State of West Bengal & Ors Vs. Swapan Kumar Guha & Ors [1982] INSC 13 (2 February 1982)
CHANDRACHUD, Y.V. ((CJ) 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 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 the 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 of 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 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 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 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 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 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 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.
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]
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, 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 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 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 recognised 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 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, 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;
(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 of 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 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 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.
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 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 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 to 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 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
