ivil 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 section C Birla for the Appellants in CA 112981 and CA 113081 128 AR Sen For r1 in CA 113081 section section Ray For r2 in CA
113081 Kapil Sibal For r1 in C A 112981 B Gupta  TR Bose for r1 in CA
113081 and Rathin Das with them
SS Ray For r 6 Tarun Kumar Bose D Mandal Miss Bina Gunpta  OP 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 AN 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 FIR 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 5211930
The short question for consideration in these appeals by special leave is whether the FIR Lodged by the commercial Tax officer 129 Bureau of Investigation against the firm and its partners discloses an offence under section 3 of The  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 FIR  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 andor conducting prize chit andor money circulation scheme enrolling members of such chit andor scheme participating in those andor receiving and remit ting monies in pursuance of such chits andor 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 andor easy money
Prizes andor 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 lBanning 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 FIR is riddled with the andor 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 FIR 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 FIR 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 2c 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 re 132 cognised traditionally as noble who make quite quick money by the use of their talents acumen and experience acquired over the years by dint of hard work and industry
A lawyer who charges a thousand rupees for a Special Leave Petition lasting five minutes that is as far as a Judge s imagination can go a doctor who charges a couple of thousands for an operation of tonsillitis lasting ten minutes an engineer an architect a chartered accountant and other professionals who charge likewise cannot by any stretch of imagination be brought into the dragnet of clause c Similarly there are many other vocations and business activities in which of late people have been notoriously making quick money as for example the builders and real estate brokers
I cannot accept that the provisions of clause c are directed against any of these J categories of persons
I do not suggest that law is powerless to reach easy or quick money and if it wills to reach it it can find a way to do it
But the point of the matter is that it will verge upon the ludicrous to say that the weapon devised by law to ban the making of quick or easy money is the provision contained in section 2c of the 
In order to give meaning and content to the definition of the expression money circulation scheme  which is contained in section 2c 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 2c 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 FIR 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 FIR 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 FIR 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 FIR 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 andor efflux of time which are very much relative andor applicable to the membership of the depositors of the scheme to which the depositor agrees to subscribe and x In the process of its working the scheme of the firm generates quick and easy money so as to render such scheme or arrangement a money circulation scheme  within the meaning of the Act
The Assistant Commissioner of Police Shri Sunil Kumar Chakravarty has adopted these pleas and statements in his own affidavit It is clear from these averments that even at the stage when the State of West Bengal and its concerned officers submitted detailed affidavits to the High Court there was no clear basis for alleging and no material was disclosed to show that prima facie the firm was promoting or conducting a scheme for making quick or easy money which was dependent upon an event or contingency relative or applicable to the enrollment of members into that scheme
The burden of the State s song is that the scheme conducted by the accused generates black money and will paralyse the economy of the country
These are serious matters indeed and it is unquestionable that a private party cannot be permitted to issue bearer bonds by the back door
The fact that the accused are indulging in an economic activity which is highly detrimental to national interests is a matter which must engage the prompt any serious attention of the State and Central Governments
But the narrow question for our consideration is whether on the basis of the allegations made against the accused there is reason to suspect that 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 andor efflux of time which are very much relative andor 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 2c 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 AN 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 WH King vs 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 vs MU 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 2c is in my opinion clear and admits of no doubt or difficulty
In RP Kapur vs 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 FIR 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 FIR
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 SN Sharma vs 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 article 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 vs SN 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 FIR 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 vs 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 FIR 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 vs 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 FIR 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 FIR 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 AN Sen is that the condition precedent to the commencement of investigation under section 157 of the Code is that the FIR 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 FIR 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 FIR 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 vs 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 AN 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 FIR 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 too issue a suitable corrigendum which the firm did
On July 6 1979 Shri Rudolph L Rodrigues a Member of the Lok Sabha wrote a confidential letter to Shri Charan Singh the then Deputy Prime Minister complaining that the business of the firm 144 was a cover up for a parallel banking system for black money
A copy of Shri Rodrigues  letter was forwarded by the Director Department of Economic Affairs Ministry of Finance to the Chief Officer Department of Non Banking Companies Reserve Bank of India Calcutta for inquiry
By his letter dated August 7 1979 the Chief officer pointed out the difficulty in directing investigation into the affairs of the firm since its capital being less than Rs One lakh it did not come within the definition of a Non Banking institution as provided in section 54 c of the 
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 KS 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 
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 FIR 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 4216530 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 995000 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 735123000 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 10000 or less each comes to Rs 114940950 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 61980 all deposits being in cash
Such cash deposits varied often between 50 to 80 lacs at a time
The amount of nearly Rs 28 crores was withdrawn from the account steadily from November 11 1980
The account was closed on December 6 1980 that is a week before the FIR was lodged on December 13 1980
Some of the entries in the pass book do not tally with the Bank s Ledger
A study of Current Account No S 5O2 in the name of the firm with the United Bank of India High Court Branch Calcutta shows that the firm had invested several lacs of rupees in various concerns numbering about forty
Lacs of rupees have been transferred by the firm to various concerns
Documents seized from the office premises of the firm show that the partners and their family members are insured with the LIC in heavy amounts
They have acquired large properties particularly in Bombay
147 Several offices and concerns in Bombay were searched by the police and interesting discoveries were made
Their magnitude and variety are too large for the scope of this judgment
I will close this narrative by saying that the income tax returns of Shambhu Prosad Mukherjee reveal that he had shown a sum of Rs 800000 as prizes received from Delhi Lotteries in 1979 and that the firm has not filed any income tax return after the financial year ending June 30 1977
It had asked for an extension of time on the ground that its accounts were not finalised but the Department rejected that prayer on December 9 1980
With further indulgence they have managed cleverly to secure is not yet known
These facts disclose a bizzare state of affairs
A token capital of Rs 7000 has begotten a wealth of crores of rupees within a span of five years
A bank account opened by the firm in a fictitious name had a sum of Rs twenty eight crores in it which was withdrawn within a week before the lodging of the FIR Interest was being paid to depositors at the incredible rate of 48 pc pa
The firm had no ostensible source of income from which such exorbitant amounts could be paid and its account books such as were seized from its head office give no clue to its income or its assets
The partners of the firm have become millionaires overnight
Clerks and Chemists that they and some of their agents were in 1975 to day they own properties which will put a prince to shame
Rags to riches is how one may justly describe this story of quick and easy enrichment
There is no question that this vast wealth has been acquired by the firm by generating and circulating black money
Indeed rightly did Shri Ashok Sen appearing for the firm ask us to be free to proceed on the assumption that the exorbitant amount of interest was being Paid from out of unaccounted money
In these circumstances though I see no alternative save to stop all further investigation on the basis of the FIR as laid no offence being disclosed by it under section 4 of the Act I am unable to accept the contention of Shri Ashok Sen that all documents books papers and cash seized so far during the investigation should be returned to the firm and its partners forthwith
The firm appears to be on the brink of an economic crisis as any scheme of this nature is eventually bound to be
Considering the manner in which the firm has manipulated its accounts and its affairs I have no doubt that it will secret the large funds and destroy the incriminating documents if they are returned to it
The State Government 148 the Central Government and the Reserve Bank of India must be given a reasonable opportunity to see if it is possible under the law to institute an inquiry into the affairs of the firm and in the mean while to regulate its affairs
I consider such a step essential in the interests of countless small depositors who otherwise will be ruined by being deprived of their life s savings
The big black money bosses will take any loss within their stride but the small man must receive the protection of the State which must see to it that the small dopositors are paid back their deposits with the agreed interest as quickly as possible
I therefore direct that the documents books papers cash and other articles seized during the investigation shall be retained by the police in their custody for a period of two months from to day and will be returned on the expiry of that period to persons from whom they were seized subject to any lawful directions which may be given or obtained in the meanwhile regarding their custody and return
With this modification I agree respectfully with Brother AN Sen that the appeals be dismissed
VARADARAJAN J
I agree with the judgment and the final order proposed by the learned Chief Justice
AMARENDRA NATH SEN J
This appeal by special leave has been filed by the State of West Bengal and three officers of the State against an order passed by a learned single Judge of the Calcutta High Court
The facts material for the purpose of this appeal have been fully set out in the judgment of the learned single Judge of the Calcutta High Court
The facts material for the purpose of this appeal may however be briefly indicated  Sanchaita Investments is a partnership firm duly registered under the Indian Partnership Act
Sanchaita Investments hereinafter referred to as the firm has its principal place of business at Nos 5 and 6 Fancy Lane Calcutta
Shambhu Prasad Mukherjee Bihari Lal Murarka and Swapan Kumar Guha are the three partners of the Firm
The capital of the partnership firm is Rs 7000 
The firm carries on the business as financiers and investors and in its business the firm accepts loans or deposits from the general public for different periods repayable with interest  12 per annum
Under the terms of deposits the depositors have a right to withdraw their deposits with the firm at any time before the expiry of the fixed 149 period of the deposit
In case of premature withdrawal the depositors however loses interest of 1 and is paid interest  11 per annum
Under the terms and conditions of the deposits the firm has also the liberty to repay the amount with interest to any depositor at any time before the expiry of the stipulated period of the deposit and in the event of such repayment by the firm the firm is not required under the terms and conditions of the deposit or loan to give any reason
It appears that the firm has been carrying on its business on a very extensive scale
In the year 1978 the Parliament passed an Act called the hereinafter referred to as the Act
On the 13th December 1980 the Commercial Tax Officer Bureau of Investigation lodged a complaint of violation of the Act by the firm with the Police
The FIR has been set out in full in the judgment of the learned Trial Judge and the same reads as follows   13121980 The Deputy Superintendent of Police Bureau of Investigation 10 Madras Street
Calcutta 72 Sir On a secret information that Sanchaita Investments  of 5 and 6 Fancy Lane Calcutta is carrying on business of promoting andor conducting prize chit andor money circulation scheme enrolling members of such chit andor scheme participating in these andor receiving and remitting monies in pursuance of such chits andor scheme in violation of the provisions of the prize chits and money circulation scheme Banning Act 1978
Inquiry was held secretly to verify correctness or otherwise of the aforesaid secret information
enquiry reveals that the said Sanchita Investments  is a Partnership firm partners being Shri Bihari Prasad Murarka Shri Sambhu Mukherjee and Swapan Kumar Guha and that it was floated in or around 150 1975
Enquiry further reveals that the said firm had been offering fabulous interest  48 per annum to its members until very recently
The rate of interest has of late been reduced to 36 per annum
Such high rates of interest were and are being paid even though the loan certificate receipts show the rate of interest to be 12 only
Thus the amount in excess of 12 so paid clearly shows that the Money Circulation Scheme  is being promoted and conducted for the making of quick andor easy money prizes andor gifts in cash were and are also awarded to agents promoters and members too
In view of the above Saravsree Bihari Prasad Murarka Sambhu Prasad Mukherjee and Swapan Kumar Guha appear to have been carrying on business in the trade name of Sanchaita Investments  in prize chits and money circulation scheme in violation of section 3 of the Prize Chits and Money Circulation Scheme Banning Act 1976 are therefore punishable under section 4 of the said Act
Necessary action may therefore be kindly taken against the aforesaid offenders along with other accomplice as provided in the law
Yours faithfully Sd Illegible 13121980 Commercial Tax Officer Bureau of Investigation
 On the 13th of December two of the partners of the firm were arrested
The office of the firm and also the houses of the partners were searched
Various documents and papers were seized and a large amount of cash was also seized from the office and also from the residence of one of the partners
Two partners who were arrested were however thereafter enlarged on bail
The firm and its two partners namely Shambhu Prasad Mukherjee and Bihari Lal Murarka filed this writ petition in the High Court challenging the validity of the FIR and the proceedings arising out of the same including the validity of the searches 151 and seizure of documents papers and cash
The respondents in the writ petition were six
The first respondent was the State of West Bengal Respondents No 2 was the officer who had lodged the FIR  Respondent No 3 was the Assistant Commissioner of Police and Superintendent of Police Bureau of Investigation and respondent No 4 was the Investigating officer in the cases pending before the Chief Metropolitan Magistrate Calcutta
Respondent No S was the Reserve Bank of India and Respondent No 6 was the Union of India
In brief the case made by the firm and its partners in the writ petition is that the firm is a non banking financial institution which carries on business of accepting deposits or loans from the general public on terms and conditions mentioned in the agreement of loan or deposit pays interest to persons who invest or advance money to the firm in terms of the agreement between the parties and repays all amounts received from the parties with interest in terms of the agreement between the parties
The further case made by the writ petitioners in the writ petition is that the amounts which they receive from parties are reinvested by them and out of the investments made by the firm the firm pays the interest to the depositors and also the principal amount deposited by them in terms of the agreement between the parties
In the writ petition there is a denial of the allegations made in the FIR and the case is further made that even if the allegations made in the FIR are assumed to be correct there cannot be any question of any violation of the Act and no offence under the Act is disclosed
It is the positive case of the writ petitioners in the writ petition that the Act has no application to the firm
In the writ petition the validity of the FIR and the proceeding arising therefrom is challenged mainly on the ground that the FIR does not disclose any offence under the Act which does not apply to the firm and there can be question of any violation of any provisions of the Act which has no application to the firm at all
In answer to the averments made in writ petition an affidavit affirmed by Shri Arun Kanti Roy was filed on behalf of respondent Nos 1 and 2 an affidavit affirmed by Shri Sunil Kumar Chakravorty on behalf of respondents Nos 3 and 4 was filed and an affidavit affirmed by Shri Rani Annaji Rao on behalf of the Reserve Bank of India was also filed
In the affidavit affirmed by Arun Kanti Roy Deputy Secretary Finance Department and Ex officio Director 152 of Small Savings Government of West Bengal on behalf of Respondents No 1 and 2 that is the State of West Bengal and Shri BK Kundu there is an assertion that the Respondents come within the mischief of the Act and they have violated section 3 of the Act
The relevant averments are contained in paragraphs 6 7 8 and 9 of the said affidavit and it is necessary to set out the same in their entirety 6
With reference to paragraphs 3 and 4 of the petition I say that the petitioner firm accepts loans andor deposits from all and sundry for varying periods without any authority of law
Although the professed rate of interest of such deposit is at the rate of 12 per annum the petitioner firm was actually paying interest at the rate of 48 per annum which was recently reduced to 36 per annum
The actual payment of such high rate of interest against the professed rate of 12 attracts huge amount of idle money into circulation and the investment of money as collected is not under the regulatory control of the Reserve Bank of India or any other agency of the State dealing with credit control in relation to the country s economy
The receipt of such money from the members of public at such high rate of interest is without any fetters as against the case of the receipt of money by banking companies as also non banking companies which are regulated under different provisions of law to which I will crave reference at the time of hearing if necessary The pooling of the purchasing power andor the financial resources and the employment thereof being unfettered has resulted in the concentration of tremendous economic power in the hands of a few posing a potential threat to the equilibrium of the country s economy
The term of the deposit are unilaterally determined without any scrutiny by the Reserve Bank of India or with reference to the norms as to the credit control which the said Bank lays down and follows from time to time
The acceptances of such deposits from the members of public with unrestricted use of the moneys so collected are completely repugnant to the accepted modes of public savings and investment thereof for generation of goods and services contributing to the economic growth of the country
The entire process is 153 speculative in nature and directed towards luring away the investing public to the speculative market for making quick and easy money
These are some of the activities which are sought to be banned by the banning provisions of the said Act which has replaced similar regulatory measures contained in the several directions issued by the Reserve Bank of India under the  to the various financial institutions and non banking companies
The present Act is applicable not only to such companies but also to individuals and firms
All allegations contrary to and save as aforesaid are denied
With reference to paragraph 5 of the petition I call upon the petitioner to disclose full particulars of their deposit scheme which is disclosed will go to show that the terms and conditions are wholly arbitrary and contrary to the economic norms
The very basis of the so called contractual arrangement between the petitioner firm and its depositors is founded on the fraudulent device to assure the people with a high rate of interest the major portion of which is paid through unaccounted for money thereby encouraging growth of such unaccounted for money in the hands of the investing public
The professed rate of interest is a mere subterfuge to provide a cloak of bona fide and legality over the under hand transactions through which unaccounted for money comes into play in the market generating further unaccounted for money a part thereof goes back to the depositors in the form of the balance of interest over 12 paid in cash month by month
All allegations contrary to and save as aforesaid are denied
With reference to paragraph 8 of the petition I say that the petitioners have been very much working on the above scheme to which the depositors have subscribed
Whether such deposits are one time deposits and whether such deposits actually earn income in excess of the interest actually paid to the depositors or a matter of detailed investigation which were in progress until the same was stopped by the order of the learned Court of Appeal passed on 8th January 1981
From whatever particulars are so far available to the answering respondents it can be 154 stated that the firm did not have so much income as the quantum of interest that was being paid by it and the irresistible conclusion from such state of affairs is that payment of interest was being made out of capital itself
All allegations contrary to and save as aforesaid are denied
With reference to paragraph 7 of the petition I reiterate the statements made hereinbefore and deny all allegations contrary thereto
I specifically deny that no quick or easy money is accepted or received by the depositors or lenders or that payment of any such money is not contemplated or made by the firm as purported to be alleged
The depositor becomes a member of the investment scheme of the company by subscribing to it and the payment of the quick and easy money by way of high rate of interest is dependent upon the period of investment andor efflux of time which are very much relative andor applicable to the membership of the depositors of the scheme to which the depositor agrees to subscribe
In the process of its working the scheme of the firm generates quick and easy money so as to render such scheme or arrangement as a money circulation scheme within the meaning of the said Act
All allegations contrary to and save as aforesaid are denied
The following further averments contained in paragraph 22 and in paragraph 30 of the said affidavit may also be noted 22  
I further say that payment of interest at the clandestine rate of 36 or 46 as against the aforesaid rate of 12 is in the context of the scheme promoted and conducted by the petitioners tantamount to activity which is banned under the banking provisions of the said Act
30  
No question of the depositors being ruined should arise if the petitioners had been running their business on sound economic line and had invested the fund collected from the depositors in safe and sound investment
The 155 very fact that the petitioners are apprehensive of innumerable depositors being ruined goes to show that they engaged themselves and also the depositors in the speculative market and have rendered the investment insecure by reasons of the very nature of the business ie money circulation scheme transacted by them
In the affidavit affirmed by Shri Sunil Kumar Chakraverty Assistant Commissioner of Police and Deputy Superintendent of Police Bureau of Investigation Government of West Bengal Finance Taxation Department and filed on behalf of Respondents Nos 3 and 4 the deponent adopts the statements made in the affidavit of Arun Kanti Roy and the deponent denies that the searches and seizures were unlawful and illegal
The deponent further stated that as a result of the searches effected a mass of documents and a large amount of cash had been seized and the documents were being scrutinised
In the affidavit affirmed by Shri Rani Annaji Rao filed on behalf of Reserve Bank of India the deponent has stated that the Reserve Bank of India which has no regulatory control over the firm has been unnecessarily made a party to the proceeding
It has been further stated in the said affidavit that as desired by the parties and the Court the Reserve Bank of India was placing the materials which had come to the knowledge of the Reserve Bank
In this affidavit reference has been made to certain correspondence between the State Finance Minister Union Finance Minister and the Deputy Governor of the Reserve Bank of India and also to various queries made and the enquiries made by the Reserve Bank of India
It has been further stated that the view of the legal department of the Reserve Bank on the basis of the enquiries made had Been indicated to the Finance Minister of the State of West Bengal
In this connection it will be relevant to set out two letters which have been annexed to the said affidavit filed on behalf of the Reserve Bank of India and are annexures and thereto
Annexure is the copy of a letter addressed by Shri Ashok Mitra State Finance Minister to the Union Minister for Finance and the said letter reads as follows Informally handed over to DG K at Calcutta
Ashok Mitra DO No IM
28 2 80 Calcutta October 1 1980 156 Dear Shri Venkataraman In the context of the action being taken by the Government of West Bengal under the  a question has arisen whether an organisation called Sanchaita Investments with the address at 5  6 Fancy Lane Calcutta 1 come within the purview of the above Act
A reference in the matter has been made by our authorised officer under the above act to the Chief officer Department of Non
Banking Companies Reserve Bank of India Calcutta today
I am enclosing a copy of an advertisement published by the above organisation in the local newspapers as also a copy of a loan certificate receipt issued by the said organisation
I may mention that the authorised officer has issued notice under the above Act to a Sanchaita Savings Scheme P Ltd which is to be distinguished  from Sanchaita Investments 
It appears that the organisation called Sanchaita Investments is receiving large amount of monies from the public ostensibly as loans and in lieu they are issuing loan certificates receipts
While we have no documentary evidence the news is strongly circulating in the market that the organisation is in fact offering rates of interest as high as 30 to 40 per cent even though the loan certificate receipts indicate a rate of interest of 12 per cent only
There seems reasonable grounds for suspicion that this organisation is involved in extremely high risk investments which only can enable them to pay such rates of interest
Since the security of monies deposited by the public is involved we would suggest that a thorough enquiry be conducted by the Government of India into the activities of this organisation particularly for finding out whether they are infringing provisions of any relevant status
It is felt necessary to conduct such an investigation on an urgent basis since large amounts of public monies are reported to be kept with this organisation which does not seem as yet to have subjected to any regulatory control
We are meanwhile awaiting a reply to our reference copy enclosed to the Reserve Bank of India regarding the applicability of the to this organisation
157 With regards Yours sincerely Sd Ashok Mitra Shri RV Venkataraman Union Minister for Finance North Block New Delhi 110001 Annexure is a letter by Shri KS Krishnaswamy Deputy Governor of Reserve Bank to Dr Ashok Mitra State Finance Ministry
The said letter is also here further set out DO DNBC No 2020102 Gen LO 8081 22nd Oct 1980 Sanchaita Investments My Dear Ashok You might recall that during my recent visit to Calcutta you had sent me a copy of your o Letter dated October 1 1980 to Shri Venkataraman Union Minister for Finance as also of a letter dated September 30 1980 addressed to our Chief Officer DNBC Calcutta in connection with the above firm
I have had the position examined by our Legal Department
According to them vide extract of the note dated 17th October 1980 enclosed for your confidential information the acceptance of loans simpliciter by the firm by issue of receipts as per the specimen received by us from our Calcutta Office without floating any scheme or arrangement would not ordinarily be covered by the definition of Prize Chit and hit by the provisions of the Prize Chits and Money Circulation Scheme Banning Act 1978
However you may also like to consult your Legal Adviser on the subject 2
As you may know there are a few writ petitions pending in the Calcutta High Court where the interpreta 158 tion of section 2 e of the Banning Act is involved
In that context I have thought it advisable to write to you on a confidential basis rather than send a separate official reply
I shall therefore be grateful if you could leave instructions with your staff to keep this matter and the views of our legal department strictly confidential
With warm regards Sd KS Krishnaswamy Dr Ashok Mitra Minister of Finance Further supplementary affidavits had also been filed
On consideration of the facts and circumstances of this case and the materials which were placed before the learned Judge the learned Judge came to the conclusion that the Act did not apply to the firm and the learned Judge further held that the searches and seizures were also wrongful illegal and improper and in view of his finding the learned Judge quashed the proceedings and directed the return of all documents and the refund of cash monies seized to the writ petitioners
It appears from the judgment of the learned Judge that the matter had been very fully argued before him and the learned Judge in an elaborate judgment had considered the arguments advanced before him and thereupon recorded his findings and passed the order allowing the said writ petition
Against the judgment and order passed by the learned Judge the State of West Bengal and its three officers have preferred this appeal with special leave granted by this Court
The writ petitioners the Reserve Bank of India and Union of India have been made respondents in this appeal
It does not appear that Union of India has participated in the proceedings before the learned Judge and no affidavit on behalf of the Union of India appears to have been filed before the learned Judge
Mr Som Nath Chatterjee learned counsel appearing on behalf of the appellant has attached the judgment under appeal on the main ground that the learned Judge in this extraordinary jurisdiction should not have held that the Act has no application to the Respondent Firm and should not have on the basis of the said finding interfered with the investigation into the affairs of the firm
Mr Chatterjee contends that the question of applicability 159 of the Act will only come for consideration after the investigation has been completed and all relevant materials have been gathered on such investigation
It is the contention of Mr Chatterjee that at the investigation stage the Court does not interfere and does not quash any proceedings before the investigation has been completed
In support of this contention Mr Chatterjee has referred to a number of decisions of this Court
I shall consider the relevant decisions referred to by Mr Chatterjee at the appropriate time
Mr Chatterjee has submitted that after the investigation has been completed and all relevant materials have been gathered a charge under the Act may or may not be framed against the appellant firm for violation of the provisions of the Act
It is his submission that if the materials collected do not indicate any infringement of the Act no charge against the firm will be preferred and all the accused persons will be discharged if on the other hand materials gathered disclose an offences under the Act proper charge against the accused persons will be framed and it will be open to the accused persons to raise the plea in the course of the prosecution that no offence under the Act has been committed by them and the Act has no application to the transactions of the firm and to the firm
In the case of State of West Bengal vs SN Basak this Court held at page 55 56 as follows The powers of investigation into cognizable offences are contained in Chapter XIV of the Code of Criminal Procedure
Section 154 which is in that Chapter deals with information in cognizable offences and section 156 with investigation into such offences and under these section the police has the statutory right to investigate into the circumstances of any alleged cognizable offence without authority from a Magistrate and this statutory power of the Police to investigate cannot be interfered with by the exercise of power under section 561 A of Criminal Procedure Code
As to the powers of the Judiciary in regard to statutory right of the police to investigate the Privy Council in Ring Emperor vs Khawaja Nazir Ahmed 1944 LRIA 203 212 observed as follows  160 The functions of the judiciary and the police are complementary not overlapping and the combination of individual liberty with a due observance of law and order is only to be obtained by leaving each to exercise its own function always of course subject to the right of the Court to intervene in an appropriate case when moved under 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
It has sometime been thought that section 561A has given increased powers to the Court which it did not possess before that section was enacted
But this is not so the section give no new powers it only provides that those which the Court already inherently possesses shall be preserved and is inserted as their Lordships think lest it should be considered that the only powers possessed by the Court are those expressly conferred by the Criminal Procedure Code and that no inherent powers had survived the passing of that Act  With the interpretation which has been put on the statutory duties and powers of the police and of the powers of the Court were in accord
The High Court was in error therefore in interfering with the powers of the police in investigating into the offence which was alleged in the information sent to the officer incharge of the police station
In the case of State of Bihar and Anr
vs JAC Saldhana and Ors this Court at p 39 40 observed The next contention is that the High Court was in error in exercising jurisdiction under article 226 at a stage when the Addl
Chief Judicial Magistrate who has jurisdiction to entertain and try the case has not passed upon the issues before him by taking upon itself the appreciation of evidence involving facts about which there is an acrimonious dispute between the parties and given a clean bill to the suspects against whom the first information report was filed
By so directing the learned Addl
Chief 161 Judicial Magistrate the judgment of the High Court virtually disposed of the case finally
As we are setting aside the judgment of the High Court with the result that the case would go back to the learned Additional Chief Judicial Magistrate it would be imprudent for us to make any observation on facts involved in the case
There is a clear cut and well demarcated sphere of activity in the field of crime detection and crime punishment
Investigation of an offence is the field exclusively reserved for the executive through the police department the Superintendent over which vests in the State Government
The executive which is charged with a duty to keep vigilance over law and order situation is obliged to prevent crime and if an offence is alleged to have been committed it is its bounden duty to investigate into the offence and bring the offender to book
Once it investigates and finds an offence having been committed it is its duty to collect evidence for the purpose of proving the offence
Once that is completed and the investigating officer submits report to the Court requesting the Court to take cognizance of the offence under section 190 of the Code its duty comes to an end
on a cognizance of the offence being taken by the Court the police function of investigation comes to an end subject to the provision contained in section 173 B there commences the adjudicatory function of the judiciary to determine whether an offence has been committed and if so whether by the person or persons charged with the crime by the police in its report to the Court and to award adequate punishment according to law for the offence proved to the satisfaction of the Court
There is thus a well defined and well demarcated function in the field of crime detection and its subsequent adjudication between the police and the Magistrate
Same views have been reiterated by this Court in the other decisions which were cited by Mr Chatterjee
In the case of SN Sharma vs Bipan Kumar Tiwari this Court at p 951 referred to the observations of the Privy Council in the case of King Emperor vs Khwaja Nazir Ahmed which have been quoted in the judgment of 162 this Court in the earlier decision and then proceed to hold at pp
951 952 Counsel appearing on behalf of the appellant urged that such an interpretation is likely to be very prejudicial particularly to officers of the judiciary who have to deal with cases brought up by the police and frequently give decisions which the police dislike
In such cases the police may engineer a false report of a cognizable offence against the judicial officer and may then harass him by carrying on a prolonged investigation of the offence made out by the report
It appears to us that though the Code of Criminal Procedure gives to the police unfettered power to investigate all cases where they suspect that a cognizable person can always seek a remedy by invoking the power of the High Court under article 226 of the Constitution under which if the High Court could be convinced that the power of investigation has been exercised by a police officer mala fide the High Court can always issue a writ of mandamus restraining the police officer from misusing his legal powers
Relying on these decisions and the principles enunciated therein Mr Chatterjee has argued that the learned Judge clearly erred in interfering with the investigation and quashing the proceedings at the stage of investigation before framing of charges against the accused persons
Mr Chatterjee argues that there is no allegation of mala fide in the instant case and the learned Judge has also come to a conclusion that there is no case of any mala fide on the part of the appellants
Mr Chatterjee has submitted that the materials which have been gathered as a result of the investigation which could be carried on only for a short while go to indicate that the transactions of the firm are not above board and they are not what they pretend or purport to be
It is his submission that materials gathered clearly indicate that though the loan certificates stipulate interest to be paid  12 a much larger sum by way of interest ranging between 36 to 48 is actually paid to the depositors and the amount which is paid in excess of the rate stipulated in the loan certificates is paid in cash in a clandestine manner depriving and defrauding revenue of its legitimate dues
Mr Chatterjee comments that the payment of interest in this clandestine manner at a very high rate which is not shown or other 163 wise accounted for results not only in generation of black money but paralyses the economy of the State
Mr Chatterjee has further commented that in view of this allurement to the depositors of payment of large sums of money in a clandestine manner the firm which has a share capital of only Rs 7000 has succeeded in alluring depositors and the deposits received by the firm with the capital of Rs 7000 now exceed crores of rupees
Mr Chatterjee submits that a firm which carries on clandestine business of this nature is not entitled to invoke the extra ordinary jurisdiction conferred on the Court under article 226 of the Constitution
Mr Chatterjee has contended that the violation of section 3 of the Act has been alleged and it is his contention that the nature of business carried on by the firm indicates that the firm is conducting a Money Circulation Scheme 
According to Mr Chatterjee Money Circulation Scheme  by virtue of its definition in section 2 c of the Act means any scheme  by whatever name called for the making of quick or easy money
It is his argument that the transactions disclose that the firm and the depositors are both trying to make quick or easy money the scheme being that the depositors will deposit money against certificate stipulating interest to be paid  12 but they will in fact be paid interest at a much higher rate and thereby make quick or easy money and the firm invests the money received from the depositors in such transactions as to enable them to earn easy or quick money
Mr Chatterjee has further argued that money circulation scheme has to be interpreted to mean any scheme for the making of quick or easy money or for the receipt of any money or valuable thing as the consideration for a promise to pay money on any event or contingency relative or applicable to the enrollment of members into the scheme whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscription
Further investigation according to Mr Chatterjee can only show whether the scheme of making quick or easy money depends on any contingency relative in the enrollment of members into the scheme
Mr Chatterjee submits that the question of proper interpretation of the provisions of the Act and also of what money circulation scheme means should come up only after investigation has been completed and all relevant materials have been collected
It is Mr Chatterjee s submission that the interpretation of the provisions of the Act aud particularly what Money Circulation Scheme  means is not to be made in a 164 hypothetical way in the absence of relevant materials being gathered on completion of investigation
Mr Chatterjee has argued that after all the materials have been collected on completion of the investigation it may be that materials may show that the firm is not conducting a Money Circulation Scheme and no charge against the firm may at all be preferred if however on the other hand the materials indicate that the firm is conducting a money circulation scheme and a charge is preferred it will be open to the accused persons to take the defence that the business conducted by them is not one which will be considered to be a money circulation scheme within the meaning of the Act
As I have earlier observed the main grievance of Mr Chatterjee is that the Court should have interfered at the stage of investigation and quashed the proceedings
Mr Chatterjee has next contended that section 7 of the Act clearly empowers a Police officer not below the rank of an officer in charge of a police station to enter search and seize in the manner provided in the said section
It is Mr Chatterjee s contention that the searches have been carried out duly in terms of the provisions contained in the said section and cash money and other books and documents have been lawfully seized in terms of the provisions contained in the said section
Mr Chatterjee has further submitted that even if there had been any irregularity in the matter of searches and seizure the searches and seizure are not rendered illegal and void as a result thereof
Various decisions were also referred to by Mr Chatterjee in support of his submissions
Mr AK Sen learned counsel appearing on behalf of the firm has submitted that the learned Judge on a proper consideration of all the relevant materials and the provisions of the Act has correctly come to the conclusion that no offence under the Act is disclosed and the Act has no application to the firm and in that view of the matter the Learned Judge was perfectly justified in quashing the proceeding against the firm and in directing the return of the documents and cash money seized by the police to the firm
Mr Sen has argued that investigation has to be done when an offence is disclosed for collecting materials for establishing an offence
It is the argument of Mr Sen that if no offence is disclosed there cannot be any investigation and any investigation when no offence is disclosed by the FIR and the other materials 165 means unnecessary harassment for the firm and its partners and illegal and improper deprivation of their liberty and property
Mr Sen submits that it is no doubt true that when an offence is disclosed the Court normally does not interfere with the investigation into an offence
He however contends that when no offence is disclosed it indeed becomes the duty of the Court to interfere with any investigation which is improperly and illegally carried on to the serious prejudice of the persons
In support of this contention Mr Sen has referred to the decision of the Judicial Committee in the case of King Emperor vs Khwaja Nazir Ahmed supra and has relied on the following observations at p 213 No doubt if no cognizable offence is disclosed and still more if no offence of any kind is disclosed the police would have no authority to undertake investigation
In this connection Mr Sen also referred to the decision of this Court in the case of RP Kapur vs State of Punjab and has placed very strong reliance on the following observations at p 393 Cases may also arise where the allegations in the First Information Report or the complaint even if they are taken at their face value and accepted in their entirety do not constitute the offence alleged in such cases no question of appreciating evidence arises it is a matter merely of looking at the complaint or the First Information Report to decide whether the offence alleged is disclosed or not
In such cases it would be legitimate for the High Court to hold that it would be manifestly unjust to allow the process of the criminal court to be issued against the accused person Mr Sen has also referred to the decision of this Court in Jehan Singh vs Delhi Administration in which the aforesaid observations made by Gajendragadkar J in the case of RP Kapur vs State of Punjab supra have been reproduced and reiterated
Mr Sen 166 further points out that in the case of SN Sharma vs Bipin Kumar Tiwari supra this Court at p 951 recognises that in appropriate cases the aggrieved person can always seek remedy by invoking powers of the High Court under article 226 of the Constitution under which if the High Court could be convinced that the power of investigation has been exercised by a police officer mala fide the High Court can always issue a writ of mandamus restraining the police officer from misusing his legal powers
Mr Sen has argued that the Learned Judge having properly appreciated the legal position has made the correct approach to the consideration of the present case
It is his argument that the Learned Judge has carefully considered the materials which have been placed before him including the FIR and he has properly analysed the provisions of the Act and on a proper interpretation of the Act and on a proper appreciation of the materials which were there before the Learned Judge the Learned Judge has come to the conclusion that no offence under the Act is disclosed and the Act has no application to the firm
Mr Sen argues that for a proper appreciation of the question whether the materials disclose any offence under the Act it is imperative to interpret the Act
He contends that it will not be a proper approach to leave the question of interpretation to the stage after the investigation is complete as according to Mr Sen there can be no investigation unless an offence has been disclosed
Mr Sen argues that if the materials do not disclose any offence no investigation can be permitted to find out whether as result of the investigation an offence may be disclosed or not
Mr Sen submits that investigation can legitimately go on once an offence is disclosed for collecting materials for establishing and proving the offence
It is the contention of Mr Sen that the case of the appellants is that the firm is conducting money circulation scheme which is banned by the Act
Mr Sen argues that to find out whether the firm is conducting a money circulation scheme it is necessary to consider what a money circulation scheme is within the meaning of the Act and to find out whether on the materials alleged in the FIR and also in the affidavits it can be said that the business carried on by the firm is one in the nature of conducting a money circulation scheme
Mr Sen has argued that the learned Judge in his judgment has correctly interpreted what constitutes money circulation scheme  within the meaning of the Act and it is the argument of Mr Sen that such interpretation is absolutely essential to find out whether the allegations made in the FIR make out 167 a case that the firm is conducting a money circulation scheme
Mr Sen submits that the materials on record including the allegations made in the FIR even if they are all assumed to be correct do not go to show that the firm is conducting a money circulation scheme and in that view of the matter there can be no investigation if no offence under the Act is disclosed
Analysiag the FIR and the other materials which have been placed before the Court Mr Sen submits that the materials go to indicate 1 that the firm is accepting deposits or loans from the public for a term against loan certificates which stipulate payment of interest  12 2 though interest is stipulated to be paid  12 the firm in fact is paying interest at a much higher rate
It used to pay interest 48 previously and is now paying interest  36
The amount of interest paid in excess of the stipulated rate of 12 is paid in cash in a clandestine manner to the depositors
The excess amount of interest paid is not accounted for and results in accumulation of black money 3 the firm invests the monies received from the depositors in high risk investments earning huge amount of unaccounted profits
The investments made by the firm and the earnings from the investments made also result in generation of black money 4 because of the allurement of high rate of interest offered to the depositors a major part of which is given in unaccounted black money the firm which has a share capital of about Rs 7000 only has received deposits over crores of rupees
It is the contention of Mr Sen that even if all these allegations which are there in the FIR and also in the other materials which have been placed before the Court are accepted to be correct the said allegations do not go to show that the firm is conducting a money circulation scheme and do not disclose any offence under the Act
Mr Sen in this connection has commented that though in the FIR it has been alleged that the firm is carrying on business of promoting Prize Chits no such case was sought to be made out before the Learned Judge or before this Court and there are no allegations or materials to show that the firm is carrying on business of promoting prize chit and the only case that has been sought to be made before the Trial Court and also this Court is that the firm is carrying on business of conducting or promoting money circulation scheme
Mr Sen has argued that the money circulation scheme has been defined in section 2 c of the Act to mean any scheme by whatever name called for the making of quick or easy money or for the receipt of any money or valuable thing as the considera 168 tion for a promise to pay money on any event or contingency relative or applicable to the enrollment of members into the scheme whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscription
According to Mr Sen the essential requirements of a money circulation scheme are 1 There must be a scheme for the making of quick or easy money on any event of contingency relative or applicable to the enrollment of members into the scheme whether or not such money is derived from the entrance money of the members of such scheme or periodical subscription or 2 there must be a scheme for the receipt of any money or valuable thing as the consideration for promise to pay money on any event or contingency relative or applicable to the enrollment of members into a scheme whether or not such money or thing is derived from the entrance money of the members of such scheme or from periodical subscription
Mr Sen submits that neither FIR nor any of the other materials go to show that the business carried on by the firm is in any way in the nature of conducting or promoting a money circulation scheme
In this connection Mr Sen has drawn our attention to the statement of objects for the passing of this enactment
Mr Sen has further submitted that this enactment which is in the nature of penal one has to be construed in the event of doubt or ambiguity in a manner beneficial to the party against whom any accusations is made
Mr Sen has further argued that the rules framed under the Act can also be taken into consideration for proper interpretation of the Act and the learned Judge in the instant case was justified in referring to the rules in construing the provisions of the Act
In this connection Mr Sen has referred to the decision in Ex parte Wier In re Wier and has relied upon the following observations at p 879 We do not think that any other section of the Act throws any material light upon the proper construction of this section and if the question had depended upon the Act alone we should have had great doubt what the pro per construction was but we are of opinion that where the construction of the Act is ambiguous and doubtful on any point recourse may be had to the rules which have been 169 made by the Lord Chancellor under the authority of the Act and if we find that in the rules any particular construction has been put on the Act that it is our duty to adopt and follow that construction
Mr Sen in this connection has drawn our attention to the relevant rules and he has argued that the rules leave no room for doubt that the Act has no application to the firm and no offence under the Act has been disclosed by the firm
Mr Sen has submitted that the construction of the Act by the Learned Judge is correct and it is his submission
that in view of the provisions of the Act properly interpreted there cannot be any doubt that the Act has no application to the interest case and there can be no question of any violation of the said Act by the firm
It is the submission of Mr Sen that the approach and the reasoning of the learned Judge are both sound
Mr Sen has next contended that the search and seizure carried on in the instant case are also illegal and unjustified
It is the argument of Mr Sen that if no offence under the Act is disclosed and the Act has no application there cannot be any question of any search or seizure under the Act
Mr Sen has argued that the search and seizure
done in the instant case have also not been done in confirmity with the provisions of law
Mr Sen has submitted that learned judge has correctly come to the conclusion that the search and seizure in the instant case were also illegal
In this connection Mr Sen referred to a number of decisions
Mr Ray and Mr Sibal who followed Mr Sen mainly adopted the submissions made by Mr Sen Mr Ray further contended that to be a chit fund or to be a money circulation scheme an element of uncertainty or luck is essential
It is the argument of Mr Ray that in so far as the transactions carried on by the firm in the instant case are concerned the said element is no where there
Mr Ray in this connection referred to the definition of conventional chit and has argued that the conventional chits have not been brought within the purview of this Act
Mr Ray has drawn our attention to the decision of this Court in the case of Srinivasa Enterprises vs Union of India in which the validity of the Act came to be challenged in this Court and was upheld by this Court
170 The appeal before us has been argued at great length
A number of decisions have also been cited from the Bar
I have already referred to some of the decisions which were cited before us
I do not propose to consider all the case which were referred to in the course of argument by the learned counsel appearing on behalf of the parties as I do not consider the same to be necessary
As I have already stated that the matter appears to have been elaborately argued before the learned Trial Judge who in his judgment has fully set out the relevant facts and circumstances of the case has noted the arguments which were advanced before him and the learned Judge has also referred to a number of decisions
I may however note that Mr Chatterjee appearing on behalf of the appellants has made a grievance before us that some of the decisions cited by him have not been considered by the learned Judge
Though the matter has been argued at great length yet to my mind the case appears to rest in a fairly short compass
In my opinion the legal position is well settled
The legal position appears to be that if an offence is disclosed the Court will not normally interfere with an investigation into the case and will permit investigation into the offence alleged to be completed if however the materials do not disclose an offence no investigation should normally be permitted
The observations of the Judicial Committee and the observations of this Court in the various decisions which I have earlier quoted make this position abundantly clear
The prepositions enunciated by the Judicial Committee and this Court in the various decisions which I have earlier noted are based on sound principles of justice
Once an offence is disclosed an investigation into the offence must necessarily follow in the interests of justice
If however no offence is disclosed an investigation cannot be permitted as any investigation in the absence of any offence being disclosed will result in unnecessary harrassment to a party whose liberty and property may be put to jeopardy for nothing
The liberty and property of any individual are sacred and sacrosanct and the Court zealously guards them and protects them
An investigation is carried on for the purpose of gathering necessary materials for establishing and proving an offence which is disclosed
When an offence is disclosed a proper investigation in the interest of justice becomes necessary to collect materials for establishing the offence and for bringing the offender to book
In the absence of a proper investigation in a case where an offence is disclosed the offender may succeed in escaping from the consequen 171 ces and the offender may go unpunished to the deteriment of the cause of justice and the society at large
Justice requires that a person who commits an offence has to be brought to book and must be punished for the same
If the Court interferes with the proper investigation in a case where an offence has been disclosed the offence will go unpunished to the serious deteriment of the welfare of the society and the cause of the justice suffers
It is on the basis of this principle that the Court normally does not interfere with the investigation of a case where an offence has been disclosed
The decision on which Mr Chatterjee has relied are based on this sound principle and in all these cases an offence had been disclosed
Relying on the well settled and sound principle that the Court should not interfere with an investigation into an offence at the stage of investigation and should allow the investigation to be completed this Court had made the observations in the said decisions which I have earlier quoted reiterating and reaffirming the sound principles of justice
The decisions relied on by Mr Chatterjee do not lay down as it cannot possibly be laid down as a broad proposition of law that an investigation must necessarily be permitted to continue and will not be prevented by the Court at the stage of investigation even if no offence is disclosed
While adverting to this specific question as to whether an investigation can go on even if no offence is disclosed the judicial Committee in the case of King Emperor vs Khwaja Nizam Ahmed supra and this Court in RP Kapur vs State of Punjab supra Jehan Singh vs Delhi Administration supra SN Sharma vs Bipin Kumar Tiwari supra have clearly laid down that no investigation can be permitted and have made the observations which I have earlier quoted and which were relied on by Mr Sen
As I have earlier observed this proposition is not only based on sound logic but is also based on fundamental principles of justice as a person against whom no offence is disclosed cannot be put to any harassment by the process of investigation which is likely to put his personal liberty and also property which are considered sacred and sacrosanct into peril and jeopardy
Whether an offence has been disclosed or not must necessarily depend on the facts and circumstances of each particular case
In considering whether an offence into which an investigation is made or to be made is disclosed or not the Court has mainly to take into consideration the complaint or the FIR and the Court may in appropriate cases take into consideration the relevant facts and circumstances of the case
On a consideration of all the relevant 172 materials the Court has to come to the conclusion whether an offence is disclosed or not
If on a consideration of the relevant materials the Court is satisfied that an offence is disclosed the Court will normally not interfere with the investigation into the offence and will generally allow the investigation into the offence to be completed for collecting materials for proving the offence
If on the other hand the Court on a consideration of the relevant materials is satisfied that no offence is disclosed it will be the duty of the Court to interfere with any investigation and to stop the same to prevent any kind of uncalled for and unnecessary harassment to an individual
In the instant case the offence complained of is violation of the Act
For a proper adjudication of the case and for a proper appreciation of the question it therefore becomes necessary to consider the relevant materials and also the provisions of the Act for being satisfied as to whether the relevant materials go to indicate any violation of the Act and disclose any offence under the Act
The materials are mainly contained in the FIR which has been earlier set out in its entirety
An analysis of the FIR mentions the following allegations on the basis of which the said FIR has been lodged 1
Sanchaita Investments is a partnership Firm
Its partners are Behari Prasad Murarka Sri Sambhu Mukherjee and Sri Swapan Kumar Guha The firm was started in and around 1975
The Firm had been offering fabulous interest  48 to its members until very recently
The rate of interest has of late been reduced to 36 per annum
Such high rate of interest were and are being paid even though the loan certificate receipts show rate of interest to be 12 only
Thus the amount in excess of 12 so paid clearly shows that Money Circulation Scheme  is being promoted and conducted for the making of quick andor easy money prizes andor gifts 5
Prizes or gifts in cash are also being awarded to agents promoters and members too
173 6
In view of the above Sarvshri Behari Prasad Murarka Sambhu Mukherjee and Swapan Kumar Guha appears to have been carrying on the business in the trade name of Sanchaita Investments  in prize chits and money circulation Scheme in violation of section 2 of the Prize Chits and Money Circulation Scheme Banning Act 1978
The other materials are contained in paragraphs 6 7 8 9 22 27 and 30 of the affidavit and the two documents namely the article published in the Newspaper Business Standard  dated 16111980 and the documents seized in the course of searches
I have earlier set out in extenso the statement made in the said paragraphs of the affidavit filed on behalf of the State
A copy of the article has been enclosed to the affidavit filed on behalf of the State
The document seized in the course of searches and handed over to Court in the course of the arguments was a letter addressed by an officer of the Air Force to the firm in which the officer makes a grievance that the Firm which was paying interest  48 has now reduced the same to 36 in view of advances made to political parties
The letter further records the fact that the firm hopes to pay the enhanced rate of interest of 48 in the near future
An analysis of these materials suggest that the firm is carrying on activities of accepting deposits from the members promising to pay them interest on such deposits at an agreed rate of 12 as stipulated in the loan certificate but in fact it has been paying interest to them at much higher rate of interest The materials further indicate that the firm is making high risk investments of the monies received from the depositors and has also been advancing monies to political parties
The crux of question is whether these allegations disclose an offence under the Act namely violation of section 3 of the Act even if all these allegations are deemed to be correct
The question whether these allegations disclose an offence under the Act and can be the basis for any suspicion that an offence under section 3 of the Act has been committed or not must necessarily depend on the provisions of the Act and its proper interpretation
The Act has been enacted for implementing the recommendations of a Study Group of the Reserve Bank of India under the 174 Chairmanship of Shri James section Raj the then Chairman of the Unit Trust of India constituted for examining in depth the provisions of Chapter IIIB of the and the directions issued thereunder to Non Banking Companies in order to assess their adequacy in the context of ensuring the efficacy of the monetary and credit policies of the country and affording a degree of protection to the interests of the depositors who place their savings with such companies
Paragraph 2 of the Statement of objects and Reasons of the Act states Prize chits would cover any kind of arrangement under which moneys are collected by way of subscriptions contributions etc
and prizes gifts are awarded
The prize chit is really a form of lottery
Its basic feature is that the foreman or promoter who ostensibly charges no commission collects regular subscriptions from the members
Once a member gets the prize he is very often not required to pay further instalments and his name is dropped from further lots
The institutions conducting prize chits are private limited companies with a very low capital base contributed by the promoters directors or their close relatives
Such schemes confer monetary benefit only on a few members and on the promoter companies
The Group had therefore recommended that prize chits or money circulation schemes by whatever name called should be totally banned in the larger interests of the public and suitable legislative measures should be undertaken for purpose
 The relevant portion of paragraph 3 of the Statement of objects and Reasons reads as follows The Bill proposes to implement the above recommendation of the Group by providing for the banning of the promotion or conduct of any prize chit or money circulation scheme by whatever name called and of the participation of any person in such chit or scheme
The Bill provides for a period of two years within which the existing units carrying on the business of prize chits or money circulation schemes may be wound up and provides for penalties and other incidental matters
 175 It is therefore clear that the main object of the Act is to ban promotion or conduct of any Prize Chit or money circulation scheme by whatever name called and of the participation of any person in such chit or scheme
section 2 of the Act deals with definitions
Money Circulation Scheme is defined in section 2 c in the following words Money circulation Scheme  means any scheme by whatever name called
for the making of quick or easy money or for the receipt of any money or valuable thing as the consideration for a promise to pay money on any event or contingency relative or applicable to the enrollment of members into the scheme whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions
 Prize Chit is defined in section 2 e in the following terms prize chit  includes any transaction or arrangement by whatever name called under which a person collects whether as a promoter foreman agent or in any other capacity monies in one lump sum or in instalments by way of contributions or subscriptions or by sale of unit certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings mutual benefits thrift or any other scheme or arrangement by whatever name called and utilises the monies so collected or any part thereof cr the income accruing from investment or other use of such monies for all or any of the following purposes namely i giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot draw or in any other manner prizes or gifts in cash or in kind whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement ii refunding to the subscribers or such of them as have not won any prize or gift the whole or part of the subscriptions contributions or other monies collected with or without any bonus premium interest or other advantage by whatever name called on the termina 176 tion of the scheme or arrangement or on or after the expiry of the period stipulated therein but does not include a conventional chit
A Conventional Chit which is specifically excluded in the definition of prize chits in section 2 c ii is defined in section 2 a as follows Conventional Chit means a transaction whether called chit chit fund kuri or by any other name by or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money or certain quantity of grain instead by way of periodical instalments for a definite period and that each subscriber shall in his turn as determined by lot or by auction or by tender or in such other manner as may be provided for in the chit agreement be entitled to a prize amount
section 3 of the Act the violation of which alleged reads No person shall promote or conduct any prize chit or money circulation scheme or enrol as a member to any such chit or scheme or participate in it otherwise or receive or remit any money in pursuance of such chit or scheme
 section 7 of the Act provides 1 It shall be lawful for any police officer not below the rank of an officer in charge of a police station a to enter if necessary by force whether by day or night with such assistance as he considers necessary any premises which he has reason to suspect are being used for purposes connected with the promotion or conduct of any prize chit or money circulation scheme in contravention of the provisions of this Act b to search the said premises and the persons whom he may find therein 177 c to take into custody and produce before any judicial Magistrate all such persons as are concerned or against whom a complaint has been made or credible information has been received or a reasonable suspicion exists of their having been concerned with the use of the said premises for purposes connected with or with the promotion or conduct of any such prize chit or money circulation scheme as aforesaid d to seize all things found in the said premises which are intended to be used or reasonably suspected to have been used in connection with any such prize or money circulation scheme as aforesaid
2 Any officer authorised by the State Government may a at all reasonable times eater into and search any premises which he has reason to suspect are being used for the purposes connected with or conduct of any prize chit or money circulation scheme in contravention of the provisions of this Act b examine any person having the control of or employed in connection with any such prize chit or money circulation scheme c order the production of any documents books or records in the possession or power of any person having the control of or employed in connection with any such prize chit or money circulation scheme and 3 All searches under this section shall be made in accordance with the provisions of the Code of Criminal Procedure 1973
section 13 confers necessary powers to make rules and reads as under 1 The State Government may by notification in the Official Gazette and in consultation with the Reserve Bank make rules for the purpose of carrying out the provisions of the Act
178 2 In particular and without prejudice to the generality of the foregoing power such rules may provide for a the office of the Reserve Bank to whom full information regarding any prize chit or money circulation scheme may be furnished under the first proviso to sub section 1 of Section 12 and the form in which and the period within which such information may be furnished b the particulars relating to the winding up plan of the business relating to prize chits or money circulation schemes
 The complaint alleges violation of section 3 of the Act
In other words the complaint is that the firm is promoting or conducting a prize chit or a money circulation scheme
The definition of prize chit has been earlier set out
I have also earlier analysed the FIR and the other materials on the basis of which the complaint is made and the materials which have been placed before the Court
The materials do not indicate any thing to disclose that the firm is promoting or conducting any prize chit
I may also here note that no arguments have been advanced on behalf of the appellants that the firm is promoting or conducting any prize chit and in my opinion rightly as the allegations do not give any indication whatsoever of any case of a prize chit being promoted or conducted by the firm
The argument on behalf of the appellants has been that the firm is promoting or conducting a money circulation scheme
Though the Statement of objects and Reasons of the Act may suggest that the prize chit and a money circulation scheme are more or less of like nature yet in view of the separate definitions of these two being given in cl 2 of the Act and in view of the further fact that section 3 speaks of prize chit or money circulation scheme each of the aforesaid must be considered to be separate and distinct for the purposes of the Act and promoting or conducting either prize chit or any money circulation scheme or both must be held to he an offence under the Act
I shall now proceed to consider whether the materials disclose that the firm is promoting or conducting a money circulation scheme I have already set out the definition of money circulation scheme 179 as given in section 2 c of the Act
On a plain reading of the said definition the requirements of a money circulation scheme are i there must be a scheme ii there must be members of the scheme iiithe scheme must be for the making of quick or easy money on any event or contingency relative or applicable to the enrollment of members into the scheme or there must be a scheme for the receipt of any money or valuable thing as the consideration for a promise to pay money on any event or contingency relative or applicable to enrollment of members into the scheme iv the event of contingency relative or applicable to the enrollment of members into the scheme will however not he in any way affected by the fact whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscription
On a proper interpretation of this definition it clearly appears that the condition in the said definition on any event or contingency relative or applicable to the enrollment of members into the scheme whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscription  qualifies both the provisions contained therein namely i money circulation scheme means a scheme by whatever name called for the making of quick or easy money ii or money circulation scheme means any scheme for the receipt of any money or valuable thing as the consideration for the promise to pay money
Taking into consideration the language used in the section and particularly the two commas one after the words easy money and the other after the words pay money it becomes clear that this stipulation is intended to cover both and the interpretation contended for by Mr Chatterjee that the further provision in the definition namely on any event or contingency relative or applicable to the enrollment of members into the scheme whether or not such money or thing is derived from entrance money of such scheme or periodical subscription applies only to the second part namely money circulation scheme means any scheme by whatever name called for the receipt 180 of any money or valuable thing as the consideration for a promise to pay money is not sound 
On this interpretation of Mr Chatterjee the provision in the definition namely money circulation scheme means any scheme by whatever Dame called for the making of quick or easy money  will indeed become vague and meaningless
For properly appreciating whether the offence of promoting or conducting a money circulation scheme is disclosed or not it becomes necessary to consider whether the materials even if they are all accepted to be correct indicate that the business carried on by the firm satisfies the requirements of money circulation scheme and disclose an offence under the Act
The materials show that the firm accepts loans or deposits from general public for a term against loan certificates which stipulate payment of interest 12
Materials also indicate that the firm pays stipulated amount of interest and further pays a much larger amount of interest in a clandestine manner to the persons who invest their monies in the firm against loan certificates
The materials further indicate that the persons who have invested their monies with the firm against loan certificates used to receive in fact the stipulated amount of interest  12 and also used to receive an additional sum as further interest  36 in a clandestine manner
The materials also indicate that this further rate of interest  36 paid clandestinely in additional to the stipulated rate of 12 has been reduced now to 24 because of investments by the firm with political parties
In other words the materials go to show that though the rate of interest stipulated in the loan certificate was 12 the firm used to pay altogether interest  48 previously and is now paying interest  36 inclusive of payment of interest stipulated in the loan certificate
The materials also indicate that the firm invest the deposits or loans received from the general public in high risk investments
The materials however do not show that the payment of interest at the stipulated rate of 12 or at any enhanced rate in excess of the stipulated rate depends on any event or contingency or relative or applicable to the enrollment of any new depositors
The materials also do not indicate that the firm makes any discrimination in the matter of payment of interest to its depositors
The materials also do not indicate that the payment of interest to the depositors whether at the stipulated rate or at the enhanced rate is dependent on any element of chance and the 181 materials do not indicate that any kind of gifts is made by the firm to the depositors in addition to the payment of interest
The first question that requires to be considered is whether these materials go to indicate that there is any scheme The word scheme  has not been defined in the Act
The word scheme  however has been defined in the Rules in cl 2 g thereof
Cl 2 g of the Rules state that a scheme means a money circulation scheme or as the case may be a prize chit as defined in cl
c and e respectively of section 2
The word scheme  as contemplated in section 2 c of the Act is therefore to be money circulation scheme within the meaning of the Act
To be a money circulation scheme a scheme must be for the making of quick or easy money on any event or contingency relative or applicable to the enrollment of the members into the scheme
The scheme has necessarily to be judged as a whole both from the view point of the promoters and also of the members
Even if it be assumed that the firm may be considered to be the promoter and the persons who invest their monies in the firm are members the question has still to be considered whether investments of the monies with the firm in expectation of getting interest  48 and a big part of it in black in clandestine manner can be said from the view point of the depositors that the investment is for the making of quick or easy money
If any individual invests is money in expectation of getting a high return say 50 or more and there is nothing clandestine in the transaction which is above board can it be said that the investment is for making easy money or quick money  Various individuals may invest their monies in their business which may yield very high profits
Many individuals also may indulge in speculative business in expectation of high return of their money and may succeed or may not succeed in speculative transactions
If such transactions are made openly and not in violation of any law I have no doubt in my mind that it can never be said that such investment has been made for making quick or easy money and such transactions can never come within the scheme for making easy or quick money as enumerated in the Act
The further question that however arises for consideration is whether the position will be any different if a part of the transaction is not above board and is secretive in nature
To my mind that will not make any difference and the transaction cannot be considered to be a scheme for the making of quick or easy money though the transaction may offend against revenue laws or any other law
Transactions in black money do not come within the 182 mischief of this Act
Judged from the point of view of the depositors it cannot therefore be said that their investment in the firm for high return by way of interest part of which is above board and a part of which is clandestine will form any part of a scheme for making easy or quick money
It is further to be noted that this return on investment by way of interest is not dependent on any event or contingency whatsoever and has nothing to do with any event or contingency relative or applicable to the enrollment of any new members even if the depositors be assumed to be members
Judged from the point of view of the firm there is nothing to indicate that the firm makes any investment in consultation with its depositors
The materials only indicate that the firm indulges in high risk investments and also advances monies to political parties
Neither of these acts appears to be illegal and they do not go to show that the firm makes easy or quick money
lt is no doubt true that the materials go to show that the firm plays a larger amount by way of interest than payable on the basis of the rates stipulated in the loan certificate and the firm pays the excess amount of interest to the depositors in a clandestine manner
The clandestine manner of payment of interest in excess of the stipulated rate does not in any way indicate the existence of any scheme for making quick or easy money
It is again to be pointed out that in any event the mate rials do not indicate that the payment of interest by the firm in excess of the stipulated rate is in any way dependent on any event or contingency
There is nothing to indicate any scheme for the receipt of the money by the firm from its depositors as a consideration for promise to pay the interest in excess of the stipulated rate and also to pay back principal amount on the expiry of the term dependent in any way on any event or contingency relative or applicable to the enrollment of new depositors considering the depositors to be members
I am therefore of the opinion that not any of the requirements of a money circulation scheme is satisfied in the instant case
As there is no money circulation scheme there can be no scheme as contemplated in the Act in view of the definition of scheme in the Rules
The materials appear to disclose violation of revenue laws
They however do not disclose any violation of the Act
The materials do not disclose that the firm is promoting or conducting money circulation scheme and the question therefore of 183 any violation of section 3 of the Act does not arise in the instant case
As the firm is not conducting or promoting a money circulation scheme and as no case is made that the firm is conducting or promoting a chit fund the Act cannot be said to be applicable to the firm
In my opinion it does not become necessary to refer to the rules for coming to the conclusion
I may however add that a consideration of the rules also clearly lends support to the conclusion to which l have come
I find that the learned Judge has very carefully and elaborately considered all the aspects in his judgment and in the course of elaborate discussion he has noted all the contentions raised by the parties and has carefully considered them
The learned Judge on a careful consideration of all aspects and on a proper interpretation of the Act has expressed the view that no offence under the Act is disclosed against the firm which does not conduct or promote money circulation scheme or a chit fund and the Act has no application to the firm
It may also be noted that the learned Judge has also in his judgment referred to the report of the Reserve Bank and the opinion of the learned Advocate General of the State which lent support to the view taken by the learned Judge
The view expressed by the learned Judge that the materials do not disclose that the firm is promoting or conducting a money circulation scheme and the Act has therefore no application to the firm meets with my approval and I agree with the same
Before concluding it will be proper to refer to the decision of this Court in the case of Srinivas Enterprises vs Union of India which were relied on before the learned Judge and has been considered by me
In this case the validity of the Act was challenged before this Court while upholding the validity of the Act for reasons stated in the judgment Krishna Iyer J who spoke for the Bench observed at p 514 as follows In many situations the poor and unwary have to be saved the seducing processes resorted by unscrupulous racketeers who glamourize and prey upon the gambling instinct to get rich quick through prizes
So long as there is the restless spell of a chance though small of securing a prize though on paper people change
the prospect by 184 subscribing to the speculative scheme only to lose what they had
Can you save moths from the fire except by putting out the fatal flow  Once this prize facet of the chit scheme is given up it becomes substantially a conventional chit  and the ban of the law ceases to operate
We are unable to persuade ourselves that the State is wrong in its assertion based upon expert opinions that a complete ban of prize chits is an overall or excessive blow
Therefore we decline to strike down the legislation on the score of Article 19 1 f  and g of the Constitution
 As I have earlier noticed the materials in the instant case do not disclose any element of chance in the matter of business carried on by the firm
It may however be said that these observations which were made while dealing with a case of chit fund are not of very great assistance while considering what may be a money circulation scheme within the meaning of the Act
As no offence under the Act is at all disclosed it will be manifestly unjust to allow the process of criminal code to be issued or continued against the firm and to allow any investigation which will be clearly without any authority
In the view that I have taken I do not consider it necessary to deal with other aspects namely as to whether the searches and seizures were lawfully and properly done
I therefore hold that the proceedings against the firm and its partners arising out of the FIR must be quashed as the FIR and the other materials do not disclose any offence under the Act and as such no investigation into the affairs of the firm under the Act can be permitted or allowed to be continued
I accordingly quash the proceedings against that firm and its partners and order that no investigation under the Act into affairs of the firm is to be carried on or continued
I agree with the final order proposed by the learned Chief Justice in regard to the return of the documents books and cash
185 The appeal therefore fails and is dismissed
I however make no order as to costs
The Judgment in Civil Appeal No 1130 of 1981 will also govern Civil Appeal No 1129 of 1981
NVK Appeals dismissed


Summary:
The firm Sanchaita Investments  commenced its business on July 11975 its three partners the three respondents in the appeal contributing a total capital of Rs 7000 
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 
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 andor easy money and that prizes and for gifts in cash were also awarded to agents promoters and members and that the firm and its three partners in conducting such money circulation schemes had violated section 3 of the Act and were therefore punishable under section 4
On tho same day the office of the firm was searched by the police and a sum of Rs 42 lakhs was recovered
The residences of the partners were also searched and large amount of cash as well as documents were seized
Certain lists of agents seized during the investigation showed that code numbers were assigned to many of the agents and that the agents had acquired large properties at various places and had also started new business activities
The partners were arrested and enlarged on bail
The firm and its partners filed a writ petition in the High Court challenging the validity of the FIR 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 FIR does not disclose any offence under the Act which does not apply to the firm and that there was no violation of any provisions of the Act
The petition was contested by the State Government contending that the payment of interest by the firm and its partners at the clandestine rate of 36 against the bank rate of 12 in the context of the scheme promoted and conducted by the firm was tantamount to an activity which was banned under the Act
and that in the process of its working the scheme of the firm generated quick and easy money so as to render such scheme or arrangement a money circulation scheme  within the meaning of the Act
The High Court held that the Act did not apply to the Firm and that the searches and seizures were wrongful illegal and improper and quashed the proceedings and directed the return of all documents and the refund of the cash seized
In the appeals to this Court it was contended on behalf of the State Government that I the question of applicability of the Act will only come up for consideration after the investigation has been completed and all relevant materials have been gathered on such investigation and that at the investigation stage the Court does not interfere and also does not quash any proceedings before the investigation has been completed 2 materials which had been gathered as a result of the investigation indicate that though the loan certificate stipulate interest to be paid  12 much larger sum by way of interest ranging between 36 to 48 was actually paid to the depositions in cash in a clandestine manner depriving and defrauding the revenue of its legitimate dues 3 the nature of business carried on by the firm indicates that the firm is conducting a Money circulation scheme  thereby violating section 3 of the Act and 4 the searches have been carried out in accordance with section 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 FIR 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 FIR 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 FIR 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 CJ 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 FIR that any offence can be said to be made out prima facie under section 3 of the Act
In the first place the FIR 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 FIR 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 FIR 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 FIR
The judiciary should not interfere with the police in matters which are within their province It is surely not within the province of the police to 
investigate into a Report which does not disclose the commission of a cognizable offence and the Code does not impose upon them the duty of inquiry in such cases
142 B C 125 8
The condition precedent to tho commencement of investigation under section 157 of the Code is that the FIR 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 FIR 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 FIR 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 WH King vs Republic of India   424 MV Joshi vs MU Shimpi   993 994 RP Kapur vs The State of Punjab  392 393 SN Sharma vs Bipen Kumar Tiwari   State of West Bengal vs SN Basak   Jehan Singh vs Delhi Administration  and King Emperor vs Khwaja Nazir Ahmed 71 IA 203 referred to
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 vs The District Magistrate Kamrup   22 23 referred to
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 AN 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 FIR 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 WH King vs Republic of India   424 MV Joshi vs MU Shimpi   993 994 RP Kapur vs The State of Punjab 392 393 SN Sharma vs Bipen Kumar Tiwari 19703 SCR 946 State of West Bengal vs SN Basak   Jehan Singh vs Delhi Administration  and King Emperor vs Khwaja Nazir Ahmed 71 IA 203 referred to
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 section 2
The word scheme  as contemplated in section 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 section 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