High Court of Kerala
Case Law Search
ACHAMMA CHACKO v. GOVERNMENT OF KERALA - WP(C) No. 12775 of 2006(S)  RD-KL 97 (5 July 2006)
IN THE HIGH COURT OF KERALA AT ERNAKULAMWP(C) No. 12775 of 2006(S)
1. ACHAMMA CHACKO, W/O.P.V.CHACKO,
2. P.V.CHACKO, CHAIRMAN, LIS GROUP,
1. GOVERNMENT OF KERALA, REPRESENTED BY
2. THE SECRETARY TO GOVERNMENT,
3. THE INSPECTOR GENERAL OF POLICE,
4. THE ASSISTANT COMMISSIONER OF POLICE,
For Petitioner :SRI.K.RAMAKUMAR
For Respondent :SRI.S.SAJU
The Hon'ble the Chief Justice MR.V.K.BALI The Hon'ble MR. Justice P.R.RAMAN
O R D E R
V.K. BALI, C.J. & P.R.RAMAN, J.W.P.(C) Nos. 12775 & 13152 of 2006 & Crl.M.C. No.1377 of 2006
Dated, this the 5th day of July, 2006
V.K.Bali,C.J. A partnership firm with the name and style "M/s.LIS, Ernakulam" is said to be conducting the business of making available Government lottery tickets to the public under the Multi Level Marketing principle in partnership. As per its own showing, the partnership has registered three lakhs members in the scheme evolved by it. Though it is not mentioned in sufficient details in the writ petitions or criminal miscellaneous case, but as revealed during the investigation and not disputed during the course of arguments, the managing committee of the trust stated to be P.V.Chacko, Kuriachan Chacko and Joy John met on 11.11.2002 and decided to permit Kurian Chacko to conduct lottery ticket business in the brand name LIS. Kurian Chacko was to conduct the business of his own either as a proprietory concern or as a partnership or as a limited company. Kuriachan Chacko had to make available necessary funds for the trust and its members. In pursuance of the resolution, Kuriachan Chacko along with one Achamma W.P.(C) No.12775/2006, etc. 2 Chacko and Linu Joy who are wives of the trustees of the trust formed a partnership vide Deed dated 12.11.2002. The name of the firm as per the deed is M/s.LIS, Ernakulam and the registered office of the firm is stated to be that of the office of the trust itself. The partnership deed further provides that the main business of the firm shall be arranging online and paper lottery tickets to the public. The firm is seen registered with the Registrar of Firms, Trivandrum on 26.11.2002 with No. 1741/02 and the duration of the firm is stated to be five years. As per the certificate issued by the Registrar of Firms the name of the firm is M/s.LIS with three partners Kuriachan Chacko, Achamma Chacko and Linu Joy. The firm LIS (Regd) is conducting Prize Chits and Money Circulation Scheme throughout the State of Kerala in the name LIS Deepasthambam Project. The business of these persons claimed to be genuine, even though styled by the investigating agency as under the bogus name LIS (Regd), is making advertisement in all leading dailies and through visual medias offering fabulous returns for deposits from the public. The nature of business is that an individual has to deposit Rs.625/- per unit or multiplies thereof. For each unit a member is given lottery ticket worth Rs.350/- purchased over 35 weeks at Rs.10/- per week and subscribes Rs.275/- to a magazine called 'Trikalam' alleged to be published by LIS Printers and Publishers. Besides the above, they offer Rs.1052/- to every member holding one unit, the details of which are as follows: W.P.(C) No.12775/2006, etc. 3
"Amount to be paid to a member per unit : Rs.1250/- Less service charge of LIS : Rs.100/- Less commission earned by LIS from purchase of lottery i.e. 28% of Rs.350/- : Rs.98/- Balance to be paid to each member : Rs.1052/- The amount of Rs.625/- is collected as a deposit." The firm is purchasing lottery tickets, preserving the same, informing its members the particular ticket numbers and the results thereof and also making arrangements for disbursement of prize amount and irrespective of as to whether a member enrolled by the firm gets any prize on the tickets purchased on his name or not is assured of an amount of Rs.1250/- in the manner mentioned above.
2. The facts as mentioned above led to registration of an FIR against the members of the firm under various sections of different statutes to be mentioned hereinafter. In as much as, the activities indulged in by the offending partners of the firm is covered under various statutes, with a view to curb it, a ban order naturally resulting into closure of the business of the partnership firm has also been passed.
3. Achamma Chacko, wife of P.V.Chacko, the managing partner of the firm, and P.V.Chacko, the Chairman of the same firm, have filed W.P.(C) W.P.(C) No.12775/2006, etc. 4 No.12775 of 2006 calling in question Ext.P4 dated 10.5.2006 issued by Bernard Dev, A.C.P., Crime Detachment, Kochin City directing the Chairman of the firm to stop collection of money in any way from depositors until further direction from the investigating officer, by mentioning that he is collecting money from depositors in violation of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978, hereinafter referred to as 'the Act of 1978', and a case has been registered at Ernakulam Central Police Station which is under investigation. Achamma Chacko and Linu Joy, the partners of the firm, and P.V.Chacko, the trustee thereof, have jointly filed Crl.M.C.No.1377 of 2006 seeking to quash the FIR Annexure-B in Crime No.672/2006 of the Central Police Station, Ernakulam and all proceedings pursuant thereto. Linu Joy, wife of Joy John, yet another partner of the same firm, has filed W.P.(C) No.13152 of 2006 seeking a writ in the nature of mandamus commanding the respondents not to harass her and the firm of the petitioner and also commanding the respondents not to interfere with the peaceful and proper functioning of her firm.
4. By this common order we propose to dispose of these three connected matters as the question of facts and law involved therein are same and as the learned counsel appearing for the parties have also suggested likewise. The facts that need a necessary mention have been extracted from W.P.(C) No.12775 of 2006 and also Crl.M.C.No.1377 of 2006. Since the counter affidavits have been filed only in the writ petition the defence projected therein W.P.(C) No.12775/2006, etc. 5 would be referred from the writ petition alone.
5. The first petitioner who claims to be the managing partner of M/s.LIS, Ernakulam is conducting the business of making available Government lottery tickets to the public under the Multi Level Marketing principle in partnership. A copy of the partnership deed has been placed on record as Ext.P1. The second petitioner as mentioned above is the Chairman of the same concern. It is the case of the petitioners that the business of the firm is being run smoothly without any complaint from any quarter. While so, on 10.5.2006 a police team under the leadership of Inspector General searched the office of the firm and registered a suo motu case against the firm only with the intention to harm the reputation of the firm and harass the petitioners. The suo motu case was registered by the police alleging violation of the Act of 1978 and cheating the public. Petitioners claim that the business conducted by the firm would not come under the provisions of the Act of 1978. This Court on two different occasions while examining the type of business the concern is doing in the matter of one complainant subscriber Kamalasanan and in the matter brought by All Kerala Lottery Subscribers Association, held that the business conducted by the firm of the petitioners would not amount to the Money Circulation Scheme which is prohibited by the Act of 1978 and that the scheme evolved by the firm would not come within the purview of of the Act of 1978 and hence there was no violation of the provisions of the said Act. A copy of the judgment of the Division Bench of W.P.(C) No.12775/2006, etc. 6 this Court in W.P.(C) No.33743 of 2005 dated 30th January, 2006 (Ext.P2) and a copy of the judgment of a Single Judge of this Court in Crl.M.C.No.2912 of 2005 dated 27th October, 2005 (Ext.P3) have been placed on record. It is the case of the petitioners that in view of the two judgments of this Court, Exts.P2 and P3, it is crystal clear that the petitioners have not violated the provisions of the Act of 1978 and therefore the suo motu case registered against them by the police is unfair and with oblique motive to harass the petitioners and to tarnish the reputation of the firm. The Assistant Commissioner of police, 4th respondent herein, vide letter dated 10.5.2006 has directed the second petitioner to stop the business of the firm until further direction from the investigating officer. The registration of the suo motu case in the context of the judgments Exts.P2 and P3, it is the case of the petitioiners, would amount to contempt of this Court.
6. From the resume of the facts and circumstances mentioned above, it would clearly manifest that no details how the business is carried out have been given in the petitions and the relief as mentioned above has been claimed almost exclusively on the judgments Exts.P2 and P3 rendered by the Division Bench and a Single Judge respectively of this Court.
7. Before, we might advert to the counter affidavit filed by the respondents in the writ petition it would be relevant at this stage to give bare minimum facts contained in the Criminal Miscellaneous Case filed under Section 482 of the Code of Criminal Procedure and the grounds on which the FIR is sought to be W.P.(C) No.12775/2006, etc. 7 quashed. Crime No.672/2006 of Central Police Station, Ernakulam has been registered under the instructions of the Inspector General of Police , South Zone, vide letter No.D2/8982/IGP SZ/06 dated 9.5.2006. Along with the letter aforesaid the format of the First Information Statement as also the list of accused had also been furnished together with the direction to register a case against them. In compliance with the instructions contained in the letter dated 9.5.2006 (Annexure A) the Commissioner of police, Kochi City vide letter No.D1(b) 212/2006/EC dated 10.5.2006 ordered the Station House Officer, Ernakulam Central police Station to register a case as per the format attached and consequently Crime No.672/2006 was registered against the petitioners alleging commission of the offence punishable under Sections 3, 4, 5 of the Prize Chits and Money Circulation (Banning) Act, 1978, 45 1(bb), 45(s) and 58(b) of the Reserve Bank of India Act as well as Section 420 read with Section 34 of the Indian Penal Code (Annexure B). The allegations levelled against the petitioners vide Annexure B are that the accused with the intention of making exorbitant profit conducted a firm by name 'LIS' in Palackal Court Building at Ernakulam and without permission from the Reserve Bank of India accepted deposits/advance money from the public and acting in concert with each other committed cheating whereby committed the offence alleged against them. On the facts as mentioned above, the petitioners state that the uncontroverted allegations (Annexure A) would not prima facie make out the offences relied on W.P.(C) No.12775/2006, etc. 8 against them. Once again, reliance has been placed on two decisions of this Court as mentioned above to say that no offence is committed by the petitioners as defined in Section 2(c) of the Act of 1978. It is also urged that in an exactly identical situation Crime No.935/2004 of Central Police Station was registered in connection with the business of the aforesaid firm alleging commission of offences under Sections 3, 4, 5(c)(1) of the Act of 1978, the police had conducted investigation into the aforesaid crime and after being satisfied about the bona fides of the business of the firm filed a refer report with reference to the same crime. A copy of the refer report dated 21.12.2004 has been placed on record as Annexure E. On the basis of this report also, it is the case of petitioners, that there would be no justification for the respondents to proceed with any further investigation and that the FIR should be quashed. The petitioners also rely upon some newspaper reports wherein the police officers have admitted before the public and the press that no complaints against the petitioners have been received with reference to the conduct of the scheme run by them from any quarter. Petitioners have also referred to various offending Sections of the Act of 1978 and others mentioned in the FIR and urged that the ingredients of the said Sections are totally lacking in the context of the scheme evolved and put into practice by them. Reference is also made to some judicial precedents.
8. It is once again significant to note that no details as to how the business W.P.(C) No.12775/2006, etc. 9 is conducted have been mentioned even in the Criminal Miscellaneous Case filed seeking to quash the FIR.
9. The arrangement made under the scheme for purchasing lottery tickets,
giving a magazine called 'Trikalam' and payment
of Rs.1250/- has already been
referred to above. The same has been taken from the counter affidavit and as
above, there is no dispute on the same. In the counter affidavit filed
by the third respondent it has further been mentioned
that before the District
Registrar, Ernakulam the Chitty Inspector submitted a report that the business of
under the name and style Deepasthambam Project would come
under the purview of the Act of 1978. The District Registrar by
his letter dated
28.8.2005 recommended the I.G. Registration to take appropriate steps to curb
the activities of LIS (Regd).
The investigation further revealed that three persons
namely, P.V.Chacko, M.V.Paylee and Kuriachan Chacko started
LIS-DS in Bangalore on 9.2.2005 at Door No.3005, 12th-A, Main Road,
opened branches at five places in Bangalore. They registered
with the Labour Department, Bangalore as lottery and magazine
obtained registration certificate dated 2.6.2005. Through the five branches they
enrolled 1090 members
and collected deposit of Rs.one crore. Since the
business of the above concern was prohibited under the
Act, Karnataka Police
raided all the branches on 19.7.2005 and registered four cases as follows:
P.S. Crime No.199/05-under investigation.
W.P.(C) No.12775/2006, etc. 10
2. Jeevan Bheemmanagar P.S. Cr..No.179/05 - pending trial in CC No.22109/06 in the 10th Addl. Chief Metropolitan Magistrate Court, Bangalore.
3. Koramangala P.S.Cr.No.430/05 - under investigation.
4. Thilaknagar P.S. Cr.No.190/05 - pending trial in CC No.26737/05 before the IInd Addl. Chief Metropolitan Magistrate's Court, Bangalore." After investigation of the above crimes, business in Karnataka, as per the case of the third respondent, seems to be closed for ever. The modus operandi in Kerala State is by advertisement that LIS (Regd) has a registered office at Bangalore and administrative office at Palackal Court, M.G.Road, Ernakulam. The investigation so far conducted reveals that there is no entity called LIS (Regd) and it is not having a registered office in Bangalore or administrative office at Ernakulam. Vide letter dated 17.5.2006 the District Registrar, Ernakulam has informed that eleven new charitable trusts in the name LIS Charitable Trust are registered in 2005 at Sub Registrar's office, Ernakulam. It is also revealed that settler of the above trust deed is one P.V.Chacko. The activities of the above 11 trusts are under investigation. According to the respondent the above facts would disclose offences under Section 2(e) and 2(c) of the Act and also Sections 3, 4 and 5 of the Act of 1978. Central Police Station, Ernakulam has registered a crime and pursuant to the directions issued W.P.(C) No.12775/2006, etc. 11 by the Reserve Bank of India to the Director General of Police, Kerala, vide letter dated 21st July, 2005 and yet another letter dated 4th January, 2006 requiring the Kerala Police to examine and investigate whether the scheme run by LIS (Regd) is in violation of the provisions of the Act of 1978. The crime was registered against Kuriachan Chacko, Achamma Chacko, Linu Joy, P.V.Chacko and M.V.Paylee. Vide order dated 10.5.2006 of the Commissioner of Police, Kochi City the case diary was handed over to the Assistant Commissioner of Police, Crime Detachment, Kochi City for further investigation. On 10.5.2006 a search was conducted in the office of LIS (Regd) at Ernakulam. Six computer hard discs, 16 CDs and 9 DVDs were taken into possession vide mahazar and the same were sent to the Court of the Chief Judicial Magistrate, Ernakulam with a proper request to send the materials seized to C-DAC, Thiruvananthapuram for processing and analysis. They questioned all witnesses mentioned in the counter affidavit. It is further the case of the respondent that the investigation disclosed that LIS Deepasthambam project started in 2002 following a partnership deed executed on 12th November, 2002. The first three accused are partners of the deed. The deed is not seen registered. The first meeting of the members of the partnership deed was held on 16.11.2002. Mr.Kuriachan Chacko introduced the new scheme Deepasthambam project proposing to run the project by collecting an advance amount of Rs.625/- per unit and provide the units to the clients as mentioned above. In the beginning of the project a single W.P.(C) No.12775/2006, etc. 12 unit was worth Rs.625/- and double the amount was paid after 35 weeks of enrollment. From the money entrusted for one unit, i.e. Rs.625/-, Rs.350/- is said to be utilised for purchase of lottery for the depositor, i.e. Rs.10/- per lottery per week and Rs.275/- for purchase of the collash magazine called 'Trikalam' worth Rs.10/-. The amount collected from the unit member is thus spent. The LIS (Regd) states that if the lottery purchased in the name of each particular individual wins a prize the amount will be paid to the individual. After the completion of 35 weeks no lottery is purchased for the individual, nor any magazine is issued. The unit member is said to be matured and he is repaid with an amount double the amount he had spent with LIS (Regd), but no specific period is mentioned for maturity. From the investigation it further transpired that the accused would pay the double amount from the commission obtained from purchase of lottery tickets, i.e. out of 28% commission obtained from lottery purchase from State Government and 30% commission obtained from weekly. 25% each is taken from the lottery commission and magazine commission and the double amount is paid to the customer and thereafter he is said to be paid. The remaining 8% of the commission is said to be utilised for office expenses and other miscellaneous matters. The commission matter is stated to be arisen only after joining of fresh 14 members subsequent to the joining of the first member. The firm itself canvasses for the members using its wide range publicity through different types W.P.(C) No.12775/2006, etc. 13 of medias including newspapers, T.V.channels, cinema houses, etc. When the accused in the brochure mentioned that the scheme was under instructions of the Reserve Bank of India, the said Bank advertised in Malayala Manorama dated 12.5.2006 and Hindu of even date calling for the attention of the general public that it has not issued any instructions for conducting such scheme nor has it approved the scheme. A copy of the Reserve Bank of India advertisement has been placed on record as Ext.R3(h). The respondent, then by referring to various offending Sections mentioned in the FIR states that the accused arrayed in the FiR have indeed committed said offences. In so far as the two judicial precedents of this Court are concerned, the case of the respondent is that in the said judgments there is no reference to Section 2(e) and further that the judgments were rendered in a different context. It is also the case of the respondent that State was a formal party in those cases and the judgment Ext.P2 was rendered in a case alleging violation of Lotteries Regulation Act. Having regard to Section 2(c) the submission of the learned counsel for the petitioner was heard without there being any pleadings and only during the arguments. The writ petition was dismissed in limine without notice to respondents 6 and 7. In the light of the facts that have emerged during investigation which were not considered by both the earlier Benches of this Court, the case of the respondent is that the scheme of the petitioners would fall under Section 2(c) of the Act of 1978. It is a scheme for quick or easy money W.P.(C) No.12775/2006, etc. 14 (doubling within 35 weeks) as well as a scheme for receipt of money as a consideration to promise to pay double the money on less commission on a future date, which according to the advertisement release by the firm will depend on 14 new members in the scheme. The investigation further revealed that the accused have enrolled the members to be subscribers of weekly magazine 'Trikalam' which is said to be an informative magazine. The revealing point is that one member usually purchases more than one unit with the intention of doubling his money spent with the firm loosing nothing, but leaving behind the question of who is the looser, i.e. if a person acquires two units or more he is eligible for more than one weekly per week and none will want to take more than one. In the case of many number of members a huge amount is pocketed by the accused with the knowledge and connivance of the different staff of LIS, thus cheating the members who are only concentrated on doubling the amount of their deposits in view of remittance for purchase of lottery. The advertisement itself states that the first member will be paid out on joining of 14 new members supported by their pamphlet LIS - Deepasthambam Project in Ext.R3(j). Later the unit amount was enhanced to Rs.1250/- with a term for 70 weeks, due to non-availability of funds to give double the amount to those who exceeded 35 weeks as per Rs.625/- unit scheme. It is revealed that so far only 51643 persons of Rs.625/- units have been paid off. The investigation further revealed that from the materials collected so far the act of accepting crores and crores of W.P.(C) No.12775/2006, etc. 15 rupees from the general public with false promise and without any sanction from any competent authority would constitute the offences under which the crime as has been registered. The firm is operating 121 banks. It is essential to ascertain the money misappropriated by way of 'Trikalam' weekly printing and publishing, advertising, fixed deposits, security deposits of franchise, etc. The accused as per the case set up by the third respondent are conducting the business of 'Money Chain' under the cover of dealing with Government lottery tickets with clandestine intention to commit a huge financial scam involving hundreds or thousands of crores of rupees in future. The design to commit the crime is well planned with all paraphernalia of bogus documents, aggressive advertisements and fake schemes without any licence from any competent statutory authority, like Reserve Bank of India. It is then averred in the counter affidavit that the claim of the petitioners that they are achieving the unimaginable growth from dealing with lotteries, necessarily each one rupee invested by the petitioners in lottery must earn Rs.3/- within the stipulated time of 35 weeks constantly and continuously so long as the business exists, is indigestible and never possible by whatever statistics applicable to the returns from lotteries are concerned as can be seen from the mere fact that only a meagre portion of the income from a particular draw of any lottery is being given as total prize money to individuals who participated in the draw.
10. The petitioners have filed a reply affidavit controverting all the W.P.(C) No.12775/2006, etc. 16 contents in the counter affidavit filed by the third respondent, wherein it has been mentioned that collection of Rs.625/- is not as deposit, but as an advance towards the purchase of lottery and magazines. The money received as commission in every week in respect of bulk purchase of lottery tickets and magazines will be distributed among the senior most unit holders at Rs.1250/-.
11. The 4th respondent in opposition to the reply affidavit filed by the petitioners has filed a counter affidavit wherein it has inter alia been mentioned that the tactics adopted by the accused would prove that the claim made by them is false and that it is nothing but a mathematical improbability. The gist of the statement of account given in para 5 is that when the petitioners invest Rs.2 lakhs towards purchase of lottery and yet another Rs.2 lakhs towards purchase of magazine for the investors, from lottery purchase they are getting 28% by way of commission, i.e. Rs.56,000/- and from the purchase of magazine they get a commission of Rs.60,000/-. Accordingly when Rs.4 lakhs are invested, even according to the petitioners, the return is only Rs.1,16,000/- as against a loss of Rs.2,84,000/-. There is no averment anywhere in the reply affidavit to show how the petitioners are patching up the loss of Rs.2.84 lakhs as stated by them on investment of each Rs.4 lakhs. The claim of the petitioners that they are getting 28% commission from the purchase of lottery tickets itself is not correct since they are purchasing lottery tickets from other lottery agents also wherein the claim of 28% is false. Similarly the 30% commission of 'Trikalam' weekly is W.P.(C) No.12775/2006, etc. 17 nothing but a myth and scandal. Even according to to them the 'Trikalam' weekly is their own product and on investigation it came to light that the maximum cost of the magazine is only Rs.3/- per copy. It is nothing but a self-serving publication, with the sole intention to create a mist of doubt with regard to their claim. From the investigation it was also found that the magazine is printed only in lesser numbers than what is claimed by the petitioners. The claim that 30% commission out of the total purchase value is given back to the depositor is another way of cheating and a means to create cloud as to how they are paying back the money. It was further found that 70% of the money collected from the individuals are being misappropriated by the petitioners in the name of the said magazine which in fact is worthless so far as the general public is concerned and the publication, circulation and purchase, etc. of the said magazine is nothing but a way to cover up the clear case of money chain activities being done by the petitioners. It was also found that the petitioners had printed only about 2 lakhs copies of 'Trikalam' magazine so far and that itself shows the clandestine nature of the claim made by the petitioners. From the materials collected it is revealed that the petitioners have collected an amount of Rs.2230071875/- from Rs.625/- category and Rs.2266986250/- from Rs.1250/- category. Thus a total amount of Rs.449,70,58,125/- has been collected from the general public so far, out of which only Rs.117,26,17,500/- has been paid back, which belongs to Rs.625/- category and not even a single pie has been W.P.(C) No.12775/2006, etc. 18 given back so far to the Rs.1250/- category. Thus it can be seen that an amount of Rs.332,44,40,625/- is still with the petitioners and not even a single pie has been paid back to anybody after 20.4.2005. If the claim of the petitioners may be correct they could have made payments regularly and without any break to the other waiting personals who have been waiting for the last several months even after the elapse of the promised period. It is further mentioned that the above statistics is only on the basis of the materials actually collected so far and the real affairs may be far more than that and it can be finalized only on collecting all the remaining records which are exclusively in the hide outs of the petitioners. Another fact on which however there is serious objection by the petitioners and which we may not take into consideration at this stage however is that on another search it was found that one investor alone has invested Rs.193,10,00,000/- with the petitioners on various dates in a short span of time in 2005 in their project, but the documents collected on raid from the petitioners' office do not bear any such investment by that person.
12. An additional affidavit of the third respondent has been filed wherein it is mentioned that during the course of hearing the Court required respondents 3 and 4 to explain whether any enquiries had been made by them regarding the viability or otherwise of LIS (Regd) scheme to satisfy themselves that the scheme was not workable and would result in major loss to the public before issuing Exts.P4, P5 and P6 notices to LIS (Regd) to stop the business pending W.P.(C) No.12775/2006, etc. 19 investigation of the case. It is averred in the affidavit aforesaid that for the last several months the media including leading newspapers and electronic media were advertising very heavily for the LIS (Regd) to the effect that if an investment is made it will be doubled within a short span of time. The same type of advertisements used to appear during the period 1992-1995 in the name of investments in growth schemes like Teak plantations, Manjiyam plantations, Goat farms, etc, which were later found to be a scam. The same method of aggressive advertisements as that of LIS (Regd) was used by those firms as well. At that time the said schemes were verified and subsequently several fraudulent companies were detected. Due to timely intervention from the side of the State police several hundred crores of rupees which could have otherwise been siphoned off from the public could have been saved. The aggressive advertisements by LIS (Regd) prompted the police to keep an eye personally on their activities and verify the bona fides behind the advertisements. In the meantime the D.G.P. of Kerala and I.G.P., Crime, CB CID, Thiruvananthapuram in the month of July, 2005 and January 2006 received two intimations dated 21.7.2005 and 4.1.2006 from the Reserve Bank of India asking the State Police to have an investigation in respect of the activities of LIS (Regd) . Similarly, in April, 2006 a copy of the letter received from the office of the Deputy Commissioner, Commercial Taxes, Ernakulam addressed to the Commissioner, Commercial Taxes, Thiruvananthapuram casts suspicion of the activities of LIS W.P.(C) No.12775/2006, etc. 20 (Regd). Some of the CB CID officers of the State police who were conducting enquiry about the activities of LIS (Regd) on the basis of the direction issued to them by the I.G. of Police, CB CID, Thiruvananthapuram gave information that the enquiry revealed that the activities of LIS (Regd) would come under various offences. During the investigation it was found that in an earlier matter registered against the petitioners further actions were dropped. Case study of the CD file revealed that the investigation was done by officers of the lower grade who could not understand anything about the technical, suppressive and clandestine nature of the crime and accordingly it happened to be referred under Section 173 of the Code of Criminal Procedure. It was further found that the lack of understanding of the said officers and the confusion created by the management of LIS (Regd) resulted in the reporting of 'further action dropped'. In the meanwhile a write up on LIS (Regd) and its latest deepasthambam project was received from the Chairman of LIS (Regd) furnishing the details of their business which was produced along with the counter affidavit. Finding it unsatisfactory and improbable the version made by him, an intensive personal study of the matter through various sources was conducted including expert opinion derived from Chartered Accountants. The pamphlet published by LIS (Regd) made it very clear that the promise of doubling the deposits by the investors is a mathematical impossibility and as scheme progresses it will leave at least 11 times of the paid up investors losing their money. The activities W.P.(C) No.12775/2006, etc. 21 mentioned in the scheme of LIS (Regd) were given to some Chartered Accountants for their opinion. After analysing the project conducted by LIS (Regd) they have submitted a report which clearly shows that it is nothing but a money chain activity which will have its natural collapse at any time due to stagnation in the required number of new enrollments to continue the chain and due to the siphoning out of the corpus in large scale for repayment, with the unavoidable result of loss of lakhs and lakhs to the investors. A copy of the report submitted by M/s.JVR & Associates, Chartered Accountants of Thiruvananthapuram dated 8.5.2006 has been placed on record as Ext.R3(V).
13. Some applications for and against for impleadment have been filed which were allowed, but there will be no need to give details thereof as, by and large, those supporting have averred in tune with the pleadings made by the petitioners and those opposing have made averments in tune with the counter affidavits filed by the respondents.
14. In so far as W.P.(C) No.13152 of 2006 filed by Linu Joy, wife of Joy John is concerned, the relief sought therein would depend upon the decision of the Criminal Miscellaneous Case filed under Section 482 of the Code of Criminal Procedure referred to above. The facts stated in this writ petition however, we may mention are akin to which have been mentioned in the other two matters.
15. The fate of the writ petition would depend upon the decision of the
Criminal Miscellaneous Case filed under
Section 482 of the Code of Criminal
W.P.(C) No.12775/2006, etc. 22
Procedure for quashing
the FIR. Surely, the investigating agency will be
justified in launching prosecution against the petitioners
if the contents in the FIR
and other supporting materials may disclose commission of some crime. The
police officers would
have every right to prevent such crime. This power vests
with every police officer under the provisions contained
in Section 149 of the
Code of criminal Procedure which reads as follows:
"Every police officer may interpose for the purpose of preventing, and shall, to the best of his ability, prevent, the commission of any cognizable offence." If the scheme evolved by the petitioners which of course is their business may result into commission of any cognizable offence, the police investigating the crime can very well prevent it and that can be done only by slapping an order of closure of such business as has been done vide order Ext.P4.
16. From the narration of facts as have been fully detailed above, what straightaway transpires is that the petitioners are connected with the lottery business in the brand name LIS. This business is carried on in the name 'M/s.LIS, Ernakulam'. The main business of the firm is arranging lottery tickets to the public. In connection with the business of lottery the partnership firm is advertising in all leading dailies and through visual medias offering fabulous returns for deposits from the public. The nature of business is that an individual has to deposit Rs.625/- per unit or multiplies thereof. For each unit a member is W.P.(C) No.12775/2006, etc. 23 given lottery ticket worth Rs.350/- purchased over 35 weeks at Rs.10/- per week. He also subscribes Rs.275/- to a magazine called 'Trikalam' published by LIS Printers and Publishers. The lottery tickets worth Rs.350/- are purchased, preserved and the concerned member is informed the particular ticket number and results thereof. If the lottery ticket purchased in the name of a unit holder wins a prize, it is given to the said member. The firm thus makes arrangement for disbursement of prize amount and irrespective of as to whether any member enrolled by the firm gets a prize on the ticket purchased on his name or not, he is assured of an amount of Rs.1250/- in the manner as mentioned in the earlier part of the judgment. These minimum facts are not in dispute. The discordant view in the matter is that whereas as per the prosecution version the scheme evolved by the petitioners is a mathematical impossibility and sooner or later it is bound to fail, as it would be impossible for the petitioners to carry on joining 11 members for payment to a single unit, the case of the petitioners is that they are indeed making payment from the money collected by them as commission on sale of lottery tickets and also commission earned by them on sale of magazine called 'Trikalam' and the said commission would take care of payment to the subscribers. During the course of arguments we asked the counsel for the petitioners to explain as to how it will be possible to pay double the amount to each unit holder from the money earned by the petitioners from commission only, the reply forthcoming from the counsel was that so far no subscriber to the W.P.(C) No.12775/2006, etc. 24 scheme has made any complaint and the records of the petitioners' concern would show that every subscriber has been paid. Learned Senior Government Pleader on the adjourned date chose to file an additional affidavit of T.P.Senkumar, Inspector General of Police, South Zone, Thiruvananthapuram, wherein the details of the scheme, the money collected and paid and the balance which is still to be paid have been detailed. It may be recalled at this stage that the investigation has revealed that so far only 51643 persons of Rs.625/- units have been paid off. The gist of the statement of accounts is that when the petitioners invest Rs.2 lakhs towards purchase of lottery tickets and yet another Rs.2 lakhs towards purchase of magazine for the investors, they will get a commission of Rs.56,000/- from the purchase of lottery tickets and Rs.60,000/- from the magazine. When Rs.4 lakhs are invested, even according to the petitioners, the return is only Rs.1,16,000/-, as against a loss of Rs.2,84,000/-. It is the case of the respondents and surely during the course of arguments it has not been shown by petitioners as to how they are patching up the loss of Rs.2.84 lakhs on investment of each Rs.4 lakhs. The investigation has further revealed that the petitioners have collected an amount of Rs.223,00,71,875/- from Rs.625/- category and Rs.226,69,86,250/- from Rs.1250/- category. A total amount of Rs.449,70,58,125/- has been collected from the general public so far, out of which only Rs.117,26,17,500/- has been paid back which belongs to Rs.625/- category and not even a single pie has W.P.(C) No.12775/2006, etc. 25 been given back so far to the Rs.1250/- category. An amount of Rs.332,44,40,625/- is still with the petitioners and not even a single pie has been paid back to anybody after 20.4.2005. When confronted with this overwhelming evidence showing that the subscribers have not been paid anything after 20.4.2005 and that no details have been furnished from where it could be reasonably gathered that the petitioners would be able to pay back as claimed by them in the scheme and in the advertisements made by them, all that the learned counsel representing the petitioners would say is that the petitioners are facing prosecution under various Sections as mentioned above and once they are able to show that whatever be the scheme of the petitioners there was no applicability of the said Sections, or in other words, a reading of the FIR would not disclose applicability of either of the Sections, be it of Act of 1978, the Reserve Bank of India Act or the Indian Penal Code, the FIR should be quashed and as and when the petitioners may be faced with the charge based upon non- workability of the scheme they will answer the same.
17. On the aforesaid rival contention of the learned counsel representing the parties, a question of some significance that arises is as to whether the FIR needs to be quashed and that too at the initial stage when it may appear that only some of the offences that are mentioned in the FIR may prima facie appear to have been committed and the rest of the offences may be wholly unrelatable to the facts given in the FIR and the supporting documents and still further as to W.P.(C) No.12775/2006, etc. 26 whether the FIR can be quashed even though none of the offences mentioned in the FIR may be relatable to the facts given therein and the supporting documents, but the same may nonetheless constitute some offence.
18. Before, however, we may comment and adjudicate on this issue it would be appropriate to first deal with the contention of the learned counsel for the petitioners that the matter herein is covered by two judgments of this Court in W.P.(C) No.33743 of 2005 and Crl.M.C.No.2912 of 2005. In so far as W.P.(C) No. 33743 of 2005 is concerned, the same was filed by way of public interest litigation by All Kerala Lottery Subscribers Association. It was dismissed without issuing notice to respondents 6 and 7. The respondents arrayed in the petition aforesaid were (1) State of Kerala, (2) Director of State Lotteries, Kerala, (3) Director of State Lotteries, Karnataka, (4) Director General of Police, Kerala, (5) The Registrar, Sub Registrar's office, Ernakulam, (6) The President, LIS Educational and Charitable Trust, Bangalore and (7) LIS Regd., Ernakulam. Learned Government Pleader appeared for respondents 1 and 2 and filed a written statement. When the matter came up for hearing on 24.1.2006, arguments were heard and judgment was delivered on 30th January, 2006. It is no doubt true, that presence of Sri.Abdul Rahim, Government Pleader, has been mentioned in the order, but it is only the counsel for the petitioners who had argued the case. One of the prayers which is relevant was to issue a direction to the first and fifth respondents to take necessary steps to shut down all further W.P.(C) No.12775/2006, etc. 27 operations in the illegal business of 6th and 7th respondents. The averments made in the petition were that 6th and 7th respondents were enrolling subscribers in a scheme called "Lis Deepasthambham Project" as per which an amount of Rs.1250/- is collected from a unit holder, which amount would be invested by respondents 6 and 7 for the purpose of purchasing lottery tickets in bulk and they were also getting commission for the same. This commission and the prize, if any, obtained from any ticket so purchased would be deposited against the unit holders. It is this activity which according to the petitioner in the said case was one intended to cheat the public and was in violation of the Lotteries (Regulation) Act, 1998 and would amount to depriving the genuine lottery subscribers of their opportunity to try their luck. On these facts alone, as has been clearly mentioned in the judgment Ext.P2, we had observed that the Court was not satisfied that the petitioner had brought out a case for interference on the ground that there is violation of Lotteries (Regulation) Act. The scheme, this Court observed, was one by which respondents 6 and 7 would purchase lottery tickets on behalf of many subscribers and distribute the commission and the prizes among such subscribers, which this Court thought would not amount to any illegal activity prohibited by Lotteries (Regulation) Act. The other contention raised was that the activities of 6th and 7th respondents constitute a monopoly in the matter of purchasing lottery tickets. While repelling the contention aforesaid reliance was placed upon the averments made in the written statement filed on W.P.(C) No.12775/2006, etc. 28 behalf of the second respondent. In so far as the aspect with regard to cheating is concerned, the court had observed that the petitioner had not pointed out any instance wherein there was any complaint against respondents 6 and 7 of cheating by virtue of the scheme propagated by them. It was also observed that if there is in fact any cheating by respondents 6 and 7, the proper course of action for any person aggrieved would be to file appropriate complaints either before the police or before the competent criminal court. In so far as the applicability of Section 2(c) of the Act of 1978 is concerned, a contention was raised during the course of arguments without there being any pleadings on that count. Once again, while considering the activities of respondents 6 and 7 as mentioned in that petition only, the Bench had observed that the scheme evolved by respondents 6 and 7 would not come within the purview of Section 2(c) of the Act of 1978. It is significant to mention that the activities of respondents 6 and 7 as made out by the petitioner were only which have been mentioned above. There were no pleadings with regard to the petitioners enrolling more members so as to make payment to members already enrolled. There was no averment to the effect that petitioners in due course would not be able to make payment to the members who had purchased units and one day or other the scheme is bound to fail. The essence of offence, if at all is in enrolment of more members and payment to members who have already enrolled from out of the receipts of money from new members. On the basis of such activities as mentioned in the W.P.(C) No.12775/2006, etc. 29 writ petition aforesaid our view still would be that no offence is disclosed. But that is not the position in so far as the FIR, the subject matter of challenge in the present cases, is concerned. That being so, it cannot be said by any stretch of imagination that the matter would be covered in favour of the petitioners by the Division Bench judgment of this Court in W.P.(C) No.33743 of 2005, in which one of us (V.K.Bali, C.J.) was a member. Still further, it appears that the Lottery Agents' Association was more aggrieved of the business competition faced from 6th and 7th respondents arrayed in the writ petition. It is against that competition in which they lagged far behind as compared to respondents 6 and 7, that the petition was filed. While thus deciding the matter the main consideration was upon the plea raised in the petition pertaining to 6th and 7th respondents having a monopoly in the entire lottery business.
19. The facts given in the order dated 27th October, 2005 passed in
Crl.M.C.No. 2912 of 2005
would reveal that Kuriachan Chacko was the accused
in C.C.No.236 of 2005 on the file of the Chief Judicial Magistrate, Ernakulam.
Kamalakshan, the first respondent, had filed a complaint on the allegation that
Kuriachan Chacko had committed offences
punishable under Section 420 of the
Indian Penal Code and Sections 3, 4 and 5(c)(i) of the Act of
complaint subject matter of quashing under Section 482 of the Code of criminal
Procedure was filed by Kamalakshan
on the allegation that he was a salesman
in a private business establishment and he subscribed a unit
W.P.(C) No.12775/2006, etc. 30
Deepasthambham Project' believing the advertisement
and assurances given by
the accused that money deposited would be doubled within a short span of time.
The said unit gave
him a profit of Rs.625/-. So he purchased three more units
and was awaiting its return. Then he understood
that the accused was
conducting the project without proper licence and permission required by law
from the Reserve Bank of India and other authorities. The accused was
conducting money chain and
money circulation scheme and that the acceptance
of deposits by the accused was illegal. He had come across several news items
in various dailies that the project of the accused was sinking. It was then
mentioned in the
complaint that the accused had cheated the complainant and
the general public and that they started the business with the intention
the complainant and other depositors. On these facts alone it was urged by the
complainant that offences under
Sections 420 IPC and Sections 3, 4 and 5(c)(i)
of the Act of 1978 would be made out. The learned Single
exclusively relying upon the judgment of the Supreme Court in State of West
Bengal and others v. Swapan
Kumar Guha and others , (1982) 1 SCC 561
"In the facts and circumstances of the
case and the
allegations contained in Annexure-A2 complaint, this Court is of the view, the complaint does not prima facie creates any offence. That apart the scheme launched will not come under the definition of 'money circulation scheme' as per section 2(c) of the Act. Learned counsel for the first W.P.(C) No.12775/2006, etc. 31 respondent submits that the scheme is for making of quick or easy money and hence section 2(c) of the Act will attract. The complaint also does not disclose any material to constitute an offence under section 420 IPC. A reading of the order would make it absolutely clear that while holding that the allegations contained in the complaint did not prima facie relate to any offence and the scheme would not come within the purview of Sections 3, 4 and 5(c)(i) of the Act of 1978, it is the facts and circumstances of the case emanating from the complaint that were taken into consideration. It is significant to mention that there was no allegation made in the complaint that the firm of the accused was claiming to return double the amount as taken from the unit holders or from the complainant by the commission earned by them either by way of purchase of government lottery tickets or the sale of magazine called 'Trikalam' and that the amount collected by way of commission will never be enough to pay the unit holders as claimed by the accused. There was no allegation in the complaint either that with a view to pay double the amount to the unit holders or the complainant the scheme is dependent upon 11 more members to join the scheme. Still further there was no allegation that in due course of time it shall be well neigh impossible for the firm to make good the maturing unit holders to be paid double the amount. There was further no allegation that such a scheme is a mathematical impossibility and in the ultimate analysis unit holders will lose W.P.(C) No.12775/2006, etc. 32 their investment made by way of purchasing units worth Rs.625/-. Surely, if such allegations as have been made now in the FIR or the supporting documents were taken into consideration the result of the case may not have been the same. No material with regard to the essential ingredients of Section 420 of the Indian Penal Code were also specified in the complaint Annexure A2. We repeat and reiterate that unless the scheme was shown to be dependent upon enrollment of more members the case would not be covered by the provisions of the Act of 1978, nor if there was any such allegation with regard to non-payment of double the amount to its members in the due course of time, the case would be covered under Section 420 of the Indian Penal Code.
20. The FIR has been registered against the petitioners under Sections 3, 4 and 5 of the Act of 1978, Sections 45-I(bb), 45-S and 58-B of the Reserve Bank of India Act, 1934 and also Section 420 of the Indian Penal Code. Section 3 of the Act of 1978 pertains to banning of prize chits and money circulation schemes or enrollment as members or participation therein. Section 4 provides for penalty for contravening the provisions of Section 3. Section 5 provides penalty for other offences in connection with prize chits or money circulation schemes. The case of the respondents is that Sections 3, 4 and 5 of Act 1978 would be applicable as money circulation schemes are banned under Section 3 and the activity indulged in by the petitioners would be of money circulation scheme as defined under Section 2(c) of the Act of 1978. It is further the case W.P.(C) No.12775/2006, etc. 33 of respondents that prize chits conducted by any member is also banned under Section 3 for which penalties are provided under Sections 4 and 5 and the scheme evolved by the petitioners would also amount to prize chits as defined under Section 2(e) of the Act aforesaid. The petitioners on the other hand would endeavour us to believe that the business activities carried on by them would neither be money circulation scheme, nor prize chits, nor the said activity would be covered under any of the provisions mentioned in the FIR. They would also endeavour us to show that the offence under the Act of 1978 which pertains to money circulation scheme or prize chits cannot co-exist with the provisions of Section 420 of the Indian Penal Code.
21. The view that we are inclined to take in this case at this stage guides us not to give any definite finding on the rival contentions of the learned counsel as noted above, even though we may hasten to add that prima facie it appears that the activities indulged in by the petitioners may not be covered with the ingredients of prize chits as defined under Section 2(e) of the Act of 1978 nor it may be covered under any of the Sections of the Reserve Bank of India Act. We however, refrain from giving any definite opinion on this issue. Surely, we would have gone into all minute details of the facts relatable or otherwise to the provisions of the Act of 1978 or the provisions of the Reserve Bank of India Act mentioned in the FIR or the ingredients of Section 420 IPC and given a definite view , if perhaps, we would have been inclined to quash the FIR at this stage. W.P.(C) No.12775/2006, etc. 34 In as much as, we are of the considered view that ingredients of money circulation scheme as defined under Section 2(c) of the Act of 1978 in the context of the activities indulged in by the petitioners are a highly debatable issue, no conclusions should be drawn at this initial stage where investigation is in its infancy. Further, it appears, at least prima facie, that ingredients of Section 420 IPC are made out. That apart, it is not a case where the petitioners may be able to state that taking contents of the FIR and the supporting materials as true no offence whatsoever would be disclosed.
22. Having observed that, prima facie, there does not appear to be
applicability of Section
2(c) of the Act of 1978 and the provisions of the Reserve
Bank of India Act mentioned in the FIR there will be no need to make
comments with regard to that aspect of the case. However, with a view to
that applicability of Section 2(c) of the Act of 1978 is a highly
debatable issue we would like to
mention that it has been urged by the learned
counsel appearing for the petitioners that money circulation scheme is a scheme
for making of quick or easy money, or for the receipt of any money or valuable
thing as the consideration for
a promise to pay money, on any event or
contingency relative or applicable to the enrolment of members into
Unless, the petitioners had promised the unit holders that they would be paid
double their money dependent
upon enrolment of other members, the case
would not be covered under money circulation scheme as defined under
W.P.(C) No.12775/2006, etc. 35
2(c) of the Act of 1978. Petitioners had made no promise
to the unit holders that
double the money would be paid to them for which enrolment of other members
would be essential.
There was no mutuality between the petitioners and the unit
holders with regard to enrolment of more members into the scheme
and thus the
activity carried out by the petitioners would not be of money circulation scheme,
contends the learned counsel.
With a view to appreciate this contention it will be
useful to reproduce the definition of 'money circulation
scheme' as given in
Section 2(c) of the Act of 1978 and the same reads as follows:
"(c) "money circulation scheme" means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the 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;" From the bare language employed in the definition of 'money circulation scheme' the contention of the learned counsel for the petitioners does not appear to be correct. In the endeavour to make quick or easy money or for the receipt of any money or valuable thing the consideration of course has to be a promise to pay money. After the words 'the consideration for a promise to pay money' the mention of the words 'on any event or contingency relative or applicable to the enrolment of members into the scheme' , would not show that there has to be W.P.(C) No.12775/2006, etc. 36 mutuality between the one who floats a scheme and the person to whom promise to pay money is made with regard to enrolment of more members. The mutuality appears only to be in paying the money. Learned counsel appearing for the petitioners, however, supports the aforesaid contention placing reliance upon the decision of the Supreme Court in State of West Bengal and others v. Swapan Kumar Guha and others (supra). The main judgment in the case aforesaid has been prepared by the Hon'ble Justice A.N.Sen, as he then was. Justice Y.V.Chandrachud, the Hon'ble Chief Justice, as he then was, even though agreed with the view expressed by Justice A.N.Sen, prepared a separate judgment. The Hon'ble Justice A.Varadarajan, as he then was, agreed with the view expressed by Chief Justice Y.V.Chandrachud. Reliance placed by the learned counsel as noted above is on the judgment prepared by Chief Justice Y.V.Chandrachud. The FIR subject matter of quashing in the said case was that Sanchaita Investments was carrying on business of promoting and/or conducting prize chit and/or money circulation scheme and 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 Act of 1978. From the enquiry made, it revealed that the said Sanchaita Investments is a partnership firm, partners being Shri Bihari Lal Murarka, Shri.Shambhu Prasad Mukherjee and Shri.Swapan Kumar Guha and that it was W.P.(C) No.12775/2006, etc. 37 floated in or around 1975. The said firm had been offering fabulous interest at the rate of 48 per cent per annum to its members until very recently. The rate of interest had of late been reduced to 36 per cent per annum. Such high rates of interest were being paid even though the loan certificate receipts show the rate of interest to be 12 per cent only. Thus, the amount in excess of 12 per cent 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. The gravamen of accusation against the accused was that they were conducting a 'money circulation scheme'. Reference in the FIR was to prize chits. The short question for consideration arising out of the FIR was as to whether the accused were conducting money circulation scheme. In the context of the language employed in Section 2(c) of the Act of 1978 it was observed that it was impossible to take clause (c) to mean that any and every activity for the making of quick or easy money would be comprehended within its scope. 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, observed the Honourable Supreme Court. It was then observed that firstly 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 W.P.(C) No.12775/2006, etc. 38 enrolment of members into that scheme. In so far as the observations as mentioned above are concerned, the same would pose no difficulty in returning a finding with regard to the applicability of the 'money circulation scheme' to the scheme adopted by the petitioners. The Honourable Supreme Court, however, focussed its attention to the aim of the Act which was for banning a money circulation scheme. 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 is a systematic programme for attaining some object and the said systematic programme 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 enrolment of members into the programme. Reciprocally, the person promoting or conducting the programme promises, on receipt of an advance or loan, to pay more money on the happening of such event or contingency.
23. It was further observed that there was 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 W.P.(C) No.12775/2006, etc. 39 relative or applicable to the enrolment of members into it. These are the observations which have been relied upon by the learned counsel for the petitioners to assert that the promise to pay money is in an event or contingency relative or applicable to the enrolment of its members and to this agreement the subscriber has to be a party.
24. Mr.M.Ajay, learned Senior Government Pleader, on the other hand contends that the language employed in the statute or for that matter even the observations made by the Honourable Supreme Court relied upon by the learned counsel for the petitioners cannot be interpreted to mean that there has to be a promise or agreement between the promoter and the subscriber that the money promised to be paid to the subscriber will depend upon enrolment of new members and that in any case, mutuality would not go beyond the understanding on the part of the subscriber that he would get the promised money on enrolment of new members without there being any promise extended and agreed to. Learned Government Pleader further contends that even if the contention of the learned counsel for the petitioners may be accepted, the various documents collected during the investigation and in particular the advertisement made by the petitioners would clearly suggest that they had promised the subscribers to pay double the money on enrolment of new members, and once, the subscribers had acted upon the advertisement in writing, there was indeed a mutuality with regard to payment on enrolment of new members as made out and therefore, W.P.(C) No.12775/2006, etc. 40 even if the contention of the learned counsel, as mentioned above, is accepted, the ingredients of the offence are complete.
25. In his endeavour to show mutuality of enrolment of fresh members to be made out from the advertisement, reference has been made to Ext.R4(b) an advertisement issued by the concern of the petitioners. Under the caption 'What you have to do!' it has been mentioned as follows: "Love your neighbors as you love yourself, and wish them for their prosperity!". Underneath is writing 'And to show that you are sincere in it, after joining yourself in Deepasthambham Project - AM or Deepasthambham Project - PM., You enroll two of them, to follow suit at the earliest'. Learned Government Pleader also refers to a write up issued by the concern of the petitioners Ext.R3(s). In the column 'Now the detailed working of LIS - DSP - which gives more than 100% gain', it inter alia has been mentioned as follows: "At present it happens within 8 months. In future normally the period will be getting longer and longer. But with 10% growth in the number of new members, within 2 years one will get back his amount and equal amount as commission." Even though the counsel for the petitioners also relied on the same document under the column 'Is not money chain activity' and to its answer No' given under the said column states that it is not a scheme for "easy making of money" for entrepreneurs; and there is no contract between the entrepreneurs and a member for enrolling more members.
26. In so far as the rival contentions of the learned counsel based upon
W.P.(C) No.12775/2006, etc.
the judgment of the Honourable Supreme Court in State of West Bengal and
others v. Swapan Kumar Guha and
others (supra) are concerned, we may
mention that the observations made therein that the depositors and
promoters are animated by a community of interest in the matter of the scheme
being dependent upon any event or contingency
relatable or applicable to the
enrolment of members into it does not mean that such mutuality may
writing or by a definite promise. Such mutuality even if required may be spelt
out from the conduct
of the parties discernible on number of factors such as
advertisements made by the petitioners
in writing or through medias like
newspapers, television, etc. As to whether this mtuality is spelt out from
various documents relied upon by the investigating agency, or the members
were told at the time of
buying units that double the amount shall be paid to them
on enrolment of new members, is in the realm of evidence and no finding
be given on this issue at this initial stage when so far statements of relevant
witnesses which may throw
light on this aspect of the matter are yet to be
recorded. The conclusion that may be drawn at this
stage, at the most can be
relating to prima facie applicability or non-applicability of the ingredients
various offences listed against the petitioners under various statutes as
mentioned above. Prima
facie, it appears to us that whereas there may be no
applicability of the offence described/defined in section 2(e) of the Act
and therefore there may not be any applicability of Sections 3, 4 and 5(c)(i) of
W.P.(C) No.12775/2006, etc.
the said Act, the applicability of Section 2(c) is debatable and in so far as the
second limb of
applicability of the above mentioned Act is concerned, the same
would depend upon interpretation of documents and
the statements of the
persons which may be recorded by the investigating officer. As mentioned
above, in so far as the various sections mentioned in the FIR with regard to the
Reserve Bank of India Act are concerned,
the same would not be prima facie
applicable even though, ingredients of Section 420 of the Indian Penal
again appear to be prima facie applicable. It may be recalled that all that has
been urged with regard to non-applicability
of Section 420 of the Indian Penal
Code is that offence of cheating cannot co-exist with the offence under Sections
4 and 5(c)(i) of the Act of 1978. Assuming it to be so, if Sections 3, 4 and 5(c)
(i) of the Act of 1978 may not be applicable
by virtue of the definition of 'money
circulation scheme' and 'prize chit' as given in Section 2(c) and
respectively, that would not mean that Section 420 of the Indian Penal Code
would not be applicable
and to that extent there is not even a contention made
by the learned counsel for the petitioners. Cheating has been defined
415 of the Indian Penal Code. The same reads as follows:
"415. Cheating.-- Whoever, by deceiving
fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm W.P.(C) No.12775/2006, etc. 43 to that person in body, mind, reputation or property, is said to "cheat". It is significant to note that a damage that is likely to be caused is also covered under the kind of act or omission as mentioned in Section 415 of the Indian Penal Code. It is therefore not necessary that members who might have been enrolled presently may suffer any damage, but if those members who are enrolled later are likely to suffer damage the case would prima facie fall under Section 415 of the Indian Penal Code. The very fact that the scheme as envisaged and floated by the petitioners is a mathematical impossibility, even assuming that Section 2(c) of the Act of 1978 may not be applicable, the ingredients of cheating as given in Section 420 of the Indian Penal Code at least would be prima facie made out. It may not be appropriate for us to state what other offences would be made out, but the fact that a number of persons who may in ultimate analysis lose all their money would prima facie disclose commission of some offence. It is relevant at this stage to mention that one of the persons is said to have deposited Rs.193,10,00,000/- with the petitioners which of course is a disputed fact. If the said person might have actually invested with the petitioners all his money and may lose it in due course can it be said that prima facie no offence has been committed by the petitioners? If such persons who in any case have admittedly invested money by taking units in the W.P.(C) No.12775/2006, etc. 44 hope of doubling it are ultimately to lose their entire investment, can it be said that those who have collected money from them by extending a definite promise to give double the amount to them, have not committed any offence? It appears to this Court that such activity carried on in a larger and massive scale resulting into non-payment of the promised amount to the subscribers would prima facie be an offence. 27. The investigation is in its infancy. The police is in the process of collecting documents. It has still to record statement of witnesses some of whom would be certainly persons who have invested money. It is not essential for the prosecution to ultimately submit a report under Section 173 only under the offences mentioned in the FIR. The investigating officer, on completion of the investigation and while submitting a report may in his wisdom seek prosecution of the petitioners for some of the offences mentioned in the FIR and delete the others. He may also make some additions to the offences that are already mentioned in the FIR. In the ultimate analysis, the investigating officer may seek prosecution under such offences which may indeed be disclosed from the FIR and other accompanying documents and statements under Section 161 of the Indian Penal Code. In a situation as mentioned above, it would not be appropriate to quash the FIR on the only ground that some of the offences mentioned in the FIR ultimately may not be proved against the petitioners.
28. Learned Senior Advocate Mr.U.U.Lalith appearing for the petitioners
W.P.(C) No.12775/2006, etc.
seeking quashing of the FIR, however, placed reliance upon a judgment of the
Honourable Supreme Court in
State of Haryana and others v. Ch.Bhajan Lal
and others (AIR 1992 SC 604). In the judicial precedent cited by the learned
counsel the Honourable Supreme Court culled out the following categories of
cases where the High Court
may in exercise of powers under Article 226 of the
Constitution or under Section 482 of the Code of Criminal
interfere in proceedings relating to cognizable offences to prevent abuse of the
process of any Court
or otherwise to secure the ends of justice:
"1) Where the allegations made in the First Information Report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. 2) Where the allegations in the First Information Report and other materials, if any, accompanying the F.I.R. do not disclose a cognizable offence, justifying an investigation by police officers under S.156(1) of the Code except under an order of a Magistrate within the purview of S.155(2) of the Code. 3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. 4) Where, the allegations in the F.I.R. do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under S.155(2) of the Code. 5) Where the allegations made in the FIR or complaint W.P.(C) No.12775/2006, etc. 46 are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused. 6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party. 7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge." It is urged that the case would fall under categories 1 and 3. However, we find no merit in the contention of the learned counsel in view of our observation made above that it is not a case where the petitioners may be able to urge that even if the allegations made in the First Information Report are taken at their face value and accepted in their entirety it would not constitute prima facie any offence. It is not a case where it could be said that the allegations contained in the FIR and other materials would not constitute any offence (emphasis supplied). We have already held that even if some of the offences as mentioned in the FIR may not be made out as per the allegations contained in the FIR and accompanying materials, but when it may appear that the said allegations would constitute some of the offences mentioned in the FIR or some other offences with which W.P.(C) No.12775/2006, etc. 47 the petitioners may be ultimately sent for trial by the investigating agency, it would not be a case for quashing the FIR. We are of the view, that this Court at this stage should not give a decision as to whether on the basis of the FIR and the connected materials no offence is disclosed to have been committed by the petitioners. The facts at this stage are incomplete and hazy. Entire evidence has not been collected and produced before the Court and the issues involved, whether factual or legal, are of magnitude and cannot be seen in their true perspective without sufficient material. In Janata Dal v. H.S.Chowdhary and others, AIR 1993 SC 892, the Supreme Court held that the inherent power conferred by Section 482 of the Code of Criminal Procedure should not be exercised to stifle a legitimate prosecution. The High Court being the highest Court of a State should normally refrain from giving a premature decision in a case wherein the entire facts are extremely incomplete and hazy, more so when the evidence has not been collected and produced before the Court and the issues involved whether factual or legal are of great magnitude and cannot be seen in their true perspective without sufficient material. This view has been reiterated by the Supreme Court in State of Karnataka v. M.Devendrappa and another, (2002) 3 SCC 89. In view of the discussions made above we do not find any merit in any of the petitions subject matter of decision by this common order. The same are W.P.(C) No.12775/2006, etc. 48 thus dismissed. Even while dismissing the petitions we are of the view that in totality of the facts and circumstances of the case and in particular if the version of the petitioners may be correct and they may ultimately be able to demonstrate that the scheme flouted by them is practicable, delay in this matter would completely destroy the business of the petitioners, we order that the investigating agency and officers conducting the investigation in this case would submit the report after investigation if they find commission of cognizable offences by the petitioners within a period of two months from today. We would like to mention here that the order closing the business of the petitioners was issued on 10.5.2006 and the First Information Report came to be launched on the same date. While issuing notice in these cases we have not stayed the investigation. That being so, a period of two months more from today should be sufficient for the investigating agency to complete the investigation and submit the report. We further order that within a month from the date the report is put up in the Court, the Magistrate or the Sessions Judge before whom the report may be put up, would frame the charges and at that stage when the prosecution would have collected the entire evidence the concerned Court would apply its mind to all the contentions that have been raised before us or that may be further made by the petitioners, and by a speaking order the Court will hold that the offences with which the petitioners may be ultimately put to trial have been made out or not. We further observe that none of the observations/findings given by us in this W.P.(C) No.12775/2006, etc. 49 order would be construed as expression of opinion on the merits of the controversy and the concerned Court would frame charges against the petitioners being totally uninfluenced of such observations or findings. All the observations and findings are made or given only for the purpose of W.P.(C) No.12775/2006, etc. 50 deciding the writ petitions or the criminal miscellaneous case. In the peculiar facts and circumstances of the case there will be no order as to costs. Sd/- V.K. BALI, CHIEF JUSTICE. Sd/- P.R.RAMAN,
JUDGE.vns / true copy / P.S. to Judge
Double Click on any word for its dictionary meaning or to get reference material on it.