minal Appeal No 142 of 1968
Appeal by special leave from the judgment and order dated September 8 1967 of the Madhya Pradesh High Court in Criminal Appeal No 81 of 1966
I N Shroff for the appellant U P Singh and Nur ud din Ahmed for the respondent
126 The Judgment of the Court was delivered by Sikri CJ
This appeal by special leave by the State of Madhya Pradesh is against the judgment of the High Court allowing the appeal of the respondents Mr Basi Ali Khan Mir Shahniwaz Ali khan and Mir Sarfaraz Ali Khan and setting aside the conviction and sentences passed on them by the learned First Additional Sessions Judge Bhopal who had convicted them under Section 120B and Section 420 1
The respondents were however acquitted of the charge under Section 406 1
We may mention that there were two committal orders made by the learned Magistrate First Class Bhopal on April 5 1965 and on October 12 1965 respectively which gave rise to two Sessions Trials No 90 of 1965 and No 98 of 1965
The learned Sessions Judge disposed of both the trials by a single judgment as he was of the view that both the trials were in effect a single trial of a single conspiracy and of several incidents of cheating
The respondents also filed one appeal before the High Court and the High Court disposed of that appeal by one judgment
The facts are not very much in dispute
The prosecution case in brief was that Mir Basit Ali Khan the father and his two sons Mir Shahniwaz Ali Khan and Mir Sarfaraz Ali Khan entered into a partnership which was registered on September 21 1959 under the Indian Partnership Act of 1932 in the State of Andhra Pradesh at Hyderabad
The registration number of the firm was 1468
Mir Basit Ali Khan started a money circulation scheme known as Multi Purpose Constructive Circulation Scheme with its head office at Hyderabad in the year 1960
He alongwith others was prosecuted in the City Magistrate s Court at Hyderabad but they were acquitted and the acquittal was maintained in the High Court
The Magistrate had come to the conclusion that though the scheme appeared to be speculative yet it could not be said that the accused were running the said scheme with a dishonest intention to cheat the public
It is alleged that Mir Basit Ali Khan again organised the Multi Purpose Constructive Circulation Scheme on September 20 1961 at Bhopal with its principal office at Bungalow No 59 Roshanara Naka T T Nagar Bhopal
The firm issued policies and printed pamphlets and handbills representing that it was a Government of India Registered firm No 1468
We may reproduce the pamphlet exhibit P 9  1 which was one of the pamphlets issued by the firm  1 Perform the marriage of marriageable girls by spending only 550 np
127 2
Only after spending once Rs 550 np
send your promising children to America or England for Education
By spending Rs 5
50 nP only once you can meet your daily necessities
By spending Rs 5 50 nP only once make provision for education and books stationery etc etc 5
By spending Rs 550 nP get a big sum of Rs 2309 for the progress of your business
For obtaining all the above mentioned thing you can get a big sum of Rs 2309 by spending only Rs 550 nP Please do come and meet on the address noted below so that you may know how to do it and how to utilise this golden opportunity
Otherwise please do not say that you did not get intimation
 It is necessary to reproduce another pamphlet exhibit P 12 because according to the State there were clear misrepresentations of fact which amounted to cheating Phone  1266
M C C Bhopal M P Grams Jansewak Government of India s Registered X X Firm 1468
The Government of India after establishing the social service Department are doing a great service for the public and to the nation as a whole by spending lacks of rupees
The public have also been exerting manual labour in addition to giving their valuable time
But this Public Service scheme of ours is so unique that without any difficulty every individual of the country receives direct benefit to the extent of Rs 2309 50 by sitting at home
That is remit your admission fee once through the de T T sic and the Government postman will knock down at your doors several times to pay you up the amount
The Founder of this unique formula has placed before you in such a way that a person with ordinary intelligence will be pleased to understand it
HOW THIS IS POSSIBLE Collect Rs550 from each of your three friends and out of this keep Rs 550 for yourself and this remaining Rs 1100 may be remitted according to the schedule
It is thus clear that you have received your original amount of Rs 550 in full immediately after the sale of three Policies
128 From the procedure explained above it is very clear that this is neither a Gambling lottery Riddle nor Satta
There is not the least possibility of your losing the amount
of course such persons will be losers who will not be in a position to sell their three policies
Therefore those persons who do not have the capacity of selling their 3 Policies need not join this scheme
But in our opinion we are confident that there Is no such an unfortunate person who is not having even three well wishing friends or relatives in this vast world
But the question of selling 3 policies by an individual is most important
You should purchase one policy by paying Rs 550 nP from any person who has already enrolled in this scheme or write to the Firm for the policy by sending M 0 of Rs 5
Now select three energetic and enthusiastic friends collect Rs 550 from each of them and remit the M Os
to the members and the Firm as shown in the schedule
Write down the names of your selected 3 friends with their address in full in BLOCK LETTERS ONLY
Send the Policy along with the M 0
receipts to the firm by EXPRESS DELIVERY ONLY
Never send M Os
to persons in column nos
2 they will not get any amount to the extent of THIS POLICY ONLY BUT as and when this Policy goes in circulation they will automatically change their places and enjoy with their expected amount
FIRM S RESPONSIBILITY The firm will send you 3 policies in which you will stand in column No 2 and that of the new member in column No 1
Hand over these policies immediately to your friends carefully
As soon as you finish this job YOUR RESPONSIBILITY IS OVER
The chain of M Os will be continued in such a way that your neighbors will be fed up with postman s voice
Because the beauty of our scheme is that we allow 15 days period for the sale of the policy to each of our member after the expiry of the period we cancel such slack members and the same cancelled policy in which you stand in No 2 is sold to other new members through our authorised agents and field officers who are spread all over India thereby we try our utmost to continue your chain
The cause of failure of other previous Schemes is only due to not having this wonderful arrangement of continuation of Chain to which we give much importance
For this reason only we are having a very 129 good response  our to days membership number is more than a lack all over India
Under unavoidable circumstances extension of one week can be given on payment of extension fee of 037 nP SCHEDULE section NO
No of Policies Amount payable Column No 1 1 550 2 3 Nil 3 9 900 4 27 2700 5 81 8150 6 243 36450 7 729 182250 Total No of Policies 1093 230950 MOST IMPORTANT  If your chain of M Os are discontinued for two weeks Please inform us immediately so that they may be continued
MEER BASITH ALI KHAN Author of Dukhi Kisan approved by the Ministry of Agr
of India Founder of full House Talkie Formula Regd
by Govt
of India No 104 Proprietor M C C Govt
of India s Regd
Firm No 1468 Bhopal
TIME IS MONEY  If you are inclined to become agent contact us and enjoy with the commission of 350 np
per member
The Chief agent will get 75 P M salary as well as commission of Rs 350 per member
The advertisement expenses will also be borne by the The learned Sessions Judge had come to the conclusion that the respondents by using the expression Government of India Registered Firm No 1468 in their policies and pamphlets misled the public into believing that the scheme was sponsored by the Government of India or it had its approval
He also came to the conclusion that there was a misrepresentation in the pamphlet that the scheme was neither a gambling lottery riddle or a satta but was an ordinary financial scheme
The learned 9 1 SC India71 130 Sessions Judge had further found that as the remitter of the money orders was always Mir Basit Ali Khanrespondent No 
I and the Proprietor of M C C the member of the policy was left only with a small piece of paper exhibit P 69 the scheme contained a misrepresentation and suppression of material facts which made the respondents liable for conspiracy to cheat and cheating
The High Court however held that it being not in dispute that the firm was registered and its number was 1468 there was no fraudulent or deceitful representation
The High Court further held that most of the witnesses had clearly stated that they had known the fact that it was a private firm and the Government had nothing to do with it
The High Court was of the view that the statement may be an exaggeration or a puffing
The High Court after going through the evidence and the various
pamphlets came to the following conclusion There appears to be no misrepresentation or suppression of any material facts with a view to defraud or cheat
How so ever speculative and unworkable the scheme may be unless it is shown that there is a false representation or suppression of the material facts which might render it to be fraudulent it cannot be said that the offence of cheating has been committed
of course to judge its effect the policy and the pamphlet has to be read as a whole
 The High Court further observed after referring to a number of cases which we will presently deal with In this scheme as aforesaid the purchaser also got his amount alright and one can expect to get even more provided the Chain continued
As the policy with its rules and pamph let make it quite clear the appellants cannot be held guilty unless it is positively shown that some deception had been practiced on the public with the result that they were deceived and they had paid the money
The prosecution has not produced any witness to say that some money was due from the company and they have been in any way deceived and the amount has not been paid
It is only the
Jhua lot of witnesses who could not be paid because of the police raid and the Ms being withheld by the Magistrate
 The High Court further found that the name of
Mir Basit Ali Khan Proprietor M C C was mentioned simply because it was a chain scheme and that it may go on working continuously otherwise there is every possibility that some policy holder might not send the full amount or may not be traceable for one reason 131 or the other
The High Court observed that nothing was kept secret from the policy holders and it was known to them alright that they had joined the scheme with the conditions laid down in the policy and the pamphlet
The High Court did not think that the size of the taken had anything to do with cheating
The High Court accordingly came to the concl usion that the respondents had committed no offence
Regarding the money which had been seized by the police the High Court said that the money belonged to the policy holders and the respondents and it was a case where the money in question had to go back to them and it could not be ordered to be confiscated
The High Court accordingly directed that the respondents would be entitled to get back their amount which had been withheld as property in the Sessions Trials referred to above
It is common ground that the Scheme is highly speculative and the question which arises is whether it amounts to cheating under Section 420 1
The learned counsel for the State stresses the following facts 1None of the 2000 odd persons who purchased the policy had received Rs 230950 the assured amount in the policy
2 The large amounts of Rs 90750 and Rs 552587 95 were obtained by the respondents showed the extent of wrongful gain by them
3The policy holders had no control over other Policy holders which would assure continuance of the scheme
4Merely because some persons received some amount it could not be inferred that the scheme was not fraudulent 5The evidence showed that the names entered in columns 3 4 5 6 and 7 were bogus and that 2696 money orders were sent back to the remitter as the persons were not traceable because of wrong addresses on the form
The learned counsel for the respondents contends that since the year 1939 similar schemes have been held not to fall within Section 420 I P C  and the legislature must be deemed to have accepted the law as laid down in the cases
The learned counsel has drawn our attention to two decisions of the Calcutta High Court on similar schemes
The earliest case pointed out by the learned counsel is Radha Ballav Pal vs Emperor In that case 1 A I R 132 the society was described as Government Registered No 5934
registered under Act 11 of 1932
The High Court held that it was not a misrepresentation as this society was actually registered under that Act
Regarding the scheme the High Court held on the facts of that case that the scheme was one of those snowball schemes which were speculative to the highest degree and unworkable but it was not dishonest or fraudulent in the sense that it either represented to the public something which was not true or concealed from them something which should have been disclosed
The High Court thought that it was an appeal to the gambling instinct of humanity but this cannot per se amount to cheating
This case was followed by another Bench of the Calcutta High Court in Hari Das Barat vs Emperor 1
The headnote brings out the decision thus  Promoters of a financial snowball scheme which could run only so long as there would be a continuous uninterrupted and enormously progressive increase in subscribers but which could not go on indefinitely would not be guilty of cheating in the absence of false representations and dishonest concealment of facts either in the prospectus issued or in the conduct of the promoters calculated to deceive the public and thereby induce it to contribute money to the scheme
 These cases were distinguished in Nadir Barga Zaidi vs The State of U P 1 as the High Court felt that on the facts of that case there were misrepresentations made to the depositors and certain facts had been dishonestly concealed from them
In re M K Srinivasan 3 the facts were slightly different and the case does not assist us
It seems to us that the Calcutta cases referred to above were correctly decided and the High Court came to the correct conclusion
This appeal must accordingly fail
It is for the legislature to intervene if it wants to protect people who participate in these schemes knowing that sooner or later the schemes are bound to fail
In the result the appeal fails and is dismissed
G C Appeal dismissal
1 2 A 1
R 1960 All
3 AIR1944Mad 410


Summary:
The respondents organised a money circulation scheme
For alleged cheating and misrepresentation in connection therewith they were convicted by the Sessions Judge Bhopal under section 120B and section 420 Indian Penal Code
The High Court however acquitted them
The State of Madhya Pradesh by special leave appealed to this Court
In support of the appeal the following facts were stressed 1 None of the 200 odd persons who purchased the policy issued under the scheme received Rs 230950 the assured amount in the policy
2 The large amounts of Rs 90750 and Rs 55258795 were detained by the respondents and showed the extent of wrongful gain by them
3 The policy holders had no control over other policy holders which would assure continuance of the scheme
4 Merely because some persons receive some amount it could not be inferred that the scheme was not fraudulent
5 The evidence showed that the names entered in columns 3 4 5 6 and 7 of the pamphlet issued by the respondents were bogus and that 2696 money orders were sent back to the remitter as the persons were not traceable because of wrong address on the form
HELD As held by the Calcutta High Court in Radha Ballav Pal s case and Haridas Barat s case there was an element of speculation in money circulation schemes but those who ran them could not be held guilty of cheating unless there was misrepresentation or dishonest concealment of facts
It could not be said in the present case that the respondents had deceived the public and thereby induced it to contribute money to the scheme
The appeal must accordingly fail
131H 132F Radha Ballav Pal vs Emperor AIR 1939 Cal
327 and Hari Das Barat vs Emperor  approved
Nadir Barga Zaidi vs State of UP
AIR 1960 All 103 and In re M K Srinivasan AIR 1944 Mad 410 referred to
It is for the legislature to intervene if it wants to protect people who participate in these schemes knowing that sooner or later the schemes are bound to fail
132F G