IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.T.SANKARAN FRIDAY, THE 12TH AUGUST 2011 / 21ST SRAVANA 1933 Bail Appl..No. 4642 of 2011 PETITIONER/ACCUSED -------------------------------------- K.T.GOPINATHAN,S/O.LATE VELAYUDHAN NAIR, AGED 49 YEARS,'NANDANAM',KALARIKKAL ROAD, KOLAZHY,THRISSUR. BY ADV. SRI.M.K.DAMODARAN, SENIOR ADVOCATE SRI.I.DINESH MENON RESPONDENT: COMPLAINANT -------------------------- STATE OF KERALA, REPRESENTED BY CIRCLE INSPECTOR OF POLICE, TOWN NORTH POLICE STATION, ERNAKULAM, THROUGH PUBLIC PROSECUTOR, HIGH COURT OF KERAALA,ERNAKULAM-682031. PUBLIC PROSECUTOR SRI.V.TEKCHAND THIS BAIL APPLICATION HAVING BEEN FINALLY HEARD ON 29/07/2011, ALONG WITH B.A.NOS.5641 AND 5776 OF 2001, THE COURT ON 12/08/2011, PASSED THE FOLLOWING: K.T.SANKARAN, J. ------------------------------------------------------ Bail Appl. Nos.5641, 5776 & 4642 OF 2011 ------------------------------------------------------ Dated this the 12th day of August, 2011 O R D E R B.A. Nos.5641 of 2011 and 5776 of 2011 are under Section 439 of the Code of Criminal Procedure. B.A. No.4642 of 2011 is for anticipatory bail, filed under Section 438 of the Code of Criminal Procedure. 2, The name of accused, rank in the case, Crime number, date of arrest and Bail Application number are shown below. Sl. No Name of accused Rank Crime No. and Police Station Date of arrest Bail Applica tion number 1 Abdul Arshad A9 497/11 Sulthan Bathery 11-6-11 5641/11 Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 2 :: 2 Kunhumuhammad Pradeep Baurajan Shaji Krishnan Arun.B Pratheesh Preyesh Joseph A8 A2 A3 A4 A5 A6 A7 491/11 -do- 10.6.11 5776/11 3 K.T.Gopinathan Town North Police Station, Ernakulam 4642/11 3. The offences alleged against the accused are under Section 420 of the Indian Penal Code and Sections 3 and 4 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (Central Act No.43 of 1978) (hereinafter referred to as ‘Prize Chits Act’.) 4. The prosecution case is the following: Accused No.9 Abdul Arshad is the Managing Director of Bizarre Global Marketing Public Limited Company (hereinafter referred to as the Company). The Company was originally a Private Limited Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 3 :: Company under the name Bizarre Marketing Systems Private Limited, which was incorporated on 2-11-2007. With effect from 18-6-2008, the name of the Company was changed as Bizzare Global Marketing Systems Private Limited. The Company became a Public Limited Company with effect from 14-7-2008. The allegation is that the accused persons induced several persons to subscribe to the membership and to take shares in the Company. The promise extended was that if they take shares, they will get commodities at reduced rates from the Supermarkets to be established by the Company at different places in the State. It was also promised that if those who take shares canvass other persons to take shares, the former would be paid commission. Campaigns were held by the accused to induce persons to invest money. It was promised that those who canvass more persons would get more and more commission. About a lakh people were thus induced to invest money. In the Wynad District alone, more than five thousand persons were so induced to invest money. The promise given by the accused was that within two years, they would get about eight times the money invested by them. The Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 4 :: accused indulged in money chain business under the pretext that they were floating shares of the Company. The investors did not get the returns or the money invested by them. The accused did not fulfill the promises and the investors were cheated. 5. The learned Public Prosecutor submitted that 36 cases were registered in Wynad District against the accused. Crimes were registered against them in other Districts also. It is submitted that the preliminary figures show that a sum of `120 Crores was collected from the investors. A raid was conducted in the office of the Company. Only one computer could be located in the raid. In the two bank accounts located, transactions of only `36 crores were found. It is necessary to find out where more than Rupees Eighty crores were siphoned off. The learned Public Prosecutor submitted that in brochure of the Company, a PAN Card number was shown. On investigation, it was revealed that the same relates to a firm in the State of Madhya Pradesh. 6. The learned Public Prosecutor submitted that the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 5 :: investigation of the cases registered in Wynad District is now being conducted by the Crime Branch. Investigating agency has sought the help of National Investigation Agency to find out whether the money collected from the people was utilized for anti national activities. Investigation revealed that when a person invested `14,750/-, he was given 55 coupons of `100/- each which could be used for purchasing commodities from the supermarkets to be established by the Company. A sum of `750/- was taken as service charges and the balance `8500/- would constitute the share of the investor. 7. Heard Senior Advocate Sri. M.K.Damodaran and Senior Advocate Sri. K.Ramakumar appearing for the Petitioners and Sri.V.Tekchand, the learned Public Prosecutor. 8. Senior Advocate Sri.M.K.Damodaran submitted the following: The first petitioner in B.A. No.5776 of 2011 (Kunhumuhammad) is one of the Directors of “Bizarre Business Corporation Limited”, a company registered under the Companies Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 6 :: Act, 1956. Petitioners 2 to 7 therein are the “subscribers of shares and organizers employed by the said company. Out of 60,000 shareholders of the company, only 42 persons approached the police raising grievances. The petitioners are prepared to pay off the entire liability to the said 42 persons. Majority of the shareholders have not come forward to withdraw amounts invested by them. In view of the provisions contained in Section 76, 205, 235 to 244, 621 and 624 of the Companies Act, the police was not justified in registering the Crimes against the petitioners. No offence under Section 420 of the Indian Penal Code or Sections 3 and 4 of the Prize Chits Act are made out against the petitioners. Powers of the police cannot be misused in matters relating to the affairs of the Company. The Companies Act is a self contained Act and it provides for prosecution in certain matters. Instead of resorting to the machinery provided under the Companies Act, prosecution cannot be initiated against the Company or its directors or members. Even under Section 621 of the Companies Act, a complaint in writing is required. All offences under the Companies Act are non cognizable. This is with the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 7 :: purpose that a few persons should not be allowed to meddle with the affairs of the Company and upset its functioning. Therefore, the police should not have registered the case at all. There is no specific allegation against the Company, its Managing Director or other Directors. It would appear that the grievance of the de facto complainants is that no profit was paid to them. Without there being a profit, dividend cannot be paid. No money circulation scheme is involved in the affairs of the Company. Even if all the allegations made by the de facto complainants are taken as true, no offence is made out. No element of cheating is established. No false representation was made by the Company. Therefore, Section 420 of the Indian Penal Code is also not attracted in the case. The senior counsel submitted that the petitioners are entitled to bail. 9. The petitioner in B.A. No.4642 of 2011 (K.T. Gopinathan) stated in the Bail Application thus: “Petitioner is an employee under Bizarre Business Corporation Limited, Ernakulam. He is working as the Chief Executive Officer of the Company. The Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 8 :: business is owned and operated by one Abdul Arshad, who is the Chairman and Managing Director. Petitioner joined in the Company only on 1.9.2009, whereas the Company was in existence from January 2008 onwards. The Company in which petitioner is working has three subsidiary Companies, namely, Bizarre Global Marketing Systems Limited, Bizarre International Business Private Limited and Bizarre Business Corporation Limited. Petitioner herein is an employee of Bizarre Business Corporation Limited, which had been instituted for the purpose of instituting a chain of Super Markets throughout Kerala.” Senior Advocate Sri. M.K.Damodaran submitted that the Petitioner in B.A. No.4642 of 2011 is entitled to get an order of anticipatory bail. 10. Sri. K.Ramakumar, Senior Advocate, appearing for the Petitioner in B.A. No.5641 of 2011 (Abdul Arshad) submitted that Nijas, who filed the petition before the police admitted that he himself misappropriated money paid by depositors. The Company collects shares and the amounts are invested in Supermarkets. Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 9 :: The shareholders will get premium for the purchases made by them. The Company has paid Rupees Fifty Crores as commission, Rupees Seven Crores as taxes to Government and issued discount cards worth Rupees Thirty Crores. The Company purchased lands worth Rupees Fifty Crores in the name of the Company itself. If so, there is no cheating at all as alleged. Deriving excess profit does not amount to cheating or breach of trust. The business conducted by the Company is permissible business and it is legal. In the year 2002, the then Union Finance Minister stated in the Lok Sabha as to what would constitute multi level marketing and money chain activities. The business run by the Company comes within the parameters laid down by the Finance Ministry. Sri.Ramakumar also submitted that all the relevant records were given to the police and matters were explained to them. The bank accounts of the company were freezed. Custody of the petitioner was given to the police thrice. If bail is granted to the petitioner, there is no question of tampering with the evidence since all the documents were seized by the police. Whichever depositor wants to get back his money, the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 10 :: same will be paid by the Company. The Company was planning to establish supermarkets at 21 stations in the State of Kerala. 11. Sri.V.Tekchand, the learned Public Prosecutor submitted the following: The activities in which the accused indulged themselves would clearly constitute a money circulation scheme within the definition of Section 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act. Persons involved in the money chain business of the Company are ranked just like officers are ranked in military service. Ranking is made depending on the business made by the person concerned by enrolling members. Pratheesh Chacko, who is one of the accused in several cases registered in Wynad District is ranked as ‘major’. Sri.Tekchand submitted that registration of crime under the Prize Chits Act or under Section 420 I.P.C. is not barred under Section 242 of the Companies Act. The provisions of the Companies Act do not bar initiation of criminal proceedings in respect of offences under the Prize Chits Act or the Indian Penal Code. The police does not investigate into the ‘affairs of the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 11 :: Company’ which come under the Companies Act. The Prize Chits Act and the offences thereunder are not covered by the Companies Act. Prize Chits Act is also a Central Act. It cannot be assumed that the Parliament was not aware of the provisions of the Companies Act when the Prize Chits Act was enacted. The offences under the Prize Chits Act are cognizable offences. 12. For the purpose of deciding the questions raised, it is necessary to refer to the relevant provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. (Central Act No. 43 of 1978). Section 2 (c) defines “money circulation scheme” thus: “ “money circulation scheme” means any scheme by whatever name called, for the making of quick or easy money; or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions.” Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 12 :: Sections 3 and 4 of the Prize Chits Act read as follows: “ 3. Banning of prize chits and money circulation scheme or enrolment as members or participation therein.- 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.” “4. Penalty for contravening the provisions of Section 3.- 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.” 13. The learned Senior Counsel appearing for the Petitioners relied on the decision of the Supreme Court in State of Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 13 :: West Bengal V. Swapan Kumar Guha and others: AIR 1982 SC 949 = (1982) 1 SCC 561 wherein it was held that the High Court under Article 226 of the Constitution 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. Referring to the Prize Chits Act, and particularly money circulation scheme, it was held thus: “ Commas or no commas, and howsoever thoughtfully one may place them if they are to be there, I find it impossible to take cl.(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 Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 14 :: 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 ravel afar to find speaking examples of this. Indeed, there are honourable men (and now women) in all professions recognized 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.” 14. In Swapan Kumar Guha’s case, a partnership firm, consisting of three partners, was found to be offering interest at 48% per annum to its members and later reduced to 36% per annum. The loan certificates showed rate of interest only at 12 % per annum. Alleging that payment of the amount in excess of 12% showed that a ‘money circulation scheme’ was promoted, a case was registered against the partners of the firm. Writ Petition was filed by the partners for quashing the FIR and the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 15 :: proceedings. The Calcutta High Court allowed the Writ Petition. State of West Bengal challenged the judgment in appeal before the Supreme Court. The appeal was dismissed. It was held that no ‘money circulation scheme’ was involved in the case. 15. In Kuriachan Chacko V. State of Kerala: 2007 (3) KLT 843, the facts of the case are stated in paragraph 4 of the judgment thus: “The basic facts are simple. The petitioners are persons- partners of a firm and employees, who conduct a Scheme by name “LIS Deepasthambham Scheme”. The scheme is apparently simple in its conception. A person has to pay Rs.625/- and purchase one unit from the promoter. The promoter will make use of Rs.350/- to purchase 35 lottery tickets of the Kerala State Government lotteries each for Rs.10/- for the unit holder for the next 35 weeks. If the unit holder wins any prize upto Rs.5,000/- in the 35 draws in respect of the tickets, the promoter shall collect the same and pay the same to the unit holder. If he wins any prize above Rs. 5,000/-, the ticket shall be handed over to the unit holder for collection. The balance of Rs.275/- will be used to make the unit Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 16 :: holder a subscriber of a magazine by name “Thrikalam” for one year. The said magazine will reproduce relevant and important materials from other magazines. It will also furnish information about the lottery tickets which have won prizes. “ 16. In Kuriachan Chacko’s case, the Kerala High Court held that : ”This is the ingredient of the offence of cheating and to my mind, at least, at this stage, until better explanations are forthcoming it must be assumed and presumed that the accused have committed the offence of cheating punishable under S. 420 of the IPC.” It was also held that the transaction in question amounts to a ‘money circulation scheme’. 17. The judgment of the High Court in Kuriachan Chacko’s was challenged before the Supreme Court. The Supreme Court dismissed the Appeal in Kuriachan Chacko and others V. State of Kerala: (2008) 8 SCC 708. The Supreme Court referred to State of West Bengal V. Swapan Kumar Guha and others: AIR 1982 SC 949 = (1982) 1 SCC 561 and held thus: Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 17 :: “34. In the instant case, both the essentials of Section 2 (c) are present. The Scheme provides for (i) making of quick or easy money, and (ii) it is dependent upon an event or contingency relative or applicable to the enrolment of members into the Scheme. As observed by us, a member would be entitled to double amount only when after his enrolment, additional 14 members are enrolled in the Scheme. The second ingredient, namely, such payment of money is dependent on the “event or contingency relative or applicable to the enrolment of members into the scheme” is thus very much present. Swapan Kumar Guha, therefore, in our considered opinion, does not apply and carry the case of the accused further. 35. It was next contended that there is no obligation on the part of the unit holder to enlist/enroll more members into the Scheme and, therefore, the Scheme does not attract Section 2 (c). The contention has no force. Section 2 (c) nowhere provides that a member of the scheme must himself enroll other members and only in that eventuality, the provision of the Act would apply. The Section Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 18 :: does not provide for positive or dominant role to be played by a member of the scheme. 36. In our opinion, the requirement of law is “an event or contingency relative or applicable to the enrolment of members into the scheme” and nothing more. The plain language of the section does not insist that such enrolment of members must be by the members already enrolled. It is impossible to read into the statutory provision such requirement which is not stipulated by Parliament. Upholding of the argument of the learned counsel would result in rewriting of the section, which is certainly not permissible in our constitutional system. 37. The event or contingency on the happening of which the amount would become payable must be relative or applicable to the enrolment of the members into the Scheme. It is immaterial by whom such members are enrolled. It may be by members, by promoters or their agents or by gullible sections of the society suo motu (by themselves). The sole consideration is that payment of money must be dependent on an event or contingency relative or applicable to the enrolment of more persons into the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 19 :: Scheme, nothing more, though nothing less. In the present case, the second ingredient is very much present.” 18. Applying the principles laid down by the Supreme Court in Kuriachan Chacko’s case, prima facie, it is to be concluded that the transaction in question would amount to a ‘money circulation scheme’ within the meaning of Section 2 (c) of the Prize Chits Act. 19. Now, I shall consider the contention put forward by the Petitioners that going by the provisions of the Companies Act, the police was not justified in registering the Crime and in arresting the Petitioners. 20. Section 76 of the Companies Act provides to what extent a Company may pay commission to any person and in what cases it should not. Section 235 of the Companies Act provides that the Central Government may, where a report has been made by the Registrar under sub-section (6) or (7) of Section 234, appoint one or more competent persons as inspectors to Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 20 :: investigate the affairs of a Company and to report thereon in such manner as the Central Government may direct. Section 237 provides for investigation of company’s affairs in other cases. Section 239 provides for the powers of inspectors to carry investigation into affairs of related companies or of managing agent or associate etc. Section 241 provides for the interim report and final report to be made by the inspectors to the Central Government. 21. Sections 242, 621 and 624 of the Companies Act are extracted below for easy reference. “ 242. Prosecution.- (1) If, from any report made under section 241, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate, whose affairs have been investigated by virtue of section 239, been guilty of any offence for which he is criminally liable, the Central Government may, after taking such legal advice as it thinks fit, prosecute such person for the offence and it shall be the duty of all officers and other employees and agents of the Bail Appl. Nos.5641, 5776 & 4642 OF 2011 :: 21 :: company, or body corporate, other than the accused in the proceedings, to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give. (2) Sub- section (6) of section 240 shall apply for the purposes of this section, as it applies for the purposes of that section.” ” 621. Offences against Act to be cognizable only on complaint by Registrar, shareholder or Government.- (1) No Court shall take cognizance of any offence against this Act which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, or of a shareholder of the Company, or of a person authorized by the Central Government in that behalf: Provided that nothing in this sub-section shall apply to a prosecution by a company of any of its officers: Provided further that the Court may take cognizance of offence relating