1980 (9) TMI 282 - SC - Indian Laws

Summary

Issues Involved:
1. Definition and nature of 'Prize Chit'
2. Justification for the enactment of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978
3. Constitutionality of the Act under Articles 19(1)(f) and (g)
4. Alleged discrimination under Article 14
5. Legislative competency under Entry 7 of List III

Summary:

1. Definition and Nature of 'Prize Chit':
Section 2(e) of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 defines a 'Prize chit' inclusively. The quintessential aspects of a prize chit are that the organizer collects moneys in lump sum or instalments, pursuant to a scheme or arrangement, and he utilizes such moneys primarily for his private appetite and for awarding prizes or refunding the money collected. The apparent tenor may not fully bring out the exploitative import lurking beneath the surface of the words which describe the scheme.

2. Justification for the Enactment of the Act:
The State justified the enactment by highlighting the substantial injury to the community caused by prize chits, which had become a pan-Indian epidemic. The Union of India provided socio-economic data and expert opinions, including a report by Dr. J. S. Raj, which exposed the anti-social impact of such schemes and recommended State intervention. The Study Group report and judicial notice, such as the Gujarat High Court decision in Navjivan Trading Financing Pvt. Ltd., underscored the exploitative nature and financial malpractices associated with prize chits.

3. Constitutionality of the Act under Articles 19(1)(f) and (g):
The Court held that Article 19(6) permits reasonable restrictions in the interest of the general public on the exercise of the right conferred by Article 19(1)(g). The twin requirements of Article 19(6) are the reasonableness of the restriction and the compelling need to promote the interest of the general public. The Court found that the total ban on prize chits was justified based on expert opinions and the need to protect the public from unscrupulous racketeers.

4. Alleged Discrimination under Article 14:
The argument that conventional chits and prize chits are substantially similar and that the prohibition of prize chits is discriminatory was rejected. The Court found that the definitions and the Raj Report differentiated between the two schemes, showing different financial features and damaging effects. The exemption of certain categories under Section 11 was also justified as they did not possess the vices of private prize chits and were subject to public control.

5. Legislative Competency under Entry 7 of List III:
The contention that the legislation was aimed at banning lotteries and thus fell within the State List (Entry 34, List II) was rejected. The Court held that the legislation dealt with a special species of contracts with sinister features, including the award of prizes, and was within the competency of Parliament under Entry 7 of List III. The incidental impact on lotteries did not affect the vires of the Act.

Conclusion:
The Court dismissed all the Writ Petitions, upholding the constitutionality of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and emphasized the need for dynamic State action to implement the legislation effectively. The possible hardship to bona fide prize chit promoters could be relieved by the Central Government under Section 12.