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Delhi High Court
Bhim Sain Arora & Ors vs State on 27 August, 2025
Author: Amit Sharma
Bench: Amit Sharma
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 21st May, 2025
Pronounced on: 27th August, 2025
+ CRL.M.C. 1186/2023&CRL.M.A. 4551/2023
BHIM SAIN ARORA & ORS. .....Petitioners
Through: Ms. Neha Kapoor and Mr. Kaushal
Mehta, Advocates.
versus
STATE .....Respondent
Through: Ms. Priyanka Dalal, APP for the
State.
SI S.K. Singh, Section-4, EOW.
Mr. Jatin Sehgal, Mr. Adhirath Singh,
Mr. Viren Bansal and Ms. Alisha
Sharma, Advocates for Complainant(s)
CORAM:
HON'BLE MR. JUSTICE AMIT SHARMA
JUDGMENT
AMIT SHARMA, J.
1. The present petition under Section 482 of the Code of Criminal
Procedure, 1973, (for short, ‘CrPC‘), has been filed seeking the following
prayers: –
“In view of the above, it is most respectfully prayed that this Hon’ble
Court may kindly be pleased to:-
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(a) allow the present petition and set aside the order dated 8.2.2023
passed by the court of Ld ASJ-03, N/W, Rohini Courts Sh Babru Bhan in
Cr Rev 331/2022 titled “Bhim Sain Arora & Ors versus State” in FIR No.
70/2019 P.S EOW U/S 406/409/420/120B IPC and Section 4/5/6 PCMS
Act and discharge the petitioners;
(b) Call for the Trial Court records from the court of Ld CMM Sh Rohit
Gulia in Cr Case No. 115/2020 titled “State Versus Bhim Sain Arora” in
FIR No. 70/2019 P.S EOW u/s 409/420 IPC r/w 120B and Section 4/5/6
of Prize Chits and Money Circulation Schemes(Banning) Act;
(c) Pass any other further order as this Hon’ble court may deem fit and
proper in the facts of the present case;”
2. In the present case, FIR No. 70/2019, under Sections
406/409/420/120B of the Indian Penal Code, 1860, (for short, ‘IPC‘), and
Sections 4/5/6 of the Prize Chits and Money Circulation Schemes (Banning)
Act, 1978, (for short, ‘PCMCS Act’) was registered at Police Station
Economic Offences Wing, on the basis of the complaint filed by one Saurabh
Gupta and 20 other complainants wherein, they alleged that Bhim Sain Arora
(Petitioner No.1), Kanchan Arora (Petitioner No.2), his wife and Paras Arora,
his son, (who was kept in Column No. 12 of the chargesheet) were known to
them for last 20 years and they used to run a company in the name of
Multicity Chit Fund Pvt. Ltd., Petitioner No.3/accused company, having its
registered office in Gurugram, Haryana. It was alleged that the said persons,
since inception, were operating their business of chit fund in Ashok Vihar,
Delhi and were carrying their activities related to finance/public funds under
various names/companies. It was further alleged that during the said period,
the petitioners while acting in conspiracy had lured the complainants to
invest/deposit the money with them under the pretext of running committees
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with the promise of good return at the time of maturity. It was further alleged
that on further inducement by the petitioners, the complainants had also
introduced their family members/relatives into various committees, chit fund
schemes run by alleged persons/petitioners herein and they invested their hard
earned money in the said schemes. Thus, in said manner, the petitioners have
cheated the complainants to the tune of Rs. 3 Crores approximately for the
sake of committee and deposit money for interest and Rs. 21,18,600/-, under
the head of chit fund which were paid by the complainant via cash, cheques,
RTGS transfer from time to time.
3. During investigation, statements under Section 161 of the CrPC were
recorded of the victims/complainants and the relevant documents were
obtained from them regarding their investment in the company of the
petitioners and it was revealed that the petitioner No.1 used to run the
business of chit fund/committee in 4-5 groups of approximately 20 members
each. After going through the schemes floated by the petitioners,
complainants had invested on his assurance in the said scheme, with alluring
15-28% return per annum and that interest used to remain with the petitioner
No.1 for further capital appreciation and after some time, he used to add them
into the funds of the investors which he held in lieu of interest. It was further
revealed during investigation that on the assurance of the petitioners,
complainants had invested in their company for the return of their payments
whenever required, however, later the petitioners requested to extend further
time to repay and further allure the complainants with good interest return,
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but till date they did not even repay the principal amount invested by the
complainants. It was further revealed that initially the petitioners used to pay
the interest regularly, however, in January 2019, they called the investors and
informed them that they do not have money to repay and in 2019, they sold
their house and fled away without paying the complainants/investors. During
investigation, the search of the house of the petitioners was conducted and a
laptop containing all the records of the investment of the investors, i.e., Chit
fund, committee, loan amount etc., was found. The petitioners, during
interrogation, admitted to the amount invested by the investors as a loan for
18% per annum interest to the tune of Rs.2,86,20,000/-.
4. During investigation, it was revealed that the amount so deposited by
the investors for the chit fund has been siphoned off to the personal account of
the accused persons/petitioners and the said company, as per report from
Reserve Bank of India, has not been registered and it was not authorized to
collect money from the investors as per the guidelines/norms of RBI. It was
further observed that the said amount deposited by the investors was further
transferred into various other accounts of the subsidiary companies formed by
the petitioners and then, utilized by them for their own personal use. It was
further revealed that the petitioners were authorized signatories of their
company named, Multicity Chit Fund Pvt. Ltd., petitioner No.3, since
inception. On completion of investigation, chargesheet was filed before the
Court of competent jurisdiction against the petitioners and the aforesaid
company.
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5. Learned Chief Metropolitan Magistrate based on the allegations made
in the chargesheet framed charges for the offences punishable under Sections
409/420 read with Section 120B of the IPC and Sections 4/5/6 of the PCMCS
Act against all the accused persons vide order dated 19.07.2022. The said
order was challenged by way of Criminal Revision Petition No. 331/2022
before the learned ASJ and the same was dismissed vide order dated
08.02.2023. Hence, the present petition has been filed assailing the impugned
order on charge passed by learned CMM.
6. Learned counsel for the petitioners has submitted that charges for the
offences punishable under Sections 409/420 of the IPC cannot coexist
together and is not prima facie maintainable as the ingredients of both these
offences are altogether different. It is further submitted that the learned CMM
has wrongly distinguished the judgment of Hon’ble Supreme Court in N.
Raghavender v. State of Andhra Pradesh 1 , by observing that the said
judgment is not related to consideration on charge and the same was rendered
academically. It is further submitted that learned ASJ had erred in concluding
that the Court with the aid of Section 221 of the CrPC can frame charge for
both the offences, however, conviction can be made only for the one offence.
It is further submitted that the charge for the offence punishable under
Sections 409/420 of the IPC is not simultaneously maintainable as nothing
has been revealed from the charge sheet which could show that the petitioners
1
(2021) 18 SCC 70
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have misappropriated the funds invested by the complainant. It is submitted
that the present dispute is purely civil in nature. Reliance has been placed on
Delhi Race Club Ltd. v. State of Uttar Pradesh2, to contend that although
the offence of breach of trust and cheating involved dishonest intention, yet
they are mutually exclusive and different in their foundation. In case of
criminal breach of trust, the offender is lawfully interested with the property
and he dishonestly misappropriate the same, whereas in case of cheating, the
offender fraudulently or dishonestly induces a person by deceiving him to
deliver any such property. This shows that both these offences cannot coexist
simultaneously. Reliance has also been placed on the judgment of Coordinate
Bench of this Court in Wolfgang Reim & Ors. v. State & Anr.3, to contend
that a person cannot be charged with offence of cheating and criminal breach
of trust simultaneously for the same transaction as for the offence of cheating
the dishonest intention must exist at the inception of transaction, whereas, for
criminal breach of trust, the dishonest intention comes at the later stage after
the person has been entrusted with or has dominion over the subject property.
Reliance has also been placed on the judgement of Hon’ble Guwahati High
Court in Mahindra & Mahindra Financial Services Ltd. v. M/s Delta
Classic Pvt. Ltd.4, to contend that a person cannot be charged on the same
facts for the offence of criminal breach of trust, as well as the offence of
cheating.
2
(2024) 10 SCC 690
3
2012: DHC: 3908
4
2009 SCC OnLine Gau 105: 2010 Cri LJ 4591
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7. Learned counsel for the petitioners has further submitted that the
learned ASJ has incorrectly held that petitioners used to collect money from
the investors in their capacity as the agents of their company. However, there
is not a single averment in the charge sheet in respect of the fact that the
petitioners used to collect money in in the said capacity and it cannot be
concluded on the basis of allegations levelled in the charge sheet that they
were acting as agents of Multiplicity Chit Fund Company. It is the case of the
petitioners that no offence as such has been committed by the company and in
absence of any offence having been committed by the said company, the
petitioners cannot be charged for the offence punishable under Section 409 of
the IPC. It is further submitted that there is no vicarious liability of a director
of a company as per law. It is further submitted that the petitioners had never
induced or deception any of the complainants to invest nor there was any
mens rea on their part to cheat the complainants. It is pointed out that as per
the case of complainants, they were dealing with the petitioners for past two
decades and were withdrawing committees from time to time and the same
shows that petitioners never intended to cheat them. Therefore, the charge for
the offence punishable under Section 420 of the IPC is not made out. Reliance
has been placed on Vesa Holdings Pvt. Ltd. v. State of Kerala5, to argue
that for constituting the offence of cheating, the complainant(s) is required to
show that the accused had fraudulent or dishonest intention at the time of
making promise or representation. It is the case of the petitioners that they
never intended to cheat the complainants at all and in the present case, a civil
5
(2015) 8 SCC 293
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dispute has been given the colour of a criminal dispute. Moreover, in the
present case has been registered belatedly after a span of 20 years.
8. Insofar as the charge for the offences punishable under PCMCS Act are
concerned, it is submitted that both the courts below have not given any
findings in respect of said offences. It is further submitted that the activity
carried on by the petitioners cannot be considered as running “Prize Chit” or
“Money Circulation Scheme” as defined under Section 3 of the PCMCS Act.
Reliance has been placed on State of West Bengal v. Swapan Kumar Guha
& Ors.6, to contend that the clandestine manner of payment of interest in
excess of the stipulated rate does not in any way indicate existence of any
scheme for making quick or easy money. It is thus prayed that the impugned
order framing charge passed by learned CMM be set aside and the petitioners
be discharged in the present case FIR.
9. Per contra, learned APP for the State, assisted by learned counsel for
the complainants, has submitted that allegations made in the present FIR
against the petitioners are serious in nature inasmuch as they had siphoned off
the money which was entrusted with them for returns by the complainant(s).
It is further submitted that the learned ASJ had rightly observed that the
charge for the offences punishable under Sections 409/420 of the IPC can be
framed against the petitioners with the aid of Section 221 of the CrPC. It is
6
(1982) 1 SCC 561: AIR 1982 SC 949
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the case of the complainant that the petitioners had dishonestly induced the
complainant to with their hard-earned money and the said money was
entrusted with the petitioners for the purpose of investment. However, the
petitioners with the intent to deceive the complainants had misappropriated
the said money for their own personal use. It Is further submitted that the
findings of learned ASJ are correct and the conviction of the petitioners after
the trial can be sustained for either of the offences with which they have been
charged.
10. Regarding the charges for the offences punishable under PCMCS Act,
it is submitted that the perusal of the charge sheet and the documents as well
as the statements with it prima facie discloses the commission of offences
under the PCMCS Act and the learner Trial Court at the stage of framing of
charge is not required to conduct a mini trial at that stage and is only required
to determine a prima facie case against the petitioners. Insofar as the delay in
registration of FIR is concerned, it is submitted that the petitioners were
running the subject schemes for several years and they continued to take
money from several individuals till 2019. It is submitted that the contents of
FIR and the statements of the victims recorded during the investigation would
show that the money taken from the complainant(s) were invested over a
period of time on the promise of returns. However, when there was inability
on the part of the petitioners to repay the sum of money the complainant(s)
had filed the complaint based on which FIR in the present case was registered.
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11. It was further submitted that during the course of investigation and the
documents collected from the petitioners, it was revealed that the money
taken from the complainant and other investors was further transferred into
various accounts which were handled by the petitioners and the said money
was used by them for their personal purposes. It is the case of the
complainants that the manner in which the petitioners have taken their money
and thereafter sold their assets shows that they intended to deceive and siphon
off the money received from the complainants. Thus, it is prayed that the
impugned order on framing charge as upheld by learned ASJ in revision does
not suffer from any infirmity or perversity and the present petition is to be
dismissed.
12. Learned counsel for the complainant has relied on following precedents
to oppose the present petition: –
i) Pinku Roy v. Ranjit Debnath & Anr.7, ii) Sanghi Brothers (Indore) Pvt. Ltd. v. Sanjay Choudhary & Ors.8; iii) Supriya Jain v. State of Haryana & Anr.9, Criminal Appeal No. 1780 of 2023; iv) Amit Kapoor v. Ramesh Chander & Anr.10 7
LNIND 2108 GAU 49: CRL.PET./379/2013 decided vide judgment dated 04.01.2018 by learned Single
Judge of Gauhati High Court
8
(2008) 10 SCC 681
9
(2023) 7 SCC 711: 2023 INSC 595
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13. Heard learned counsels for parties and perused the record.
14. The main thrust of argument of learned counsel for the petitioners is
that the charge for the offences punishable under Sections 420/406 of the IPC
cannot go together as ingredients of the both the said offences are exclusive to
one another. Reliance is placed on judgment of Hon’ble Supreme Court Delhi
Race Club (1940) Limited and Ors. (supra) wherein, it was observed and
held as under: –
“Difference between criminal breach of trust and cheating
35. This Court in its decision in S.W. Palanitkar v. State of Bihar [S.W.
Palanitkar v. State of Bihar, (2002) 1 SCC 241 : 2002 SCC (Cri) 129]
expounded the difference in the ingredients required for constituting of
an offence of criminal breach of trust (Section 406 IPC) vis-à-vis the
offence of cheating (Section 420). The relevant observations read as
under : (SCC p. 246, paras 9-10)
“9. The ingredients in order to constitute a criminal breach of trust
are : (i) entrusting a person with property or with any dominion
over property; (ii) that person entrusted : (a) dishonestly
misappropriating or converting that property to his own use; or (b)
dishonestly using or disposing of that property or wilfully suffering
any other person so to do in violation (i) of any direction of law
prescribing the mode in which such trust is to be discharged, (ii) of
any legal contract made, touching the discharge of such trust.
10. The ingredients of an offence of cheating are : (i) there should
be fraudulent or dishonest inducement of a person by deceiving10
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him, (ii)(a) the person so deceived should be induced to deliver any
property to any person, or to consent that any person shall retain
any property; or (b) the person so deceived should be intentionally
induced to do or omit to do anything which he would not do or omit
if he were not so deceived; and (iii) in cases covered by (ii)(b), the
act of omission should be one which causes or is likely to cause
damage or harm to the person induced in body, mind, reputation or
property.”
36. What can be discerned from the above is that the offences of criminal
breach of trust (Section 406 IPC) and cheating (Section 420 IPC) have
specific ingredients:
In order to constitute a criminal breach of trust (Section 406 IPC)
(1) There must be entrustment with person for property or dominion
over the property, and
(2) The person entrusted:
(a) Dishonestly misappropriated or converted property to his own use,
or
(b) Dishonestly used or disposed of the property or wilfully suffers any
other person so to do in violation of:
(i) Any direction of law prescribing the method in which the trust is
discharged; or
(ii) Legal contract touching the discharge of trust (see : S.W.
Palanitkar [S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241 : 2002
SCC (Cri) 129] ).
Similarly, in respect of an offence under Section 420IPC, the essential
ingredients are:
(1) Deception of any person, either by making a false or misleading
representation or by other action or by omission;
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(2) Fraudulently or dishonestly inducing any person to deliver any
property, or
(3) The consent that any person shall retain any property and finally
intentionally inducing that person to do or omit to do anything which he
would not do or omit (see : Harmanpreet Singh Ahluwalia v. State of
Punjab [Harmanpreet Singh Ahluwalia v. State of Punjab, (2009) 7
SCC 712 : (2009) 3 SCC (Cri) 620] ).
37. Further, in both the aforesaid sections, mens rea i.e. intention to
defraud or the dishonest intention must be present, and in the case of
cheating it must be there from the very beginning or inception.
38. In our view, the plain reading of the complaint fails to spell out any
of the aforesaid ingredients noted above. We may only say, with a view
to clear a serious misconception of law in the mind of the police as well
as the courts below, that if it is a case of the complainant that offence of
criminal breach of trust as defined under Section 405IPC, punishable
under Section 406IPC, is committed by the accused, then in the same
breath it cannot be said that the accused has also committed the offence
of cheating as defined and explained in Section 415IPC, punishable
under Section 420IPC.
39. Every act of breach of trust may not result in a penal offence of
criminal breach of trust unless there is evidence of manipulating act of
fraudulent misappropriation. An act of breach of trust involves a civil
wrong in respect of which the person may seek his remedy for damages
in civil courts but, any breach of trust with a mens rea, gives rise to a
criminal prosecution as well. It has been held in Hari Prasad
Chamaria v. Bishun Kumar Surekha [Hari Prasad Chamaria v. Bishun
Kumar Surekha, (1973) 2 SCC 823 : 1973 SCC (Cri) 1082] as under :
(SCC p. 824, para 4)
“4. We have heard Mr Maheshwari on behalf of the appellant and
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respondents under Section 420 of the Penal Code, 1860. For the
purpose of the present appeal, we would assume that the various
allegations of fact which have been made in the complaint by the
appellant are correct. Even after making that allowance, we find
that the complaint does not disclose the commission of any offence
on the part of the respondents under Section 420 of the Penal Code,
1860. There is nothing in the complaint to show that the respondent
had dishonest or fraudulent intention at the time the appellant
parted with Rs 35,000. There is also nothing to indicate that the
respondents induced the appellant to pay them Rs 35,000 by
deceiving him. It is further not the case of the appellant that a
representation was made by the respondents to him at or before the
time he paid the money to them and that at the time the
representation was made, the respondents knew the same to be
false. The fact that the respondents subsequently did not abide by
their commitment that they would show the appellant to be the
proprietor of Drang Transport Corporation and would also render
accounts to him in the month of December might create civil
liability for them, but this fact would not be sufficient to fasten
criminal liability on the respondents for the offence of cheating.”
40. To put it in other words, the case of cheating and dishonest intention
starts with the very inception of the transaction. But in the case of
criminal breach of trust, a person who comes into possession of the
movable property and receives it legally, but illegally retains it or
converts it to his own use against the terms of the contract, then the
question is, in a case like this, whether the retention is with dishonest
intention or not, whether the retention involves criminal breach of trust
or only a civil liability would depend upon the facts of each case.
41. The distinction between mere breach of contract and the offence of
criminal breach of trust and cheating is a fine one. In case of cheating,
the intention of the accused at the time of inducement should be looked
into which may be judged by a subsequent conduct, but for this, the
subsequent conduct is not the sole test. Mere breach of contract cannot
give rise to a criminal prosecution for cheating unless fraudulent or
dishonest intention is shown right from the beginning of the transaction
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i.e. the time when the offence is said to have been committed. Therefore,
it is this intention, which is the gist of the offence.
42. Whereas, for the criminal breach of trust, the property must have
been entrusted to the accused or he must have dominion over it. The
property in respect of which the offence of breach of trust has been
committed must be either the property of some person other than the
accused or the beneficial interest in or ownership of it must be of some
other person. The accused must hold that property on trust of such other
person. Although the offence i.e. the offence of breach of trust and
cheating involve dishonest intention, yet they are mutually exclusive and
different in basic concept.
43. There is a distinction between criminal breach of trust and cheating.
For cheating, criminal intention is necessary at the time of making a false
or misleading representation i.e. since inception. In criminal breach of
trust, mere proof of entrustment is sufficient. Thus, in case of criminal
breach of trust, the offender is lawfully entrusted with the property, and
he dishonestly misappropriated the same. Whereas, in case of cheating,
the offender fraudulently or dishonestly induces a person by deceiving
him to deliver any property. In such a situation, both the offences cannot
co-exist simultaneously.
44. At the most, the Court of the Additional Chief Judicial Magistrate
could have issued process for the offence punishable under Section
420IPC i.e. cheating but in any circumstances no case of criminal breach
of trust is made out. The reason being that indisputably there is no
entrustment of any property in the case at hand. It is not even the case of
the complainant that any property was lawfully entrusted to the
appellants and that the same has been dishonestly misappropriated. The
case of the complainant is plain and simple. He says that the price of the
goods sold by him has not been paid. Once there is a sale, Section
406IPC goes out of picture. According to the complainant, the invoices
raised by him were not cleared. No case worth the name of cheating is
also made out.
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45. Even if the Magistrate would have issued process for the offence
punishable under Section 420IPC i.e. cheating, the same would have
been liable to be quashed and set aside, as none of the ingredients to
constitute the offence of cheating are disclosed from the materials on
record.
46. It has been held in State of Gujarat v. Jaswantlal Nathalal [State of
Gujarat v. Jaswantlal Nathalal, 1967 SCC OnLine SC 58 : AIR 1968 SC
700 : (1968) 2 SCR 408] : (SCC OnLine SC para 8)
“8. The term “entrusted” found in Section 405IPC governs not only
the words “with the property” immediately following it but also the
words “or with any dominion over the property” occurring
thereafter–see Velji Raghavji Patel v. State of Maharashtra [Velji
Raghavji Patel v. State of Maharashtra, 1964 SCC OnLine SC 185 :
AIR 1965 SC 1433 : (1965) 2 SCR 429] . Before there can be any
entrustment there must be a trust meaning thereby an obligation
annexed to the ownership of property and a confidence reposed in
and accepted by the owner or declared and accepted by him for the
benefit of another or of another and the owner. But that does not
mean that such an entrustment need conform to all the technicalities
of the law of trust — see Jaswantrai Manilal Akhaney v. State of
Bombay [Jaswantrai Manilal Akhaney v. State of Bombay, 1956
SCC OnLine SC 46 : AIR 1956 SC 575 : 1956 SCR 483] . The
expression “entrustment” carries with it the implication that the
person handing over any property or on whose behalf that property
is handed over to another, continues to be its owner. Further the
person handing over the property must have confidence in the
person taking the property so as to create a fiduciary relationship
between them. A mere transaction of sale cannot amount to an
“entrustment”.”
47. Similarly, in CBI v. Duncans Agro Industries Ltd. [CBI v. Duncans
Agro Industries Ltd., (1996) 5 SCC 591 : 1996 SCC (Cri) 1045] this
Court held that the expression “entrusted with property” used in Section
405IPC connotes that the property in respect of which criminal breach ofSignature Not Verified
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trust can be committed must necessarily be the property of some person
other than the accused or that the beneficial interest in or ownership
thereof must be in the other person and the offender must hold such
property in trust for such other person or for his benefit. The relevant
observations read as under : (SCC pp. 607-608, para 27)“27. In the instant case, a serious dispute has been raised by the
learned counsel appearing for the respective parties as to whether
on the face of the allegations, an offence of criminal breach of trust
is constituted or not. In our view, the expression “entrusted with
property” or “with any dominion over property” has been used in a
wide sense in Section 405IPC. Such expression includes all cases in
which goods are entrusted, that is, voluntarily handed over for a
specific purpose and dishonestly disposed of in violation of law or
in violation of contract. The expression “entrusted” appearing in
Section 405IPC is not necessarily a term of law. It has wide and
different implications in different contexts. It is, however,
necessary that the ownership or beneficial interest in the ownership
of the property entrusted in respect of which offence is alleged to
have been committed must be in some person other than the
accused and the latter must hold it on account of some person or in
some way for his benefit. The expression “trust” in Section 405IPC
is a comprehensive expression and has been used to denote various
kinds of relationships like the relationship of trustee and
beneficiary, bailor and bailee, master and servant, pledger and
pledgee. When some goods are hypothecated by a person to another
person, the ownership of the goods still remains with the person
who has hypothecated such goods. The property in respect of which
criminal breach of trust can be committed must necessarily be the
property of some person other than the accused or the beneficial
interest in or ownership of it must be in the other person and the
offender must hold such property in trust for such other person or
for his benefit. In a case of pledge, the pledged article belongs to
some other person but the same is kept in trust by the pledgee.”
(emphasis supplied)
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48. The aforesaid exposition of law makes it clear that there should be
some entrustment of property to the accused wherein the ownership is
not transferred to the accused. In case of sale of movable property,
although the payment may be deferred yet the property in the goods
passes on delivery as per Sections 20 and 24, respectively, of the Sale of
Goods Act, 1930.
“20. Specific goods in a deliverable state.–Where there is an
unconditional contract for the sale of specific goods in a deliverable
state, the property in the goods passes to the buyer when the
contract is made and it is immaterial whether the time of payment
of the price or the time of delivery of goods, or both, is postponed.
* * *
24. Goods sent on approval or “on sale or return”.– When goods
are delivered to the buyer on approval or “on sale or return” or
other similar terms, the property therein passes to the buyer–
(a) when he signifies his approval or acceptance to the seller or
does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but
retains the goods without giving notice of rejection, then, if a time
has been fixed for the return of the goods on the expiration of such
time, and, if no time has been fixed, on the expiration of a
reasonable time.”
49. From the aforesaid, there is no manner of any doubt whatsoever that
in case of sale of goods, the property passes to the purchaser from the
seller when the goods are delivered. Once the property in the goods
passes to the purchaser, it cannot be said that the purchaser was entrusted
with the property of the seller. Without entrustment of property, there
cannot be any criminal breach of trust. Thus, prosecution of cases on
charge of criminal breach of trust, for failure to pay the consideration
amount in case of sale of goods is flawed to the core. There can be civil
remedy for the non-payment of the consideration amount, but no criminal
case will be maintainable for it. [See : Lalit Chaturvedi v. State of
U.P. [Lalit Chaturvedi v. State of U.P., (2024) 12 SCC 483 : 2024 SCC
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OnLine SC 171] and Mideast Integrated Steels Ltd. v. State of
Jharkhand [Mideast Integrated Steels Ltd. v. State of Jharkhand, 2023
SCC OnLine Jhar 301] .]
50. The case at hand falls in Category 1 as laid
in Nagawwa [Nagawwa v. Veeranna Shivalingappa Konjalgi, (1976) 3
SCC 736 : 1976 SCC (Cri) 507] referred to in para 17 of this judgment.
51. If it is the case of the complainant that a particular amount is due and
payable to him then he should have filed a civil suit for recovery of the
amount against the appellants herein. But he could not have gone to the
Court of the Additional Chief Judicial Magistrate by filing a complaint of
cheating and criminal breach of trust. It appears that till this date, the
complainant has not filed any civil suit for recovery of the amount which
according to him is due and payable to him by the appellants. He seems
to have prima facie lost the period of limitation for filing such a civil suit.
52. In such circumstances referred to above, the continuation of the
criminal proceeding would be nothing but abuse of the process of law.”
15. In the aforesaid case the facts were that the complainant therein had
supplied goods to the accused and since they failed to make the payment, the
complainant filed against them a complaint and after conducting the inquiry
under Section 202 of the CrPC, the learned Trial Court had issued summons
to the accused persons therein for the offence punishable under Section 406 of
the IPC. It is in the aforesaid circumstances, the Hon’ble Supreme Court ruled
that the case was one of an unpaid seller. In the present case, the allegation is
with respect to the petitioners running a chit fund company and alluring the
complainants to get their money deposited with them for investment in
various companies and chit fund schemes. It is the case of the prosecution that
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the petitioners were running the business of chit funds/committees of 4-5
groups approximately 20 persons each with a promise of return of 15 to 28%
interest per annum and those interests also remained with the petitioners for
further capital appreciation.
16. It is the case of the prosecution that in 2019, the petitioners sold their
house and fled away without paying the complainant/victims (investors)
either the principal amount or the interest. Material has been placed on record
by the prosecution to show that the properties were purchased by the
petitioners from the money invested by the complainants as well as siphoning
off funds from the account of the company, accused/petitioner No.3, to their
personal accounts as well as other accounts in the name of entities run by
them. The details of amount invested by the victims in the chit funds groups,
committees’ group, and loan for 18% per annum interest in the firm of
petitioner no. 1 is reproduced as under: –
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17. Similarly, details of the transactions from the chit funds groups to the
personal account of the petitioners/accused are as under: –
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”
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18. The prosecution has also placed on record details of the chit funds
groups where the petitioners had withdrawn the amount in the name of
subsidiary company, chit fund company run by them, which are as under: –
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19. In the present case, the transactions were ongoing. The
complainants/victims continued to invest with the petitioners over a period of
time on their assurance of giving them returns as pointed out hereinabove. It
has also come on record that the petitioners continued to retain the alleged
interest accrued to the investors for its further appreciation. It has also come
on record that the monies were fraudulently transferred from the account of
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chit funds company run by the petitioners to their personal account or account
of other entities run by them.
20. In these circumstances, at this stage, dishonest intention on part of the
petitioners to induce the investors to make investments to them with no
intention to return cannot be completely ruled out. It is not the case of the
petitioners that they had further invested the amounts for return or otherwise.
In these circumstances, during the course of the trial, the petitioners can
demonstrate that they had no such dishonest intention at that relevant point of
time, then the offence punishable under Section 420 of the IPC would not be
made out. However, the fact that the money invested by these investors were
fraudulently transferred to the accounts run by the petitioners and other
companies’ prima facie amounts to commission of the breach of trust as
defined under Section 405 of the IPC. Admittedly, the money was invested by
the complainants and the petitioners being the directors of accused company,
petitioner No.3, had dominion over the said money and without express
consent of the said investors, money was transferred to other bank accounts of
the petitioners. At the stage of charge, the learned Trial Court has framed
charges for the offences punishable under Section 420 of the IPC as well as
Section 409 of the IPC and it can proceed to do so in view of the provisions of
Section 221 of the CrPC, which reproduced thus: –
“221. Where it is doubtful what offence has been committed.–(1) If a
single act or series of acts is of such a nature that it is doubtful which of
several offences the facts which can be proved will constitute, theSignature Not Verified
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accused may be charged with having committed all or any of such
offences, and any number of such charges may be tried at once; or he
may be charged in the alternative with having committed some one of the
said offences.
(2) If in such a case the accused is charged with one offence, and it
appears in evidence that he committed a different offence for which he
might have been charged under the provisions of sub-section (1), he may
be convicted of the offence which he is shown to have committed,
although he was not charged with it.
Illustrations
(a) A is accused of an act which may amount to theft, or receiving
stolen property, or criminal breach of trust or cheating. He may be
charged with theft, receiving stolen property, criminal breach of
trust and cheating, or he may be charged with having committed
theft, or receiving stolen property, or criminal breach of trust or
cheating.
(b) In the case mentioned, A is only charged with theft. It appears that he
committed the offence of criminal breach of trust, or 112 that of
receiving stolen goods. He may be convicted of criminal breach of trust
or of receiving stolen goods (as the case may be), though he was not
charged with such offence.
(c) A states on oath before the Magistrate that he saw B hit C with a club.
Before the Sessions Court A states on oath that B never hit C. A may be
charged in the alternative and convicted of intentionally giving false
evidence, although it cannot be proved which of these contradictory
statements was false.”
(emphasis supplied)
21. At this stage, it will be relevant to refer to a judgment delivered by a
three Judge Bench of the Hon’ble Supreme Court in Sunil Kumar Paul v.
State of West Bengal 11 . The appellant therein was tried for the offence
11
1964 SCC OnLine SC 260: AIR 1965 SC 706
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punishable under Section 409 of the IPC and was convicted and sentenced by
the learned Trial Court/Special Judge for the said offence. On an appeal being
filed assailing the conviction by the appellant before the High Court, the High
Court while agreeing with the appellant’s contention held that no offence
punishable under Section 409 of the IPC has been made out. However, it was
held that Section 420 of the IPC has been committed by the appellant and
accordingly, his conviction was altered from an offence punishable under
Section 409 of the IPC to Section 420 of the IPC for cheating the employees
of the State Bank, Barrackpore. This finding of the High Court was assailed
before the Hon’ble Supreme Court and while examining the applicability of
Section 236 of the CrPC, 1898, (corresponding to Section 221(1) of the CrPC,
1973), it was observed and held as under: –
“15. It is urged for the appellant that the provisions of Section 236 CrPC
would apply only to those cases where there be no doubt about the facts
which can be proved and a doubt arises as to which of the several
offences had been committed on the proved facts. Sections 236 and 237
read:
“236. If a single act or series of acts is of such a nature that it is
doubtful which of several offences the facts which can be proved
will constitute, the accused may be charged with having committed
all or any of such offences, and any number of such charges may be
tried at once; or he may be charged in the alternative with having
committed some one of the said offences.
Illustrations
(a) A is accused of an act which may amount to theft, or receiving
stolen property, or criminal breach of trust or cheating. He may be
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trust and cheating, or he may be charged with having committed
theft, or receiving stolen property, or criminal breach of trust or
cheating.
* * *
237. If, in the case mentioned in Section 236, the accused is
charged with one offence, and it appears in evidence that he
committed a different offence for which he might have been
charged under the provisions of that section, he may be convicted
of the offence which he is shown to have committed, although he
was not charged with it.
Illustration
A is charged with theft. It appears that he committed the offence of
criminal breach of trust, or that of receiving stolen goods. He may
be convicted of criminal breach of trust or of receiving stolen goods
(as the case may be) though he was not charged with such offence.”
The framing of a charge under Section 236 is, in the nature of things,
earlier than the stage when it can be said what facts have been proved, a
stage which is reached when the court delivers its judgment. The power
of the court to frame various charges contemplated by Section 236
CrPC therefore arises when it cannot be said with any definiteness,
either by the prosecutor or by the court, that such and such facts
would be proved. The court had at the time of framing the charges,
therefore to consider what different offences could be made out on the
basis of the allegations made by the prosecution in the complaint or in
the charge submitted by the investigating agency or by the allegations
made by the various prosecution witnesses examined prior to the framing
of the charge. All such possible offences could be charged in view of
the provisions of Section 236 CrPC as it can be reasonably said that
it was doubtful as to which of the offences the facts which could be
ultimately proved would constitute. The facts which must have been
alleged prior to the stage of the framing of the charge in the present case
must have been what had been stated in the charge-sheet submitted by
the investigating officer, 24-Parganas, which is printed at p. 3 of the
appeal record. This charge-sheet narrates in the column meant for the
name of offences and circumstances connected with it:
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“that on 6th October, 1956 Sunil Kumar Paul, a public servant in
the employment of the office of the Sub-Divisional Health Officer,
Barrackpore i.e. (clerk) dishonestly drew Rs 1763-6-0 excluding
postal life insurance deduction of Rs 5-10-0 from the State Bank of
India, Barrackpore Branch by submitting a false duplicate Estt. Pay
Bill under head 39 for the month of September 1956 for the office
of the said S.D.H.O., Barrackpore. The money drawn was not
credited to the office of the Sub-Divisional Health Officer,
Barrackpore”.
It is practically on these facts that the conviction of the appellant for an
offence under Section 420 IPC has been founded. It follows that the
Special Court could therefore have framed a charge under Section
420 IPC at the relevant time if it had been of the opinion that it was
doubtful whether these facts constitute an offence under Section 409
IPC as stated in the charge-sheet or an offence under Section 420
IPC.
16. When a charge under Section 420 IPC could have been framed by the
trial court by virtue of Section 236 CrPC that court or the appellate court
can in law, convict the appellant of this offence instead of an offence
under Section 409 IPC if it be of the view that the offence of cheating
bad been established. This would be in accordance with the provisions of
Section 237 CrPC
In Begu v. King Emperor [52 IA 191] Sections 236 and 237 were
construed by Viscount Haldane thus:
“The illustration makes the meaning of these words quite plain. A
man may be convicted of an offence, although there has been no
charge in respect of it, if the evidence is such as to establish a
charge that might have been made. That is what happened here. The
three men who were sentenced to rigorous imprisonment were
convicted of making away with the evidence of the crime by
assisting in taking away the body. They were not charged with that
formally, but they were tried on evidence which brings the case
under Section 237.”
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This was approved by this Court in Ramaswamy Nadar v. State of
Madras [(1958) SCR 739, 747] . In this case, the accused, acquitted of an
offence under Section 420 IPC was convicted by the High Court of an
offence under Section 403 IPC. This Court held that the High Court
could do so. On facts, however, this Court did not find the offence under
Section 403, proved.
**** **** ****
19. We therefore hold that at the trial of the appellant for an offence
under Section 409 IPC, in this case, the appellant could have also
been charged for an offence under Section 420 IPC in view of Section
236 of the Code of Criminal Procedure.”
(emphasis supplied)
22. The Hon’ble Supreme Court in Delhi Race Club (1940) Limited and
Ors. (supra), had come to the conclusion in the facts of the said case, as
already noted hereinbefore, which were with respect to sale and purchase of
certain goods, and therefore, ingredients of Section 406 of the IPC were not
be made out. There is no doubt that the legal position is that a person cannot
be convicted for Sections 409/420 of the IPC simultaneously. However, at the
time of consideration on point of charge, in view of the provision of Section
221 of the CrPC, the learned Trial Court can proceed to frame the charge
under both the offences.
23. Similarly, the other cases relied on by learned counsel for the
petitioners are also distinguishable on facts from the present case. Reliance
placed by the learned counsel for the petitioners on Mahindra and
Mahindra Financial Services Ltd. (supra) is misplaced as in the said case
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Coordinate Bench of this Court was dealing with a case assailing order taking
cognizance, at the stage of summoning in a complaint case filed by the
complainant therein and the provisions of Section 221 of the CrPC were not
dealt with or discussed in the said case. In Wolfgang Reim & Ors. (supra),
Coordinate Bench of this Court was dealing with a petition seeking quashing
of FIR, inter alia, registered under similar provisions as in the present case
and the provisions of Section 221 of the CrPC were not dealt with by the
Court at that stage. In N. Raghavender (supra), the appellant therein was
convicted by the learned Trial Court/Special Judge and his conviction was
upheld by the High Court. In this case, the observations made by the Hon’ble
Supreme Court were in a case of conviction after complete trial. However, in
the present case, the trial is yet to commence and the order impugned herein is
order framing charge.
24. It was also argued on behalf of the petitioner Nos. 1 and 2 that they are
not ‘agents’ within the meaning of Section 409 of the IPC as they were
‘Directors’ of petitioner No.3/accused, Multicity Chit Fund Pvt. Ltd. The
Hon’ble Supreme Court in Shivnarayan Laxminarayan Joshi & Ors. v.
State of Maharashtra 12 , while dealing with a similar contention, had
observed and held as under: –
“5. Secondly, it was contended that substitution of one chose action for
another will not amount to a breach of trust or conversion to his own use
by the accused. In R.K. Dalmia v. Delhi Administration [AIR 1962 SC
12
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1821 : (1963) 1 SCR 253 : (1962) 32 Com Cas 699] this Court while
relying on authorities of the Lahore court and other courts has clearly
found that a director is not only an agent but is in the position of trustee.
This has been held in People Bank v. Harkishen Lal [AIR 1936 Lah 408,
409] which was approved by this Court. In this connection this Court
observed as follows:
“Both Dalmia and Chokhani therefore had dominion over the funds
of the Insurance Company. [AIR 1962 SC 1821 : (1963) 1 SCR 253
: (1962) 32 Com Cas 699] ”
6. In Peoples Bank v. Harkishen Lal [AIR 1936 Lah 408, 409] it was
stated:
“Lala Harkishen Lal as Chairman is a trustee of all the moneys of
the Bank”.
7. In Palmer’s Company Law, 20th Edn., it is stated at p. 517:
“Directors are not only agents but they are in some sense and to
some extent trustees or in the position of trustees.”
8. Similarly this Court pointed out that in case of G.E.R. &
Co. v. Turner [LR (1872) 8 Ch App 149, 152] Lord Selborne observed:
“The directors are the mere trustees or agents of the company,
trustees of the company money and property-agents in the
transaction which they enter into on behalf of the company.”
9. The same view was taken in Re Forest of Dean [LR (1878) 10 Ch D
450, 453] wherein in Sir George Jessel observed as follows:
“Directors are called trustees. They are no doubt trustees of assets
which have come into their hands, or which are under their
control.”
10. This Court while approving the cases mentioned above observed as
follows:
“We are, therefore, of opinion that Dalmia and Chokhani were
entrusted with the dominion over the funds of the Bharat Insurance
Company in the Banks. [AIR 1962 SC 1821 : (1963) 1 SCR 253 :
(1962) 32 Com Cas 699] ”
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11. Thus, this Court fully approved the law laid down by the cases
mentioned above that a director was clearly in the position of a
trustee and being a trustee of the assets which has come into his
hand he had dominion and control over the same. A clear finding to
this effect has also been given by the High Court at p. 33 of the judgment
where the High Court has observed as follows:
“The property being an actionable claim against Rekhchand
Gopaldas, Accused 1 as the managing director was entrusted with
complete dominion over the right to recover the same under the
said articles and as such he was capable of committing dishonest
misappropriation or conversion of that actionable claim. The
finding of the learned trial Judge on the point of entrustment,
therefore, has to be upheld and we confirm the same”.”
(emphasis supplied)
25. In view of the aforesaid discussion and in facts and circumstances of
the present case, the impugned order framing charge dated 19.07.2022 passed
by learned CJM insofar as it relates to framing of charges against the
petitioners for the offences punishable under Sections 409/420 read with
Section 120B of the IPC, is upheld.
26. The petitioners have also been charged for the offences punishable
under Sections 4/5/6 of the PCMCS Act. The said charge in order to be
sustained qua the petitioners must come under the definition of “Prize Chit”
or “Money Circulation Scheme” as defined under clauses (e) and (c) of
Section 2 of the PCMCS Act. Section 4 of the PCMCS Act provides for
punishment for contravention of Section 3 of the said Act, which reads as
under: –
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“3. Banning of prize chits and money circulation schemes or
enrolment as members or participation therein.–No person
shall promote or conduct any prize chit or money circulation
scheme or enrol as a member to any such chit or scheme, or
participate in it otherwise, or receive or remit any money in
pursuance of such chit or scheme.”
27. Sections 2(a), 2(c) and 2(e) of the PCMCS Act reads as under: –
“2. Definitions.–In this Act, unless the context otherwise
requires,–
(a) “conventional chit” means a transaction whether called chit, chit
fund, kuri or by any other name by or under which a person
responsible for the conduct of the chit enters into an agreement with
a specified number of persons that every one of them shall
subscribe a certain sum of money (or certain quantity of grain
instead) by way of periodical instalments for a definite period and
that each such subscriber shall, in his turn, as determined by lot or
by auction or by tender or in such other manner as may be provided
for in the chit agreement, be entitled to a prize amount.
Explanation.–In this clause “prize amount” shall mean the
amount, by whatever name called, arrived at by deducting from out
of the total amount paid or payable at each instalment by all the
subscribers,
(i) the commission charged as service charges as a promoter
or a foreman or an agent; and
(ii) any sum which a subscriber agrees to forego, from out of
the total subscriptions of each instalment, in consideration of
the balance being paid to him;
**** **** ****
(c) “money circulation scheme” means any scheme, by whatever
name called, for the making of quick or easy money, or for the
receipt of any money or valuable thing as the consideration for a
promise to pay money, on any event or contingency relative or
applicable to the enrolment of members into the scheme, whether or
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not such money or thing is derived from the entrance money of the
members of such scheme or periodical subscriptions;
**** **** ****
(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;”
28. Learned counsel for the petitioners, regarding the offences punishable
under provisions of PCMCS Act, has placed reliance on Swapan Kumar
Guha (supra), to contend that the act carried on by them cannot be
considered as running “Prize Chit’ or “Money Circulation Scheme” as defined
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under clauses (e) & (c) respectively of Section 2 of the PCMCS. The relevant
portion of the observations made therein read thus: –
“8. There is another aspect of the matter which needs to be underscored,
with a view to avoiding fruitless litigation in future. Besides the prize
chits, what the Act aims at banning is money circulation schemes. It is
manifestly necessary and indeed, to say so is to state the obvious, that
the activity charged as falling within the mischief of the Act must be
shown to be a part of a scheme for making quick or easy money,
dependent upon the happening or non-happening of any event or
contingency relative or applicable to the enrolment of members into
that scheme. A “scheme”, according to the dictionary meaning of
that word, is “a carefully arranged and systematic program of
action”, a “systematic plan for attaining some object”, “a project”,
“a system of correlated things” (see Webster’s New World
Dictionary, and Shorter Oxford English Dictionary, Vol. II). The
systematic programme of action has to be a consensual arrangement
between two or more persons under which, the subscriber agrees to
advance or lend money on promise of being paid more money on the
happening of any event or contingency relative or applicable to the
enrolment of members into the programme. Reciprocally, the person
who promotes or conducts the programme promises, on receipt of an
advance or loan, to pay more money on the happening of such event
or contingency. Therefore, a transaction under which, one party
deposits with the other or lends to that other a sum of money on
promise of being paid interest at a rate higher than the agreed rate
of interest cannot, without more, be a “money circulation scheme”
within the meaning of Section 2(c) of the Act, howsoever high the
promised rate of interest may be in comparison with the agreed rate.
What that section requires is that such reciprocal promises, express or
implied, must depend for their performance on the happening of an event
or contingency relative or applicable to the enrolment of members into
the scheme. In other words, there has to be a community of interest in the
happening of such event or contingency. That explains why Section 3
makes it an offence to “participate” in the scheme or to remit any money
“in pursuance of such scheme”. He who conducts or promotes a
money-spinning project may have manifold resources from which to
pay fanciful interest by luring the unwary customer. But, unless the
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project envisages a mutual arrangement under which, the happening
or non-happening of an event or contingency relative or applicable
to the enrolment of members into that arrangement is of the essence,
there can be no “money circulation scheme” within the meaning of
Section 2(c) of the Act.
**** **** ****
10. The question as to whether the first information report prima facie
discloses an offence under Section 4 read with Section 3 of the Act has to
be decided in the light of these requirements of Section 2(c) of the Act. I
have already reproduced in extenso the FIR lodged by the Commercial
Tax Officer, Bureau of Investigation. Analysing it carefully, and even
liberally, it makes the following allegations against the firm “Sanchaita
Investments” and its three partners:
(1) The firm had been offering fabulous interest at the rate of 48 per
cent per annum to its members, which rate of interest was later reduced
to 36 per cent per annum;
(2) Such high rate of interest was being paid even though the loan
certificate receipts show that interest was liable to be paid at the rate of
12 per cent per annum only; and
(3) The fact that interest was paid in excess of 12 per cent shows clearly
that a “money circulation scheme” was being promoted and conducted
for the making of quick or easy money.
It seems to me impossible to hold on the basis of these allegations that
any offence can be said to be made out prima facie under Section 3 of the
Act. In the first place, the FIR does not allege, directly or indirectly, that
the firm was promoting or conducting a scheme for the making of quick
or easy money, dependent on any event or contingency relative or
applicable to the enrolment of members into the scheme. Secondly, the
FIR does not contain any allegation whatsoever that persons who
advanced or deposited their monies with the firm were participants of a
scheme for the making of quick or easy money, dependent upon any such
event or contingency. The FIR bears on its face the stamp of hurry and
want of care. It seems to assume, what was argued before us by Shri
Somnath Chatterjee on behalf of the prosecution, that it is enough for the
purposes of Section 2(c) to show that the accused is promoting or
conducting a scheme for the making of quick or easy money, an
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assumption which I have shown to be fallacious. An essential ingredient
of Section 2(c) is that the scheme for making quick or easy money must
be dependent on any event or contingency relative or applicable to the
enrolment of members into the scheme. A first information report which
does not allege or disclose that the essential requirements of the penal
provision are prima facie satisfied, cannot form the foundation or
constitute the starting point of a lawful investigation.”
(emphasis supplied)
29. The Hon’ble Supreme Court in Reserve Bank of India v. Peerless
General Finance and Investment Co. Ltd. and Others13, while answering
the issue, “Is a prize-less chit a prize chit?”, has observed and held as under: –
“30. So, the court was of the view that the Prize Chits and Money
Circulation Schemes (Banning) Act was designed to fight the baser
human instinct of gambling aroused by the prize element involved in the
banned transactions. The court concluded that it was the prize element
that brought it within the mischief of the Act and that without the prize
element it would be no different from a Conventional Chit, considered
harmless by the Parliament. We must notice here that in a “Conventional
Chit” as defined in the Act, though every subscriber is entitled to the
prize amount, some get it sooner than the others depending on the result
of the auction or the draw and to the extent that it depends on a draw
there is a slight element of chance. In the recurring deposit schemes such
as the ones we are concerned with, even that element of chance is
lacking. If “Conventional Chits” are not banned, it is a legitimate
question to ask whether Parliament could have contemplated the banning
of schemes not involving the element of the kind of harm intended to be
prevented, even to the slight degree as in Conventional Chits?
**** **** ****
34. We have already referred to the Bhabatosh and Raj Study Groups’
Reports and recommendations. In para 6.3 of the latter report the two
13
(1987) 1 SCC 424
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common and basic features of prize chits by whatever name known were
identified as the giving of prizes to the lucky ones and the refunding of
subscription to everyone. These prize chits by whatever name known
were recommended to be banned. It was this recommendation that was
accepted by Parliament in enacting the Prize Chits and Money
Circulation Schemes (Banning) Act. If this much is borne in mind it
becomes evident that the two requirements mentioned in the two clauses
(i) and (ii) of the definition are not to be read disjunctively; they are two
distinct attributes of “Prize Chits”, each of which has to be satisfied. It is
important to notice here that the Conventional Chit satisfies both the
requirements of the definition of “Prize Chit”, since, as we have already
pointed out, it involves both the “certain” and the “chance” elements, the
certain element being the refund of the amount of subscriptions less the
deductions and the chance element being the time of such payment,
dependent on the result of the draw or auction. Yet the definition of
“Prize Chit” expressly excludes the Conventional Chit obviously for the
reason that the “chance” element is overshadowed by the “certain”
clement. If so, why should any construction be placed on the definition
so as to bring in all recurring deposit schemes, even if they do not
involve a chance element? Such a construction would reduce the
definition to a near absurdity and render the reference to the giving or
awarding of a prize or gift, a meaningless superfluity. If a Conventional
Chit is not a “Prize Chit” by definition, there appears to be no logic in
construing the definition to include a recurring deposit scheme. The
argument is that the two clauses (i) and (ii) are to be read disjunctively
and that they should not be read as if they are joined by the conjunction
“and”. We do not agree. There is no need to introduce the word “or”
either. How clauses (i) and (ii) of Section 2(e) have to be read depends
on the context. The context requires the definition to be read as if both
clauses have to be satisfied. There is nothing in the text which makes it
imperative that it be read otherwise. The learned counsel urges that the
expression “all or any of the following purposes” indicates that the
purpose may be either the one mentioned in (i) or the one mentioned in
(ii). We do not agree with this submission. Each of the clauses (i) and (ii)
contains a number of alternatives and it is to those several alternatives
that the expression “all or any of the following purposes” refers and not
to (i) or (ii) which are not alternatives at all. In fact, a Prize Chit, by
whatever name it may be called, does not contemplate the exhaustion of
the entire fund by the giving of prizes; it invariably provides for a refund
of the amount of subscription, less the deductions, to all the subscribers
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or to those who have not won prizes, depending on the nature of the
scheme. Clauses (i) and (ii) refer to the twin attributes of a Prize Chit or
like scheme and not to two alternate attributes.”
30. As per the case of prosecution, as alleged by the complainants, the
petitioners were carrying activity related to finance under various
names/companies for chit fund/committee where they had allegedly allured
the complainants to invest/deposit the money under the pretext of running
committees with the promise of return at the time of maturity. The said
investments were made on the promise of interest @ 28% per annum which
remained with the petitioners for further capital appreciation and the same
cannot be termed as giving or awarding periodically a prize chit or as a money
circulation scheme. In view of the observations made by Hon’ble Supreme
Court in Swapan Kumar Guha (supra) and Peerless General Finance and
Investment Co. Ltd. and Others (supra) and in facts and circumstances of
the present case, the petitioners cannot be stated to be running a “Money
Circulation Scheme” or “Prize Chit” as defined within the meaning of clauses
(c) & (e) respectively, of Sections 2 of the PCMCS Act.
31. In view of the aforesaid, the charges framed by the learned Trial
Court/CJM vide order dated 19.07.2022 against the petitioners for the
offences punishable under Sections 4/5/6 of the PCMCS Act are set aside.
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32. The present petition is partly allowed and disposed of accordingly.
33. Pending applications, if any, also stand disposed of accordingly.
34. Needless to state that, nothing mentioned hereinabove, is an opinion on
the merits of the case or on the pending trial against the present Petitioners
and any observations made herein are only for the purpose of the present
petition.
35. Copy of the judgment be sent to the concerned learned Trial Court for
necessary information and compliance.
36. Judgment be uploaded on the website of this Court forthwith.
AMIT SHARMA, J.
AUGUST 27, 2025/bsr/ns
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