TMI Blog1980 (9) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein, but does not include a conventional chit; 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 utilises such moneys as he fancies primarily for his private appetite and for (1) awarding periodically or otherwise to a specified number of subscribers, prizes in cash or kind and (2) refunding to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated into huge resources which otherwise would ordinarily have been available for national development. The grim picture of the luckless many who were losing their money, appetized by gambling prospects, and the sterilization of people's resources which were siphoned off by private adventurists through prize chits to the detriment of national development ignited the impugned legislation. Such is the case of the State as justification for enacting what is contended for as unconstitutional for three reasons which we will presently examine. The Union of India has furnished socio-economic data to help the court appreciate how expert opinion had been collected before launching on the prohibitory legislation. A study group headed by Dr. J. S. Raj made a report to the Central Government wherein pointed reference was made to prize chits and allied schemes. The report devoted a whole chapter to prize chits, savings schemes, and others of their ilk and exposed the modus operandi of such schemes and their anti- social impact upon the community and recommended to the State to intervene and interdict. We may quote briefly to bring home tersely the trauma inflicted by lucky draw scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses and remuneration and other perquisites to the directors. The financial fall-outs of these schemes were also examined by the Study Group to demonstrate how the promoter- companies were gargantuan and were swallowing up huge surpluses from the public who lost interest on their subscriptions, and, sometimes, even the principal amounts paid : .... Even if the company offers some amount by way of bonus or premium to the subscribers at the time of refund of their subscriptions and allowing for reasonable expenditure on publicity, commission to agents, etc., a sizeable balance will still be left with the company. This is exclusive of the amounts which the company might be collecting by way of membership fees and service charges from the subscribers and also of the amounts which it might be appropriating in respect of the subscriptions on forfeited tickets on which there will be no future liability for refund to the members at the end of the scheme. It will thus be obvious from the foregoing that such schemes confer monetary benefit only on a few members and on the promoter companies. There is reference in the Study Group report to other studies conducted by the Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its or benefit schemes benefit primarily the promoters and do not serve any social purpose. On the contrary, they are prejudicial to the public interest and also adversely affect the efficacy of fiscal and monetary policy. There has also been a public clamour for banning of such schemes; this stems largely from the malpractices indulged in by the promoters and also the possible exploitation of such schemes by unscrupulous elements to their own advantage. We are, therefore, of the view that the conduct of prize chits or benefit schemes by whatever name called should be totally banned in the larger interests of the public and that suitable legislative measures should be taken for the purpose if the provisions of the existing enactments are considered inadequate. Companies conducting prize chits, benefit schemes, etc., may be allowed a period of three years which may be extended by one more year to wind up their business in respect of such schemes and/or switch over to any other type of business permissible under the law. (emphasis added) The learned Solicitor General drew our attention to cases where the notorious abuses by prize promoters had attracted judicial notice. In partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral justice has been utilised by the company to collect lakhs of rupees from the innocent subscribers merely in order to enrich the directors in an unjust fashion. Under the circumstances, there is no scope for hesitation or reluctance in winding up the company which the court ordinarily feels when dealing with some manufacturing unit. (emphasis added) There is sufficient justification for undertaking legislation restricting the freedom to fleece through prize chits. Indeed, Shri Venugopal did not seriously contest this position. The thrust of his argument was that his client was a well-behaved prize chit organizer, above board in all respects, and so, a package of proper safeguards would adequately protect the community and a total ban was recklessly excessive, unintelligently over-broad and, therefore, unconstitutional. Surely, Art. 19(6) permits reasonable restrictions in the interest of the general public on the exercise of the right conferred by Art. 19(1)(g). It is a constitutional truism restrictions, in extreme cases, may be pushed to the point of prohibition if any lesser strategy will not achieve the purpose. Fundamental rights are fundamental, and so, no ban can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive blow. Therefore, we decline to strike down the legislation on the score of Art. 19(1)(f) and (g) of the Constitution. We may not be taken to mean that every prize chit promoter is a blood-sucker. Indeed, Shri Venugopal persuasively presented the case of his client to make us feel that responsible business was being done by the petitioner. May be. But when a general evil is sought to be suppressed some martyrs may have to suffer for the legislature cannot easily make meticulous exceptions and has to proceed on broad categorisations, not singular individualisations. We give short shrift to the next contention based upon Art. 14. Broadly presented, the argument is that conventional chits and prize chits are substantially similar and, therefore, permission to continue 'conventional chits' and prohibition of prize chits altogether may be discriminatory. We do not agree. Not only do the definitions show the differentiation between the two schemes, but the Raj Report also brings out the fact that 'conventional chits' and 'prize chits' are different categories with different financial features and different damaging effects. We see no force in the plea of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri Venugopal was regarding legislative competency. He urged that legislation regarding lottery falls within the State List (Entry 34, List II) and Parliament cannot enact such a law under Entry 7 of List III. Relying upon State of Bombay v. R.M.D. Chamarbugwala counsel contended that the present legislation was aimed at prize chits and intended to ban lotteries. Such an anti- lottery law could not be sustained under Entry 7 of the List III. We are not persuaded that in pith and substance the present legislation is one against lotteries. It deals with a special species of contracts with sinister features, although one such feature is the award of prizes to subscribers. While motives cannot validate or invalidate a legislation the core of the subject matter must govern competency. So viewed, it is easy to accept the submission of the Union of India that Parliament wanted to restrict and prohibit certain types of contracts because of the noxious element of gambling and lottery implicit therein and apt to entice the credulous and uncautious. We do not think it necessary to expand on the subject and the incidental impact on lotteries does not affect the vires of the Act. Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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