ORIGINAL JURISDICTION: Writ Petition Nos. 711, 138, 1152 & 1546 of 1979.
(Under Article 32 of the Constitution)
K. K. Venugopal and A. Subha Rao for the Petitioners in WP Nos. 138, 711 of 79.
M. M. Abdul Khader, M. A. Feroze, M.R.K. Pillai and K. R. Rajasekharan Pillai for the Petitioner in WP No. 1152/79.
B. Kanta Rao, P. Ram Reddy and G. Narayana Rao for the Petitioner in WP No. 1546/79.
K. Parasaram, Solicitor-Genl and Miss A. Subhashini for the Respondent (Union of India).
P. Ram Reddy and G. N. Rao for the Respondents in WP No. 1546/79.
K. R. Nambiar for Respondent No. 3 in WP No. 1152/79.
P. H. Parekh, C. B. Singh & Rajian Karanjawala for the Intervener in WP No. 711/79.
The Judgment of the Court was delivered by
Section 2(e) of the Prize Chits and Money Circulation Schemes (Banning) Act. 1978 (Act 43 of 1978) (for short, the Act) defines a ’Prize chit’ inclusively:-
2. In this Act, unless the context otherwise requires,-
(e) "prize chit" includes any transaction or
arrangement by whatever name called under which a
person collects whether as a promoter, foreman, agent
or in any other capacity, monies in one lump sum or in
instalments by way of contributions or subscriptions or
by sale of
units, certificates or other instruments or in any
other manner or as membership fees or admission fees or
service charges to or in respect of any savings, mutual
benefit, thrift, or any other scheme or arrangement by
whatever name called, and utilises the monies so
collected or any part thereof or the income 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 subscribers the whole or part of the money collected on the termination of the scheme or otherwise. The apparent tenor may not fully bring out the exploitative import lurking beneath the surface of the words which describe the scheme. Small sums are collected from vast numbers of persons, ordinarily of slender means, in urban and rural areas. They are reduced to believe by the blare of glittering publicity and the dangling of astronomical amounts that they stand a chance-in practice, negligible-of getting a huge fortune by making petty periodical payments. The indigent agrestics and the proletarian urbanites, pressured by dire poverty and doped by the hazy hope of a lucky draw, subscribe to the scheme although they can illafford to spare any money. This is not promotion of thrift or wholesome small savings because the poor who pay, are bound to continue to pay for a whole period of a few years over peril of losing what has been paid and, at the end of it, the fragile prospects of their getting prizes are next to nil and even the hard-earned money which they have invested hardly carries any interest. They are eligible to get back the money they have paid in driblets, virtually without interest, the expression ’bonus’ in s. 2(a) being an euphemism for a nominal sum. What is more, the repayable amount being small and the subscribers being scattered all over the country, they find it difficult even to recover the money by expensive, dilatory litigative process.
Since there are a large number of prize chits all over the country which have almost become a pan-Indian epidemic and since the total number of people victimised by these projects are considerable the injury to the community is substantial, so that a welfare state dedicated to the Directive Principles of Part IV has to awake and protect the vulnerable sector. Another weighty factor which has alerted the State into action is that the flood of funds flowing through prize chits benefit the organisers of such schemes who have no social responsibility for national productivity and in their hands is easy money with little developmental benefits or attractive returns for the poor investors.
The noxious net cast by the prize chit promoters was large and the State moved to stop this menace. Many a little makes a mickle, and those small sums collected from a substantial number of subscribers accumulated 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 antisocial 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 schemes on the host of luckless illiterates succumbing (perhaps astrologically) to the prize mania:
....It was observed that several companies
conducting prize chits, benefits or savings schemes or
lucky draws claimed themselves to be either mutual
benefit financial companies (by enrolling subscribers
as ’associate’ members under the directions as they
stood prior to January 1, 1973) or as chit fund
companies and thus contended that the subscriptions
collected by them were not ’deposits’ as defined in the
directions and hence not subject to any ceiling
restrictions..... Modus Operandi of Prize Chits/Benefit or Savings Schemes or
Lucky Draws
6.3. Companies conducting the above types of
Schemes are comparatively of a recent origin and of
late, there has been a mushroom growth of such
companies which are doing brisk business in several
parts of the country, especially in big cities like
Ahmedabad, Bangalore, Bombay, Calcutta and Delhi. They
have also established branches in various States. These
companies float schemes for collecting money from the
public and the modus operandi of such schemes is
generally as described below:
The company acts as the foreman or promoter
and collects subscriptions in one lump sum or by
monthly instalments spread over a specified period
from the subscribers to the schemes. Periodically,
the numbers allotted to members holding the
tickets or units are put to a draw and the member
holding the lucky ticket gets the prize either in
cash or in the form of an article of utility, such
as a motor car, scooter etc. Once a person gets
the prize, he is very often not required to pay
further instalments and his name is deleted from
further draws. The schemes usually provide for the
return of subscriptions paid by the members with
or without an additional sum by way of bonus or
premium at the end of the stipulated period in
case they do not get any prize. The principal
items of income of these companies are interest
earned on loans given to the subscribers against
the security of the subscriptions paid or on an
unsecured basis as also loans
to other parties, service charges and membership
fees collected from the subscribers at the time of
admission to the membership of the schemes. The
major heads of expenditure are prizes given in
accordance with the rules and regulations of the
schemes, advertisements and publicity expenses 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 promotercompanies 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 Bank which also demonstrated the many sinister effects upon the community on account of proliferous prize chits-benefits schemes.
(a) the companies had advanced sizeable amounts to
the directors or their relatives or firms in which they
were interested as partners, directors or as commission
agents and there were practically no repayments of the
loans;
(b) the books of account had not been maintained
satisfactorily;
(c) close relatives of the directors had been
employed in the companies as members of the staff or as
agents on high salaries;
(d) In one case, it was observed that a scheme
announced by a company in which collections had been
made was withdrawn subsequently without notice to the
subscribers and no refunds of the subscriptions already
received had been made to the subscribers. Prize moneys
had not been paid to all the subscribers who had won
the prizes; and
(e) subscriptions were shown to have been refunded
in the books of account of a company but doubts have
been expressed by the Inspecting Officer about the
genuineness of the payments in view of certain
attendant circumstances. There have also been
allegations that some companies had resorted to certain
malpractices in drawing the names of prize winners.
** ** **
........ in the absence of any authoritative judicial
pronouncement on the subject, we are not sure whether
the activities of companies conducting price chits,
etc., are clearly prohibited by the existing
legislations.
6.10. It has been reported that resources of prize
chits are used for wasteful spending and hoarding
commodities and that these schemes "enable certain
persons to convert tax-evaded income into accounted
money. The persons concerned pay a premium to the
promoters in return for the facility." It has also been
stated that "there are a number of agents who go about
contacting persons who are likely to face the problem
of saving their income from the tax authorities. The
prize chit pass books issued to them under different
names become their passports for travelling from black
money territory to the white money area-the easiest and
surest way of using ill gotten wealth. Besides, by
their misleading names and companies the prize chit
companies divert private savings into their personal
drains, thus disrupting the national economy.
6.11. From the foregoing discussion, it would be
obvious that prize chits 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 particular, he cited a decision of the Gujarat High Court in Navjivan Trading Financing Pvt. Ltd. Thakkar, J. while dealing with the social anguish at the exploitative spectacle, said :
The facts speak for themselves so eloquently that
no further discussion is called for and it is
unnecessary to demonstrate any further that the company
is in such a precarious condition and the financial
condition is so very ugly that there is no possibility
whatsoever of the company ever being in a position to
pay its debts. It is not in a position to-day and, even
in future, it is not likely to be in a position to
discharge the debt burden. In fact, the deficit will go
on increasing and for aught we know, more innocent
persons would be trapped meanwhile. The contributors
from whom collections are made are persons with
extremely limited financial means and are petty
subscribers who cannot possibly afford to take recourse
to legal proceedings. It would be cheaper for them to
abandon their claims than to make recourse to legal
proceedings and incur expenses for court-fees and
advocates’ fees, apart from the inconvenience involved
therein.
With special reference to malpractices of prize chits promoters the learned Judge drove home the point;
Where the company is not producing or
manufacturing any goods and is not rendering any
service useful to the society, where the whole purpose
of its existence appears to be to provide the directors
with an opportunity to enrich themselves at the cost of
petty subscribers who in the hope of getting some
prizes or rewards and better returns on their hard
earned
savings (sometimes they may even resort to borrowing in
the hope of getting rich quickly) become contributories
to various schemes floated by the company, the matter
stands on a different footing. In a case like the
present where the main activity of the company consists
in tempting and roping in innocent persons in the
scheme by publishing tantalizing advertisements,
greater harm would ensue by refusing to pass an order
of winding up than by passing an order of winding up.
In fact, to wind up such company would be an act of
social service, for, thereby, several innocent persons
would be saved from being trapped by a company of this
nature. Alas, as discussed earlier, the time taken in
affording reasonable opportunity to the company in
obeisance to the principles of natural 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 be glibly imposed unless effective alternatives are unavailable. Counsel on both sides cited rulings for the two sides of the proposition but it is an act of supererogation to load judgments with or profusion precedential erudition to make out what is plain, profound.
The twin requirements of Art. 19(6) are (a) the reasonableness of the restriction upon the fundamental right to trade, and (b) the measure of the reasonableness being the compelling need to promote the interest of the general public. Public interest, of course, there is. But the controversy rages round the compulsive necessity to extinguish the prize chit enterprises altogether as distinguished from hand-cuffing them with severe conditions geared to protection of public interest. We have already indicated that the Raj Report does recommend a total ban on prize chits. In matters of economics, sociology and other specialised subjects, courts should not embark upon views of halflit infallibility and reject what economists or social scientists have, after detailed studies, commended as the correct course of action. True, the final word is with the court in constitutional matters but judges hesitate to ’rush in’ where even specialists ’fear to tread’. If experts fall out, court, perforce, must guide itself and pronounce upon the matter from the constitutional angle, since the final verdict, where constitutional contraventions are complained of, belongs to the judicial arm. The alternative proposals to save the public from prize chit rackets attractively presented by Shri Venugopal do not impress us. In many situations, the poor and unwary have to be saved from the seducing processes resorted by unscrupulous racketeers who glamourize and prey upon the gambling instinct to get rich quick through prizes. So long as there is the resistless spell of a chance though small, of securing a prize, though on paper, people chase the prospect by subscribing to the speculative scheme only to lose what they had. Can you save moths from the fire except by putting out the fatal glow ? Once this prize facet of the chit scheme is given up, it becomes substantially a ’conventional chit’ and the ban of the law ceases to operate. We are unable to persuade ourselves that the State is wrong in its assertion, based upon expert opinions that a complete ban of prize chits is an over-kill or excessive 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 violation of Art. 14.
Equally untenable is the contention that there is a discriminatory exemption from the operation of the prohibition in regard to those categories of prize chits which fall within s. 11. It runs thus:
11. Nothing contained in this Act shall apply to
any prize chit or money circulation scheme promoted by-
(a) a State Government or any officer or
authority on its behalf; or
(b) a company wholly owned by a State
Government which does not carry on any business
other than the conducting of a prize chit or money
circulation scheme whether it is in the nature of
a conventional chit or otherwise; or
(c) a banking company as defined in clause
(c) of section 5 of the Banking Regulation Act,
1949, or a banking institution notified by the
Central Government under section 51 of that Act or
the State Bank of India constituted under section
3 of the State Bank of India Act, 1955, or a
subsidiary bank constituted under section 3 of the
State Bank of India (Subsidiary Banks) Act, 1959,
or a corresponding new bank constituted under
Section 3 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970, or a
Regional Rural Bank established under section 3 of
the Regional Rural Banks Act, 1976 or a co-
operative bank as defined in clause (bii) of
section 2 of the Reserve Bank of India Act, 1934;
or
(d) any charitable or educational institution
notified in this behalf by the State Government,
in consultation with the Reserve Bank. A bare reading of that provision makes it clear that the exempted categories do not possess the vices of private prize chits. For one thing, what are exempted are prize chits and money circulation schemes promoted by or controlled by the State Governments, the Central Government or the State Bank of India or the Reserve Bank. Even Rural Banks and Co-operatives covered by s. 11, are subject to public control. Likewise, charitable and educational institutions are exempted only if they are notified by the State Government in consultation with the Reserve Bank. There are enough arguments to justify the different classification of these items and their exemption cannot be called in question on the ground of violation of Art. 14. Reasonable classification wins absolution from the charge of discrimination if the differentia has a nexus with the statutory object.
The final submission 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 antilottery 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.
Judicial validation of a social legislation only keeps the path clear for enforcement. Spraying legislative sociomoral pesticides cannot serve any purpose unless the target area is relentlessly hit. We hope that this legislation enacted in response to expert recommendation and popular clamour will be implemented by dynamic State action.
We wish to make it clear that the possible hardship that bona fide prize chit promoters may suffer on account of the total prohibition clamped down by this legislation can be relieved against by the Central Government acting under s. 12. The learned Solicitor General assured the court that the Union of India would take ameliorative measure to avoid unjust hardship, especially because it had power to do so under s. 12.
Mr. M. M. Abdul Khader appearing in Writ Petition No. 1152 of 1979 argued that in his case ornaments and vessels were given as prizes and if strictly construed, his client’s scheme did not fall within the scope of the Act. He wanted the court to declare so but we decline to do so, since under Art. 32 this Court’s function is not to give advisory opinion to petitioners but to pronounce upon transgression of fundamental rights by State action. While there is no merit in his submission of procedural unreasonableness in the provisions of the Act, it is perfectly open to the writ petitioner to urge his plea that the Act does not apply to his scheme if he were prosecuted. We leave the matter at that. Shri Parekh, as intervener, Shri Kanta Rao, appearing in Writ Petition No. 1546/79, Shri Subba Rao pressing Writ Petition No. 138/79 and Shri K.R.R. Pillai in W.P. No. 1152/79 have adopted the leading arguments of Shri Venugopal which we have rejected. All of them must share the same fate.
State lotteries escalating year after year and enticing proletarian sections of the people across the States are dubious in morality and ruinous in impact. Moreover, a detailed study may disclose the diminishing returns and increasing establishment expenses, menace to peaceful life and a traffic and dubious consequences. So much so, a second look at the propriety of these State-run schemes and reversion to the old stance of the State setting an antilottery example, is worthwhile from many angles.
For the reasons given above, we dismiss all the Writ Petitions, leaving the parties to bear their own costs. N.V.K. Petitions dismissed.