheme, whether or not snch
money or thing is derived from the entrance money of the
members of such scheme or periodical subscriptions."
131
Grammar and punctuation are hapless victims of the pace of
life and I prefer in this case not to go merely by the commas used
in clause (c) because, though they seem to me to bav~ been placed
both as a matter of convenience and of meaningfulness, yet, a more
thoughtful use of commas and other gadgets of punctuation would
have helped make the meaning of the clause clear beyond controversy.
Besides, how far a clause which follows upon a comma
governs euery clause that precedes the comma is a matter
not free from doubt. I, therefore, consider it more safe and
.. satisfactory to discover the true meaning of clause (c) by having
regard to the substance of the matter as it emerges from the object
and.purpose of the Act, the context in which the expression is used
and tho consequences necessarily following upon the acceptance of
any particular interpretation of the provision, the contravention of
which is visited by penal consequences.
Commas or no commas, and howsoever thoughtfully one may
place them if they are to be there, I find it impossible to take clause
(c) to mean that any and every activity "for the making of quick
or easy money" is comprehended within its scope. For the matter
of that, I cannot believe any law to ban every kind of activity for
making quick or easy money, without more, on pain of penal conse-
-- \_ -
quences. It is far too vague and arbitrary to prescribe that
>1'.
"whosoever makes quick or easy money shall be liable to be punish-
• ed with fine or imprisonment". For then, in the absence of any
demarcation of legitimate
money-making activities from those
which fall within the ban, the question whether the penal provision
is attracted in a given case wiil depend upon the will and temper,
sweet or sour, of the magistracy.
Besides, speaking of law and
morals, it does not seem morally just or proper to say that no
person shall make quick or easy money, especially quick.
A person
who makes quick money may do so legitimately by the use of his
wits and wisdom and no 'moral tyrpitude may attach to it.
One
need not travel after· to find speaking examples of this.
Indeed,
there are honournble meq (al!d now wqmen) in all professions reA
B
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132
SUPREME COURT REPORTS
( 1982) 3 s.c.R.
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
(tha\ is as far as a Judge's imagination can go), a doctor who charges a couple of thousands for an operation of tonsilitis lasting ten
minutes, an engineer, an architect, a chartered accountant and
other professionals who charge likewise, cannot by any stretch of
imagination be brought into the drag-net of clause (c).
Similarly,
there are many other vocations and business activities in which, of
late, people have been notoriously making quick money as, for
example, the builders and real estate brokers. I cannot accept
that the provisions of clause (c) are directed against any of these
categories of persons. I do not suggest that law is powerless to
reach easy or quick money and if it wills to reach it, it can find a
way to do it.
But the point of the matter is that it will verge upon
the ludicrous to say that the weapon devised by law to ban the
making of quick or easy money is the provision contained in section 2(c) of the "Prize Chits and Money Circulation Schemes
(Banning) Act".
In order to give meaning and content to the definition of the
expression 'money circulation scheme' which is contained in section
2(c) of the Act, one has, therefore, to look perforce to the adjectival
clause which qu.alifies the words "for the making of quick or easy
money". What is within the mischief of the Act is not "any
scheme, by whatever name called, for the making of quick or easy
money" simpliciter, but a scheme for the making of quick or easy
money, "on any event or contingency relative or applicable to the
enrolment of members into the scheme", (whether or not such
money or thing is derived from the entrance money of the members
of such scheme or their periodical subscriptions). Two conditions
must, therefore, be satisfied before a person can be hetd guilty of an
offence under sec. 4 read with secs. 3 and 2(c) of the Act. In the first
place, it must be proved tbar he is promoting or conducting a
sch_eme for the making of quick or easy money and secondly, the
chance or opportunity of making quick or easy money must be
shown to depend upon an event or contingency relative or appli·
cable to the enrolment of members into that scheme. The legislative
draftsman could have thoughtfully foreseen and avoided all reasonable controversy over the meaning of the expression 'mone:)'
~irvula!ion sphefl!~' by shapin~ its gejipition in this form :
' v
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WEST BENGAL v, SWA~AN KUMAR (Chandrachud, C. J.)
133
'money circulation scheme' means any scheme, by
. whatever name called,
(i) for the making of quick or easy money; or
(ii) for the receipt of any money or valuable thing as
A
the consideration for a promise to pay money,
B
on any event or contingency relative or applicable to
the enrolment of• members into the scheme, whether
or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions;
I have reshaped the definition, in order to bring out its meaning
clearly, without adding or deleting a single word or comma from
the original text of section 2 (c).
The substance of the matter is
really not in doubt : only the form of the definition is likely to
create some doubt as to the meaning of the expression which is
defined and, therefore, I have made a formal modification in ihe
definition without doing
violence to its language and indeed,
without even so much as altering a comma.
There is another aspect of the matter which needs to be
underscored, with a view to avoiding fruitless litigation in future.
Besides the prize chits, what the Act aims at banning is money circulation schemes. It is manifestly necessary and mdeed, to say so
is to state the obvious, that the activity charged as falling within the
mischief of the Act must be shown to be a part of a scheme for
making quick or easy money, dependent upon the happening or
non-happening of any event or contingency relative or applicable
to the enrolment of
members into that scheme.
A 'scheme,'
according to the dictionary meaning of that word, is 'a carefully
arranged and systematic progflm of action', a 'systematic plan for
attaining some object', 'a project', 'a system of correlated things'.
(see Webster's New World Dictionary, and Shorter Oxford English
Dictionary, Vol. II), The Systematic programme of action has to
be a consensual arrangement between two or rr ore persons under
which, the subscriber agrees to advance or lend money on promise
of being paid more money on the happening· of any event or contingency relative or applicable to the enrolment of members into
the programme. Reciprocally, the person who promotes or con-·
ducts the programme promises, on receipt of an· advance or loan,
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134
SUPllEMB COURT REPtiRTS
(1982] 3 s.C.ll.
to pay more money on the happening of such event or contingency.
Therefore, a transaction under which, one party deposits with the
other or lends to that other a sum of money on promise of being.
paid interest at a rate higher than the agreed rate of interest cannot,
without more, be a 'money circulation scheme' within the meaning
of section 2 (c) of the Act, howsoever high the promised rate of
interest may be in comparision with the agreed rate. What that
section requires is that such reciprocal promises, express or implied,
must depend for their performance on the happening of an event or
•
contingency relative or applicable to the enrolment of members into
the scheme.
In other words, there has to be a community of interest in the happening of such event or contingency. That explains
why section 3 makes it an offence to "participate" in the scheme
or to remit any money "in pursuance of such scheme". fle who
conducts or promotes a money-spinning project may have manifold
resources from which to pay fanciful interest by luring the unwary
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 enrolment of members into
that arrangement is of the essence, there can be no 'money circulation scheme' within the meaning of section 2 (c) of the Act.
Numerous persons lend their hard-earned monies in the hope
of earning high returns. It ~is notorious that, eventually, quite a
few of them lose both the principal and the interest, for no project
can succeed against· the basic laws· of economics.
Sharp and wily
promoters pay A's money to B and B's to C in order to finance
interest at incredible rates; and eventually, when high-risk investment
made by them at the cost of the credulous lenders fails, the entire
arrangement founders on the rock of foolish optimism. The promoters, of course, have easy recourse to gadgets of the law of insolvency. It is difficult to hold that the lender, himself a victim of the
machinations of the crafty promoter, is intended by the Act to be
arraigned as an accused. I do not think that any civilised law can
intend to add insult to injury.
The question as to whether the First Information Report
prjma facie discloses an offence under section 4 read with section 3
of the Act has to be decieed in the light of these requirements of
section 2 (c) of the Act. I have already reproduced in extenso the
F .I.R. lodged by the Commercial Tax Officer, Bureau of Investigation.
Analy~ing it carefully, and even liberally, it makes the
' r
j
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/-_,_
""
WEST BENGAt v. SWAPAN KUMAR (Chandrachud, C. J.)
t3S
following allegations against the firm 'Sanchaita Investments' and
its three partners :
(I) The firm had been offering fabulous interest@ 48%
per annum to its members, which rate of interest was
later reduced to 36% per annum;
(2) Such high rate of interest was being paid even though
the loan certificate receipts . show that interest was
liable to be paid at the rate of 12% per annum
only; and
A
B
(3) The fact that interest was paid in excess of I 2% shows
C
clearly that a 'Money Circulation Scheme' was being
promoted and conducted for the making of quick or
easy money.
It seems to me impossible to hold on the basis of tliese allegations
that any offence can be said to be made out prima facie under
section 3 of the Act.
In the first place, the F.I.R. does not allege,
directly or indirectly, that the firm was promoting or conducting a
scheme for the making of quick or easy money, dependent on any
event or contingency relative or applicable to the enrolment of members
into the scheme. Secondly, the F.I.R. does not contain any allegation
whatsoever that persons who advanced or deposited their monies
with the firm were participants of a scheme for the making of quick
or easy money, dependent upon any such event or contingency.
The
F.l.R. bears on its face the stamp of hurry and want of care. It
seems to assume, what was argued before us by Shri Som Nath
Chatterjee on behalf of the prosecution, that it is enough for the
purposes of section 2 (c) to show that the accused is promoting or
conducting a scheme for the making .of quick or easy money, an
assumption which I have shown to be fallacious. An essential
ingredient of section 2 (c) is that the scheme for making quick or
easy money must 'be dependent on any ·event or contingency relative
or applicable to the enrolement of members into the scheme. 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 p9int of. a
lawful iμvestigation.
In answer to the writ petitions filed by the accused in the
Calcutta High Court, affidavits were filed on behalf of the proD
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SUPREME COURT REPORTS
(1982) 3 s.c.R.
A
secuting agency, which do not improve matters in any way.