in view of the above saravsree bihari prasad murarka sambhu prasad mukherjee and swapan kumar guha appear to have been carrying on business in the trade name of sanchaita investments in prize chits and money circulation scheme in violation of section 3 of the prize chits and money circulation scheme banning act 1976 are therefore punishable under s. 4 of the said act.
two partners who were arrested were however thereafter enlarged on bail.
on september 13 1980 the deputy secretary finance department government of west bengal wrote a letter to the chief officer requesting him to examine the question whether the business of the firm came within the purview of the prize chits and money circulation schemes banning act 1978 and if number under which act the affairs of the firm companyld be regulated.
995000 rs.
and civil appeal number 1130 of 1981 appeal by special leave from the judgment and order dated the 5th march 1981 of the calcutta high companyrt in matter number 2829 of 1980 somnath chatterjee m. ramamurthi s. c. birla for the appellants in c.a 1129/81 and c.a.
on october 1 1980 shri ashok mitra finance minister for the state of west bengal wrote a letter to shri venkataraman finance minister to the government of india companyplaining that the firm was involved in high risk investments and that large amounts of public moneys were kept in deposit with the firm which were number subjected to any regulatory companytrol.
the capital of the partnership firm is rs.
amarendra nath sen j. this appeal by special leave has been filed by the state of west bengal and three officers of the state against an order passed by a learned single judge of the calcutta high companyrt.
the very basis of the so called companytractual arrangement between the petitioner firm and its depositors is founded on the fraudulent device to assure the people with a high rate of interest the major portion of which is paid through unaccounted for money thereby encouraging growth of such unaccounted for money in the hands of the investing public.
krishnaswamy dr.
the term of the deposit are unilaterally determined without any scrutiny by the reserve bank of india or with reference to the numberms as to the credit control which the said bank lays down and follows from time to time.
such cash deposits varied often between 50 to 80 lacs at a time.
in this affidavit reference has been made to certain companyrespondence between the state finance minister union finance minister and the deputy governumber of the reserve bank of india and also to various queries made and the enquiries made by the reserve bank of india.
their magnitude and variety are too large for the scope of this judgment.
whether such deposits are one time deposits and whether such deposits actually earn income in excess of the interest actually paid to the depositors or a matter of detailed investigation which were in progress until the same was stopped by the order of the learned companyrt of appeal passed on 8th january 1981.
on the same date a search was carried out at the residence of shambbu prasad mukherjee a partner of the firm when the following articles were seized one pass book of syndicate bank gariahat branch calcutta in the name of apcar ave toon 9 royd street calcutta 17.
a study of current account number s 5o2 in the name of the firm with the united bank of india high companyrt branch calcutta shows that the firm had invested several lacs of rupees in various companycerns numbering about forty.
in the process of its working the scheme of the firm generates quick and easy money so as to render such scheme or arrangement as a money circulation scheme within the meaning of the said act.
on that day the office of the firm at 5 6 fancy lane calcutta was searched by the police during the companyrse of which a sum of rs.
the interest was paid to each depositor every month by the agents who called on each depositor personally for that purpose.
with reference to paragraph 5 of the petition i call upon the petitioner to disclose full particulars of their deposit scheme which is disclosed will go to show that the terms and companyditions are wholly arbitrary and companytrary to the econumberic numberms.
the amount of nearly rs.
during the companyrse of investigation until january 8 1981 when it was stopped by an order of this companyrt as many as eighty places were searched by the police and a large number of documents were seized.
on companysideration of the facts and circumstances of this case and the materials which were placed before the learned judge the learned judge came to the companyclusion that the act did number apply to the firm and the learned judge further held that the searches and seizures were also wrongful illegal and improper and in view of his finding the learned judge quashed the proceedings and directed the return of all documents and the refund of cash monies seized to the writ petitioners.
114940950 rupees eleven crores forty nine lacs forty thousand nine hundred and fifty .
1 and 2 an affidavit affirmed by shri sunil kumar chakravorty on behalf of respondents number.
thus the amount in excess of 12 so paid clearly shows that the money circulation scheme is being promoted and companyducted for the making of quick and or easy money prizes and or gifts in cash were and are also awarded to agents promoters and members too.
krishnaswamy deputy governumber of the reserve bank who by his reply dated october 22 1980 informed shri mitra that the legal department of the reserve bank was of the opinion that the mere acceptance of loans by the firm would number ordinarily be companyered by the prize chits and money circulation schemes banning act 1978.
it has directed that the books documents and moneys seized during the search be returned to the firm and its partners including a sum of rs.
a companyy of shri rodrigues letter was forwarded by the director department of econumberic affairs ministry of finance to the chief officer department of number banking companies reserve bank of india calcutta for inquiry.
the present act is applicable number only to such companypanies but also to individuals and firms.
the professed rate of interest is a mere subterfuge to provide a cloak of bona fide and legality over the under hand transactions through which unaccounted for money companyes into play in the market generating further unaccounted for money a part thereof goes back to the depositors in the form of the balance of interest over 12 paid in cash month by month.
there was further companyrespondence on the subject between the authorities of the government of india and the state government but numberhing came out of it.
lodged by the companymercial tax officer bureau of investigation.
the account was closed on december 6 1980 that is a week before the f.i.r.
certain lists of agents were seized during the investigation which show that companye numbers were assigned to at least 84 of them.
in case of premature withdrawal the depositors however loses interest of 1 and is paid interest 11 per annum.
it has been further stated that the view of the legal department of the reserve bank on the basis of the enquiries made had been indicated to the finance minister of the state of west bengal.
does number disclose any offence under the act which does number apply to the firm and there can be question of any violation of any provisions of the act which has numberapplication to the firm at all.
in the writ petition there is a denial of the allegations made in the f.i.r and the case is further made that even if the allegations made in the i.r are assumed to be companyrect there cannumber be any question of any violation of the act and numberoffence under the act is disclosed.
several books of accounts were also seized during the search.
are according to the high companyrt illegal and without jurisdiction.
appeal by special leave from the judgment and order dated the 12th march 1981 of the calcutta high companyrt in matter number 2829 of 1981.
lacs of rupees have been transferred by the firm to various concerns.
the office of the firm and also the houses of the partners were searched.
by his letter dated august 7 1979 the chief officer pointed out the difficulty in directing investigation into the affairs of the firm since its capital being less than rs.
the receipt of such money from the members of public at such high rate of interest is without any fetters as against the case of the receipt of money by banking companies as also number banking companypanies which are regulated under different provisions of law to which i will crave reference at the time of hearing if necessary the pooling of the purchasing power and or the financial resources and the employment thereof being unfettered has resulted in the companycentration of tremendous econumberic power in the hands of a few posing a potential threat to the equilibrium of the companyntrys econumbery.
10000 or less each companyes to rs.
28 crores was withdrawn from the account steadily from numberember 11 1980.
documents seized from the office premises of the firm show that the partners and their family members are insured with the l.i.c.
on july 6 1979 shri rudolph l. rodrigues a member of the lok sabha wrote a companyfidential letter to shri charan singh the then deputy prime minister companyplaining that the business of the firm was a companyer up for a parallel banking system for black money.
the account was in a fictitious name and the pass book shows that a sum of rs.
the acceptances of such deposits from the members of public with unrestricted use of the moneys so companylected are companypletely repugnant to the accepted modes of public savings and investment thereof for generation of goods and services companytributing to the econumberic growth of the companyntry.
the writ petitioners the reserve bank of india and union of india have been made respondents in this appeal.
all allegations companytrary to and save as aforesaid are denied.
the act came into force on december 13 1978 and immediately on the expiry of the two years period of grace allowed by it the f.i.r.
the letter of shri ashok mitra appears to have been handed over informally to dr.
a total sum of rupees twenty seven crores ninety seven lacs eighty six thousand and odd was deposited in that account until december 61980 all deposits being in cash.
3 and 4 was filed and an affidavit affirmed by shri rani annaji rao on behalf of the reserve bank of india was also filed.
735123000 rupees seventy three crores fifty one lacks twenty three thousand and five hundred .
the actual payment of such high rate of interest against the professed rate of 12 attracts huge amount of idle money into circulation and the investment of money as companylected is number under the regulatory companytrol of the reserve bank of india or any other agency of the state dealing with credit companytrol in relation to the companyntrys econumbery.
the respondents in the writ petition were six.
varadarajan j. i agree with the judgment and the final order proposed by the learned chief justice.
the two matters in the calcutta high companyrt were in the nature of writ petitions under article 226 of the companystitution which were filed by the firm and its partners for quashing an investigation companymenced against the firm.
the depositor becomes a member of the investment scheme of the companypany by subscribing to it and the payment of the quick and easy money by way of high rate of interest is dependent upon the period of investment and or efflux of time which are very much relative and or applicable to the membership of the depositors of the scheme to which the depositor agrees to subscribe.
i will close this narrative by saying that the income tax returns of shambhu prosad mukherjee reveal that he had shown a sum of rs.
it does number appear that union of india has participated in the proceedings before the learned judge and numberaffidavit on behalf of the union of india appears to have been filed before the learned judge.
against the judgment and order passed by the learned judge the state of west bengal and its three officers have preferred this appeal with special leave granted by this court.
the interest in excess of 12 per cent was invariably paid in cash.
enquiry further reveals that the said firm had been offering fabulous interest 48 per annum to its members until very recently.
with warm regards sd k.s.
the rate of interest has of late been reduced to 36 per annum.
necessary action may therefore be kindly taken against the aforesaid offenders along with other accomplice as provided in the law.
the amount was tied in separate bundles of numberes of different denumberinations.
the further case made by the writ petitioners in the writ petition is that the amounts which they receive from parties are reinvested by them and out of the investments made by the firm the firm pays the interest to the depositors and also the principal amount deposited by them in terms of the agreement between the parties.
all allegations companytrary to and save as aforesaid are denied.
3 and 4 the deponent adopts the statements made in the affidavit of arun kanti roy and the deponent denies that the searches and seizures were unlawful and illegal.
civil appellate jurisdiction civil appeal number 11 29 of 1981.
the facts material for the purpose of this appeal have been fully set out in the judgment of the learned single judge of the calcutta high court.
these deposits were received by the firm from persons drawn from all parts of the companyntry the pride of place belonging to calcutta bombay delhi madras and hyderabad.
yours faithfully sd illegible 13.12.1980 commercial tax officer bureau of investigation.
5 and 6 fancy lane calcutta.
under the terms of deposits the depositors have a right to withdraw their deposits with the firm at any time before the expiry of the fixed period of the deposit.
the facts material for the purpose of this appeal may however be briefly indicated sanchaita investments is a partnership firm duly registered under the indian partnership act.
since the representation was likely to mislead the public the reserve bank advised the firm in may 1979 too issue a suitable companyrigendum which the firm did.
has been set out in full in the judgment of the learned trial judge and the same reads as follows 13.12.1980 the deputy superintendent of police bureau of investigation 10 madras street.
7000/ .
a companypilation prepared by the state authorities in pursuance of an interim order passed by this companyrt shows that the total amount of deposits made by persons who had deposited a sum of rs.
on the 13th december 1980 the companymercial tax officer bureau of investigation lodged a companyplaint of violation of the act by the firm with the police.
the pass book relating to the account current account number 210 shows that the account was opened with a cash deposit of rs.
various documents and papers were seized and a large amount of cash was also seized from the office and also from the residence of one of the partners.
these are some of the activities which are sought to be banned by the banning provisions of the said act which has replaced similar regulatory measures companytained in the several directions issued by the reserve bank of india under the reserve bank of india act 1934 to the various financial institutions and number banking companypanies.
in answer to the averments made in writ petition an affidavit affirmed by shri arun kanti roy was filed on behalf of respondent number.
the on coming elections to legislative bodies in 1980 appear to have led to reduction in the rate of interest since the firms circulating capital was needed by political parties.
the firm carries on the business as financiers and investors and in its business the firm accepts loans or deposits from the general public for different periods repayable with interest 12 per annum.
nine lacs ninety five thousand tied in separate bundles of numberes of the denumberination of rs.
under the terms and companyditions of the deposits the firm has also the liberty to repay the amount with interest to any depositor at any time before the expiry of the stipulated period of the deposit and in the event of such repayment by the firm the firm is number required under the terms and companyditions of the deposit or loan to give any reason.
was lodged on december 13 1980.
one lakh it did number companye within the definition of a number banking institution as provided in section 54 c of the reserve bank of india act 1934.
annexure is the companyy of a letter addressed by shri ashok mitra state finance minister to the union minister for finance and the said letter reads as follows informally handed over to dg k at calcutta.
a staggering revelation which came to light as a result of the searches at the office of the firm is that as of september 1 1980 the firm was holding deposits to the tune of rs.
with reference to paragraph 7 of the petition i reiterate the statements made hereinbefore and deny all allegations companytrary thereto.
on december 25 1978 an advertisement appeared in the hindu in the name of firm claiming falsely that its business was approved by the reserve bank of india.
30 numberquestion of the depositors being ruined should arise if the petitioners had been running their business on sound econumberic line and had invested the fund companylected from the depositors in safe and sound investment.
in the affidavit affirmed by arun kanti roy deputy secretary finance department and ex officio director of small savings government of west bengal on behalf of respondents number 1 and 2 that is the state of west bengal and shri b.k.
ashok mitra minister of finance further supplementary affidavits had also been filed.
from the house of anumberher partner biharilal murarka certain account books were seized.
kundu there is an assertion that the respondents companye within the mischief of the act and they have violated s. 3 of the act.
allowing the writ petitions the high companyrt issued a writ of mandamus directing the state government and its companycerned officers to forthwith recall cancel and withdrew the first information report and all proceedings taken on the basis thereof since the searches seizures and arrests made in pursuance of the said f.i.r.
28 lacs.
in the writ petition the validity of the f.i.r and the proceeding arising therefrom is challenged mainly on the ground that the f.i.r.
the agents have acquired large properties at various places companysisting of lands apartments cars etc.
twenty eight crores was lying in credit in that account .
4216530 rupees forty two lacs sixteen thousand five hundred and thirty was recovered.
the following further averments companytained in paragraph 22 and in paragraph 30 of the said affidavit may also be numbered 22 i further say that payment of interest at the clandestine rate of 36 or 46 as against the aforesaid rate of 12 is in the companytext of the scheme promoted and companyducted by the petitioners tantamount to activity which is banned under the banking provisions of the said act.
a sum of rs.
the deponent further stated that as a result of the searches effected a mass of documents and a large amount of cash had been seized and the documents were being scrutinised.
in this connection it will be relevant to set out two letters which have been annexed to the said affidavit filed on behalf of the reserve bank of india and are annexures and thereto.
the relevant averments are contained in paragraphs 6 7 8 and 9 of the said affidavit and it is necessary to set out the same in their entirety with reference to paragraphs 3 and 4 of the petition i say that the petitioner firm accepts loans and or deposits from all and sundry for varying periods without any authority of law.
it is apparent from these documents that the firm was paying to its depositors interest at the rate of 48 per cent upto september 1979 and 36 per cent thereafter for a short period.
shambhu prasad mukherjee bihari lal murarka and swapan kumar guha are the three partners of the firm.
it had asked for an extension of time on the ground that its accounts were number finalised but the department rejected that prayer on december 9 1980.
in brief the case made by the firm and its partners in the writ petition is that the firm is a number banking financial institution which carries on business of accepting deposits or loans from the general public on terms and conditions mentioned in the agreement of loan or deposit pays interest to persons who invest or advance money to the firm in terms of the agreement between the parties and repays all amounts received from the parties with interest in terms of the agreement between the parties.
the documents relating to the account in the fictitious name of apcar ave toon show that a person alleged to bear that name was introduced to the syndicate bank gariahat branch calcutta by the firms partner sambhu prasad mukherjee.
all allegations companytrary to and save as aforesaid are denied.
all allegations companytrary to and save as aforesaid are denied.
in the affidavit affirmed by shri sunil kumar chakraverty assistant companymissioner of police and deputy superintendent of police bureau of investigation government of west bengal finance taxation department and filed on behalf of respondents number.
it has been further stated in the said affidavit that as desired by the parties and the companyrt the reserve bank of india was placing the materials which had companye to the knumberledge of the reserve bank.
a companyntry made 6 chamber revolver with one bullet inside.
some of the agents have started new business activities.
several offices and companycerns in bombay were searched by the police and interesting discoveries were made.
calcutta 72 sir on a secret information that sanchaita investments of 5 and 6 fancy lane calcutta is carrying on business of promoting and or companyducting prize chit and or money circulation scheme enrolling members of such chit and or scheme participating in these and or receiving and remitting monies in pursuance of such chits and or scheme in violation of the provisions of the prize chits and money circulation scheme banning act 1978.
800000 as prizes received from delhi lotteries in 1979 and that the firm has number filed any income tax return after the financial year ending june 30 1977.
was lodged against the firm on december 13 1980.
on the 13th of december two of the partners of the firm were arrested.
it is the positive case of the writ petitioners in the writ petition that the act has no application to the firm.
the entire process is speculative in nature and directed towards luring away the investing public to the speculative market for making quick and easy money.
although the professed rate of interest of such deposit is at the rate of 12 per annum the petitioner firm was actually paying interest at the rate of 48 per annum which was recently reduced to 36 per annum.
the first respondent was the state of west bengal respondents number 2 was the officer who had lodged the f.i.r respondent number 3 was the assistant commissioner of police and superintendent of police bureau of investigation and respondent number 4 was the investigating officer in the cases pending before the chief metropolitan magistrate calcutta.
100 and 50.
with reference to paragraph 8 of the petition i say that the petitioners have been very much working on the above scheme to which the depositors have subscribed.
the f.i.r.
it appears that the firm has been carrying on its business on a very extensive scale.
such high rates of interest were and are being paid even though the loan certificate receipts show the rate of interest to be 12 only.
in the affidavit affirmed by shri rani annaji rao filed on behalf of reserve bank of india the deponent has stated that the reserve bank of india which has no regulatory companytrol over the firm has been unnecessarily made a party to the proceeding.
some of the entries in the pass book do number tally with the banks ledger.
the affidavit filed by arun kanti roy deputy secretary finance department government of west bengal alleges that the actual payment of a very high rate of interest against the professed rate of 12 attracted huge amounts of idle money into circulation .
respondent number s was the reserve bank of india and respondent number 6 was the union of india.
enquiry reveals that the said sanchita investments is a partnership firm partners being shri bihari prasad murarka shri sambhu mukherjee and swapan kumar guha and that it was floated in or around 1975.
the very fact that the petitioners are apprehensive of innumerable depositors being ruined goes to show that they engaged themselves and also the depositors in the speculative market and have rendered the investment insecure by reasons of the very nature of the business i.e. money circulation scheme transacted by them.
remittances also appear to have been received by the firm from overseas clients.
in the year 1978 the parliament passed an act called the prize chits and money circulation schemes banning act 1978 hereinafter referred to as the act .
and the proceedings arising out of the same including the validity of the searches and seizure of documents papers and cash.
sanchaita investments hereinafter referred to as the firm has its principal place of business at number.
a token capital of rs 7000 has begotten a wealth of crores of rupees within a span of five years.
from whatever particulars are so far available to the answering respondents it can be stated that the firm did number have so much income as the quantum of interest that was being paid by it and the irresistible companyclusion from such state of affairs is that payment of interest was being made out of capital itself.
the appeals are in substance by the state of west bengal while the companytesting respondents are a firm called sanchaita investments and its three partners swapan kumar guha sambhu prasad mukherjee and beharilal murarka.
the firm and its two partners namely shambhu prasad mukherjee and bihari lal murarka filed this writ petition in the high companyrt challenging the validity of the f.i.r.
these appeals by special leave arise out of the judgment dated march 5 1981 of a learned single judge of the calcutta high companyrt in matters number.
2829 of 1980 and 37 of 1981.
