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 offence 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.

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 financers 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,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 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 '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 amounts of cash as well as documents were seized. Certain lists of agents seized during the investigation showed that code numbers were assigned to many of the agents and that the agents had acquired large properties at various places and had also started new business activities. The partners were arrested and enlarged on bail.

The firm and its partners filed a writ petition in the High Court challenging the validity of the F.I.R. and the proceedings arising out of it including the validity of the searches and seizure of documents, papers and cash. It was contended that the F.I.R. does not disclose any offence under the Act which does not apply to the firm and that there was no violation of any provisions of the Act. The petition was contested by the State Government contending that the payment of interest by the firm and its partners at the clandestine rate of 36% against the bank rate of 12% in the context of the scheme promoted and conducted by the firm was tantamount to an activity which was banned under the Act. and that in the process of its working, the scheme of the firm generated quick and easy money so as to render such scheme or arrangement a 'money circulation scheme' within the meaning of the Act. The High Court held that the Act did not apply to the firm and that the searches and seizures were wrongful, illegal and improper and quashed the proceedings and directed the return of all documents and the refund of the cash seized.

In the appeals to this Court it was contended on behalf of the State Government that: (1) 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 stich 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 @2% 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 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.

On behalf of the respondents it was contended that: (1) 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.