1982 (2) TMI 301 - SC - Indian Laws

Whether the F.I.R.. Lodged by the commercial Tax officer, Bureau of Investigation against the firm and its partners discloses an offence under section 3 of The Prize Chits and Money Circulation Schemes (Banning) Act 43 of 1978? Held that - Appeal dismissed. 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 F.I.R. must be quashed as the F.I.R. 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.

Issues Involved:
1. Legality of the FIR against the firm.
2. Definition and applicability of "Money Circulation Scheme" under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
3. Legality of the searches and seizures conducted by the police.
4. The power of the court to quash an investigation.

Detailed Analysis:

1. Legality of the FIR against the Firm:
The primary issue was whether the FIR lodged by the Commercial Tax Officer against the firm and its partners disclosed an offence under Section 3 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The FIR alleged that the firm was conducting a "Money Circulation Scheme" by offering high rates of interest (48% and later 36%) to its depositors, which was above the officially stated rate of 12%. The High Court quashed the FIR, stating that it did not disclose any offence under the Act. The Supreme Court upheld this decision, noting that the FIR did not allege that the scheme was dependent on any event or contingency relative to the enrollment of members, a necessary element for constituting a "Money Circulation Scheme" under Section 2(c) of the Act.

2. Definition and Applicability of "Money Circulation Scheme":
The Court examined the statutory definition of "Money Circulation Scheme" under Section 2(c) of the Act, which requires a scheme for making quick or easy money to be dependent on an event or contingency relative to the enrollment of members. The Court concluded that the mere payment of high interest rates did not constitute a "Money Circulation Scheme" unless it was linked to such an event or contingency. The Court emphasized that the scheme must involve a mutual arrangement where the performance of promises depends on the enrollment of new members. The Court found that the firm's activities did not meet these criteria, as the payment of interest was not contingent upon the enrollment of new members.

3. Legality of the Searches and Seizures:
The searches and seizures conducted by the police were also challenged. The High Court had declared them illegal and ordered the return of the seized items, including a substantial amount of money. The Supreme Court agreed that the searches and seizures were unjustified because the FIR did not disclose any offence under the Act. However, the Court modified the High Court's order by allowing the police to retain the seized items for two months, giving the State and Central Governments an opportunity to investigate the firm's activities under other applicable laws.

4. The Power of the Court to Quash an Investigation:
The Court discussed its power to quash an investigation if the FIR does not disclose a cognizable offence. It reiterated that the police have the statutory right to investigate cognizable offences, but this right is conditioned on the FIR disclosing such an offence. The Court cited previous judgments, including R.P. Kapur v. State of Punjab, which established that the High Court can quash an investigation if the allegations in the FIR do not constitute an offence. The Court found that in this case, the FIR did not disclose any offence under the Act, justifying the quashing of the investigation.

Conclusion:
The Supreme Court upheld the High Court's decision to quash the FIR and the investigation against the firm, as the allegations did not disclose any offence under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The Court also allowed the police to retain the seized items temporarily to enable further investigation under other laws. The judgment emphasized the importance of the FIR disclosing a cognizable offence to justify an investigation and the court's power to intervene when this condition is not met.

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