Judgment Chandrachud ( 1 ) MY learned brother A. N. Sen has dealt fully with the various points argued before us. I agree respectfully with his judgment, but desire to add a few words in view of the importance which this matter has acquired by reason of the immense circulation of black money clearly and almost concededly involved in the affairs of the firm which is facing a prosecution. ( 2 ) THESE appeals by special leave arise out of the judgment dated 5/03/1981 of a learned Single Judge of the Calcutta High court in Matters Nos. 2829 of 1980 and 37 of 1981. The appeals are, in substance, by the State of West Bengal while the contesting respondents are a firm called sanchaita Investments and its three partners, Swapan Kumar Guha, Shambhu Prasad Mukherjee and Bihari Lal Murarka. The two matters in the Calcutta High court were in the nature of Writ Petition under Article 226 of the Constitution which were filed by the firm and its partners for quashing an investigation commenced against the firm. Allowing the Writ Petition, the High court issued a writ of mandamus directing the State government and its concerned officers to "forthwith recall, cancel and withdraw 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. are, according to the High court, illegal and without jurisdiction. 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. 52,11,930. 00. ( 3 ) THE short question for consideration in these appeals by special leave is whether the F. I. R. lodged by the Commercial Tax Officer, Bureau of Investigation, against the firm and its partners discloses an offence under S. 3 of the Prize Chits and Money Circulation Schemes (Banning) Act 43 of 1978. The Act, which was passed by the Parliament, came into force on 13/12/1978 and the two years period allowed by S. 12 for winding up every kind of business relating to Prize Chits and Moneycirculation Schemes expired on 12/12/1980. The Act, which was passed by the Parliament, came into force on 13/12/1978 and the two years period allowed by S. 12 for winding up every kind of business relating to Prize Chits and Moneycirculation Schemes expired on 12/12/1980. The F. I. R. , which was lodged the next day on December 13, reads thus: TO 13/12/1980 The Deputy Superintendent of Police Bureau of Investigation 10, Madan Street Calcutta-72 Sir, On a secret information that sanchaita- Investments of 5-6, Fancy Lane, Calcutta, is carrying on business of promoting and/or conducting prize chit and/or money circulation scheme enrolling members of such chit and/ or scheme, participating in those, 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 Schemes (Banning) Act, 1978. Enquiry was held secretly to verify correctness or otherwise of the aforesaid secret information. Enquiry reveals that the said sanchaita Investments is a partnership firm, partners being Shri Bihari Lal Murarka, Shri Shambhu Prasad Mukherjee and Shri Swapan Kumar Guha and that it was floatea in or around 1975. Enquiry further reveals that the said firm had been offering fabulous interest at the rate of 48 per cent per annum to its members until very recently. The rate of interest has of late been reduced to 36 per cent per annum. Such high rates of interest were and are being paid even though the loan certificate receipts show the rate of interest to be 12 per cent only. Thus, the amount in excess of 12 per cent so said clearly shows that the money Circulation Scheme" is being promoted and conducted 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. In view of the above, Sarvashri Bihari Lal Murarka, Shambhu 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 S. 3 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 and are therefore, punishable under S. 4 of the said Act. Necessary action may, therefore, be kindly taken against the aforesaid offenders along with other accomplices as provided in the law. Necessary action may, therefore, be kindly taken against the aforesaid offenders along with other accomplices as provided in the law. Yours faithfully Sd/- Commercial Tax Officer, Bureau of Investigation ( 4 ) S. 4 of the Act provides that whoever contravenes the provisions of S. 3 shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both, provided that in the absence of special and adequate reasons to the contrary to be mentioned in the judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than one thousand rupees. Though the F. I. R. is riddled with the "and/or" clauses moreappropriate in deeds of conveyancing, it is clear from its tenor and is common ground that the gravamen of the accusation against the accused is that they are conducting a `money circulation schemed The reference in the F. I. R. to prize chits reflects but a common human failing to err on the safe side and the notorious effort of draftsmen to embrace as much as possible so that no argument may be shut out for want of pleading. ( 5 ) SINCE the sole question for consideration arising out of the F. I. R. , as laid, is whether the accused are conducting a money circulation scheme, it is necessary to understand what is comprehended within the statutory meaning of that expression. ( 5 ) SINCE the sole question for consideration arising out of the F. I. R. , as laid, is whether the accused are conducting a money circulation scheme, it is necessary to understand what is comprehended within the statutory meaning of that expression. S. 2 (c) of the Act provides : 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 not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions;grammar and punctuation are hapless victims of the pace of life and I prefer in this case not to go merely by the commas used in clause (c) because, though they seem to me to have been placed both as a matter of convenience and of meaningfulness, yet, a more thoughtful use of commas and other gadgets of punctuation would have helped make the meaning of the clause clear beyond controversy. Besides, how far a clause which follows upon a comma governs every clause that precedes the comma is a matter not free from doubt. I therefore consider it more safe and satisfactory to discover the true meaning of clause (c) by having regard to the substance of the matter as it emerges from the object and purpose of the Act, the context in which the expression is used and the consequences necessarily following upon the acceptance of any particular interpretation of the provision, the contravention of which is visited by penal consequences. ( 6 ) COMMAS or no commas, and howsoever thoughtfully one may place them if they are to be there, I find it impossible to take clause (c) to mean that any and every activity "for the making of quick or easy money" is comprehended within its scope. For the matter of that, I cannot believe any law to ban every kind of activity for making quick or easy money, without more, on pain of penal consequences. It is far too vague and arbitrary to prescribe that "whosoever makes quick or easy money shall be liable to be punished with fine or imprisonment". For the matter of that, I cannot believe any law to ban every kind of activity for making quick or easy money, without more, on pain of penal consequences. It is far too vague and arbitrary to prescribe that "whosoever makes quick or easy money shall be liable to be punished with fine or imprisonment". For then, in the absence of any demarcation of legitimate money-making activities from those which fall within the ban, the question whether the penal provision is attracted in a given case will depend upon the will and temper, sweet or sour, of the magistracy. Besides, speaking of law and morals, it does not seem morally just or proper to say that no person shall make quick or easy money, especially quick. A person who makes quick money may do so legitimately by the use of his wits and wisdom and no moral turpitude may attach to it. One neednot travel afar to find speaking examples of this. Indeed, there are honourable men (and now women) in all professions recognised traditionally as noble, who make quite quick money by the use of their talents, acumen and experience acquired over the years by dint of hard work and industry. A lawyer who charges a thousand rupees for a special leave petition lasting five minutes (that is as far as a Judges imagination can go), adoctor who charges a couple of thousands for an operation of tonsillitis lasting ten minutes, an engineer, an architect, a chartered accountant and other professionals who charge likewise, cannot by any stretch of imagination be brought into the drag-net of clause (c ). Similarly, there are many other vocations and business activities in which, of late, people have been notoriously making quick money as, for example, the builders and real estate brokers. I cannot accept that the provisions of clause (c) are directed against any of these categories of persons. I do not suggest that law is powerless to reach easy or quick money and if it wills to reach it, it can find a way to do it. But the point of the matter is that it will verge upon the ludicrous to say that the weapon devised by law to ban the making of quick or easy money is the provision contained in S. 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act. But the point of the matter is that it will verge upon the ludicrous to say that the weapon devised by law to ban the making of quick or easy money is the provision contained in S. 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act. ( 7 ) IN order to give meaning and centent to the definition of the expression money circulation scheme which L contained in S. 2 (c) of the Act,one has, therefore, to look perforce to the adjectival clause which qualifies the words "for the making of quick or easy money ". What is within the mischief of the Act is not "any scheme, by whatever name called, for the making of quick or easy money" simpliciter, but a scheme for the making of quick or easy money, "on any event or contingency relative or applicable to the enrolment of members into the scheme, (whether or not such money or thing is derived from the entrance money of the members of such scheme or their periodical subscriptions ). Two conditions must, therefore, be satisfied before a person can be held guilty of an offence under S. 4 read with S. 3 and 2 (c) of the Act. In the first place, it must be proved that he is promoting or conducting a scheme for the making of quick-or easy money and secondly,the chance or opportunity of making quick or easy money must be shown to depend upon an event or contingency relative or applicable to the enrolment of members into that scheme. The legislative draftsman could have thought fully foreseen and avoided all reasonable controversy over the meaning of the expression money circulation scheme by shaping its definition in this form : money circulation scheme means any scheme, by whatever name called, (I) fur the making of quick or easy money, or (II) 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 not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions;i have re-shaped the definition, in order to bring out its meaning clearly, without adding or deleting a. single word or comma from the original text of S. 2 (c ). The substance of the matter is really not in doubt: only the form of the definition is likely to create some doubt as to the meaning of the expression which is defined and, therefore, I have made a formal modification in the definition without doing violence to its language and indeed, without even so much as altering a comma. ( 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. 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 S. 2 (c) of the Act, howsoever high the promised rate of interest may be in comparison with the agreed rate. What that S. 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 membersinto the scheme. In other words, there has to be a community of interest in the happening of such event or contingency. What that S. 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 membersinto the scheme. In other words, there has to be a community of interest in the happening of such event or contingency. That explains why S. 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 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 S. 2 (c) of the Act. ( 9 ) NUMEROUS persons lend their hard-earned monies in the hope ofearning high returns. It is notorious that, eventually, quite a few of them lose both the principal and the interest, for no project can succeed against the basic laws of economics. Sharp and wily promoters pay As money to B and Bs to C inorder to finance interest at incredible rates; and eventually, when a high-risk investment made by them at the cost of the credulous tenders fails, the entire arrangement founders on the rock of foolish optimism. The promoters, of course, have easy recourse to gadgets of the law of insolvency. It is difficult to hold that the lender, himself a victim of the machinations of the crafty promoter, is intended by the Act to be arraigned as an accused. I do not think that any civilised law can intend to add insult to injury. ( 10 ) THE question as to whether the First Information Report prima facie discloses an offence under S. 4 read with S. of the Act has to be decided in the light of these requirements of S. 2 (c) of the Act. I have already reproduced in extenso the F. I. R. lodged by the Commercial Tax Officer, Bureau of Investigation. I have already reproduced in extenso the F. I. R. lodged by the Commercial Tax Officer, Bureau of Investigation. Analysing it carefully, and even liberally,it makes the following allegations against the firm sanchaita Invistments and its three partners: (1) The firm had been offering fabulous interest at the rate of 48 percent 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 S. 3 of the Act. In the first place, the F. I. R. 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 F. I. R. 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 F. I. R. bears on its face the stamp of hurry and want of care. It seems to assume, what was argued before us by Shri Somnath Ghatterjee on behalf of the prosecution, that it is enough for the purposes of S. 2 (c) to show that the accused is promoting or conducting a scheme for the making of quick or easy money, an assumption which I have shown to be fallacious. An essential ingredient of S. 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 inembers into the scheme. An essential ingredient of S. 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 inembers 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. ( 11 ) IN answer to the Writ Petition filed by the accused in the Calcutta High court, affidavits were filed on behalf of the prosecuting agency, which do not improve matters in any way. The affidavit filed by Arun Kanti Roy, Deputy secretary, Finance Department, government of West Bengal, alleges that: (I) The actual payment of a very high rate of interest against the professed rate of 12 percent attracted huge amounts of idle money into circulation; (II) The investment of money as collected is not under the regulatory control of the Reserve Bank. The affidavit filed by Arun Kanti Roy, Deputy secretary, Finance Department, government of West Bengal, alleges that: (I) The actual payment of a very high rate of interest against the professed rate of 12 percent attracted huge amounts of idle money into circulation; (II) The investment of money as collected is not under the regulatory control of the Reserve Bank. of India or any other agency of the State dealing with credit control in relation to the countrys economy; (III) The pooling of the purchasing power and the financial resources and the unfettered deployment thereof have resulted in the concentration of tremendous economic power in the hands of a few, posing a potential threat to the equilibrium of the countrys economy; (IV) 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; (V) The very basis of the so-called contractual arrangement between the firm and its depositors is founded on the fraudulent device to assure to" the people a high rate of interest, the major portion of which is paid through unaccounted for money, thereby encouraging the growth of such unaccounted money in the hands of the investing public; (VI) The professed rate of interest is a mere subterfuge to provide a cloak of bona fides and legality to the underhand transactions, through which unaccounted for money comes into play in the market, generating further unaccounted for money, a part whereof goes back to the depositors in the form of the balance of interest over 12 per cent paid in cash, month by month; (VII) The firm did not have enough income or resources so as to be able to pay interest at such high rates ; (VIII) The irresistible conclusion, therefore, is that interest was being paid out of the capital itself; (IX) "the depositor becomes a member of the investment scheme of the firm 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 573 depositors of the scheme to which the depositor agrees to subscribe"; and (X) In the process of its working, the scheme of the firm generates quick and easy money so as to render such scheme or arrangement a money circulation scheme within the meaning of the Act. ( 12 ) THE Assistant Commissioner of Police Shri Sunil Kumar Ghakravorty has adopted these pleas and statements in his own affidavit. ( 13 ) IT is clear from these averments-that even at the stage when the State of West Bengal and its concerned officers submitted detailed affidavits to the High court, there was no clear basis for alleging and no material was disclosed to show that, prima facie, the firm was promoting or conducting a scheme for making quick or easy money which was dependent upon an event or contingency relative or applicable to the enrolment of members into that scheme. The burden of the States song is that the scheme conducted by the accused generates black money and will paralyse the economy of the country. These are serious matters indeed and it is unquestionable that a private party cannot be permitted to issue bearer bonds by the back door. The fact that the accused are indulging in an economic activity which is highly detrimental to national interests is a matter which must engage the prompt and serious attention of the State and central governments. But the narrow question for our consideration is whether on the basis of the allegations made against the accused, there is reason to suspect that they are guilty of an offence under S. 4 read with S. 3 and 2 (c) of the Act. The allegation which we have reproduced in clause (ix) above from the affidavit of Arun Kanti Roy is the nearest that can be considered relevant for the purposes of S. 2 (c) of the Act. But even that allegation does not meet the requirement of that S. since, what it says is that "the payment of 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 member-ship of the depositors of the scheme to which the depositor agrees to subscribe". This is too tenuous to show that the scheme is dependent upon an event or contingency of the description mentioned in S. 2 (c), apart from the fact that the only participation which is alleged as against the depositors is that they become members of the "investment scheme" by subscribing to it. This is too tenuous to show that the scheme is dependent upon an event or contingency of the description mentioned in S. 2 (c), apart from the fact that the only participation which is alleged as against the depositors is that they become members of the "investment scheme" by subscribing to it. There is no allegation even in any of the affidavits filed on behalf of the State of West Bengal and its concerned officers that the depositors and the promoters are animated by a community of interest in the matter of the scheme being dependent upon any event or contingency relative or applicable to the enrolment of members into it. That being an essential ingredient of the offence charged, it cannot be said in the absence of any allegation whatsoever in that behalf, that there is "reason to suspect" the commission of that offence within the meaning of S. 157 of the Gode of Criminal Procedure, so as to justify the investigation undertaken by the State authorities ( 14 ) MY learned brother, A. N. Sen, J. , has considered exhaustively the various authorities cited at the Bar by both the sides on the question as to the power of the courts to quash an investigation. I fully concur with his careful analysis of those authorities and would content myself with a broad indication of the trend of law bearing on the subject. ( 15 ) SHRI Ashok Sen and Shri Siddhartha Shankar Ray pressed upon us with considerable insistence the principle reiterated in W. H. King v. Republic of India, that a statute which creates an offence and imposes a penalty of fine and imprisonment must be construed strictly in favour of the subject. The principle that no person can be put in, peril of his life and liberty on an ambiguity is well established. The principle that no person can be put in, peril of his life and liberty on an ambiguity is well established. But, as oberved in M. V. Joshi v. M. U. Shimpi, when it is said that penal statutes must be construed strictly, what is meant is that the court must see that the thing charged is an offence within the plain meaning of the words used and it must not strain the words: "to put it in other words, the rule of strict construction requires that the language of a statute should be so construed that no case shall be held to fall within it which does not come within the reasonable interpretation of the statute", and that in case of doubt, the construction favourable to the subject should be preferred. . But I do not think that this rule of strict interpretation of penal statutes in any way affects the fundamental principle of interpretation, that the primary test which can safely be applied is the language used in the Act and, therefore, when the words are clear and plain, the court must accept the expressed intention of the legislature. It is unnecessary to pursue this matter any further in view of the fact that the language of S. 2 (c) is, in my opinion, clear and admits of no doubt or difficulty. ( 16 ) IN R. P. Kapur v. State of Punjab, the question which arose for consideration was whether a first information report can be quashed under S. 561 -A of the Code of Criminal Procedure, 1898. The court held on the facts before it that no case for quashing the proceedings was made out but Gajendragadkar, J. , speaking for the court observed that though ordinarily, criminal proceedings instituted against an accused must be tried under the provisions of the Code, there are some categories of cases where the inherent jurisdiction of the court can and should be exercised for quashing the proceedings. One such category, according to the court, consists of cases where the allegations in the F. I. R. or the complaint, even if they are taken at their face value and accepted in their entirety, do not constitute the offence alleged; in such cases, no question of appreciating evidence arises and it is a matter merely of looking at the F. I. R. or the complaint in order to decide whether the offence alleged is disclosed or not. In such cases, said the court, it would be legitimate for the High court to hold that it. would be manifestly unjust to allow the process of the criminal court to be issued against the accused. ( 17 ) IN S. N. Sharma v. Bipen Kumar Tiwari, a first information report was lodged naming an Additional District Magistrate (Judicial) as the principal accused. His application under S. 159 of the Criminal Procedure Code asking that the Judicial Magistrate should himself conduct a preliminary enquiry was dismissed, but the court observed that though the Code of Criminal Procedure gives to the police unfettered power to investigate all cases where they suspect that a cognizable offence has been committed, in appropriate cases, an aggrieved person can always seek a remedy by invoking the power of the High court under Article 226 of the Constitution and that the High court could issue a writ of mandamus restraining the police from misusing their legal powers. ( 18 ) SHRI Somnath Chatlerjee has placed great reliance on the decision of this court in State of W. B. v. S. N. Basak, in which it was held that the statutory powers given to the police under S. 154 and 156 of the Code of Criminal Procedure to investigate into the circumstances of an alleged cognizable offence without authority from a magistrate cannot be interfered with by the exercise of powers under S. 439 or under the inherent powers conferred by S. 561-A of the old Code. It must be remembered that no question arose in that case as to whether, the allegations contained in the F. I. R. disclosed any offence at all. The contention of the accused in that case was that the statutory power of investigation given to the police under Ch. It must be remembered that no question arose in that case as to whether, the allegations contained in the F. I. R. disclosed any offence at all. The contention of the accused in that case was that the statutory power of investigation given to the police under Ch. XIV of the Code is not available in respect of an offence triable under the West Bengal Criminal Law Amendment (Special courts) Act, 1949 and that being so, the investigation undertaken by the police was without jurisdiction. That contention was negatived and, therefore, the application filed by the accused under S. 439 and 561-A of the old Code was dismissed. ( 19 ) IN Jehan Singh v. Delhi Administration, the application filed by the accused under S. 561-A. of the Code for quashing the investigation was dismissed as being premature and incompetent, but that was because the court found (per Sarkaria, J. , that prima facie, the allegation in the F. I. R. , if taken as correct, disclosed the commission of a cognizable offence by the accused. ( 20 ) THE only other decision to which I need refer is that of the Privy council in King-Emperor v. Khwaja Nazir Ahmad, which constitutes, as it were, the charter of the prosecution all over, for saying that no investigation can ever be quashed. In a passage oft-quoted but much misunderstood. Lord Porter, delivering the opinion of the Judicial Committee, observed: (IA pp. 212-13) IN their Lordships opinion, however, the more serious aspect of the 576 case is to be found in the resultant interference by the court with the duties of the police. Just as it is essential that every one accused of a crime should have free access to a court of justice so that he may be duly acquitted if found not guilty of the offence with which he is charged, so it is of the utmost importance that the judiciary should not interfere with the police in matters which are within their province and into which the law imposes on them the duty of inquiry. In India, as has been shown, there is a statutory right on the part of the police to investigate the circumstances of an alleged cognizable crime without requiring any authority from the judicial authorities, and it vould, as their Lordships think, be an unfortunate result if it should be held possible to interfere with those statutory rights by an exercise of the inherent jurisdiction of the court. The functions of the judiciary and the police are complementary, not overlapping, and the combination of individual liberty with a due observance of law and order is only to be obtained by leaving each to exercise its own function, always, of course, subject to the right of the court to intervene in an appropriate case when moved under S. 491 of the Criminal Procedure Code to give directions in the nature of habeas corpus. In such a case as the present) however, the courts functions begin when a charge is preferred before it, and not until then. I do not think that this decision supports the wide proposition canvassed before us by Shri Sornnath Ghatterjee. In the case before the Privy council, similar charges which were levelled against the accused in an earlier prosecution were dismissed. The High court quashed the investigation into fresh charges after examining the previous record, on the basis of which it came to the conclusion that the evidence against the accused was unacceptable. The question before the Privy council was not whether the fresh F. I. R. disclosed any offence at all. In fact, immediately after the passage which I have extracted above, the Privy council qualified its statement by saying : NO doubt, if no cognizable offence is disclosed, and still more, if no offence of any kind is disclosed, the police would have no authority to undertake an investigation. If anything, therefore, the judgment shows that an investigation can be quashed if no cognizable offence is disclosed by the F. I. R. It shall also have been noticed, which is sometimes overlooked, that the Privy council took care to qualify its statement of the law by saying that the judiciary should not interfore with the police in matters which are within their province. It is surely not within the province of the police to investigate into a report which does not disclose the commission of a cognizable offence and the Code does not impose upon them the duty of enquiry in such cases. ( 21 ) THE position which emerges from these decisions and the other decisions which are discussed by brother A. N. Sen is that the condition precedent to the commencement of investigation under S. 157 of the Code is that the F. I. R. must disclose, prima facie, that a cognizable offence has been committed. It is wrong to suppose that the police have an unfettered discretion to commence investigation under S. 157 of the Code. Their right of enquiry is conditioned by the existence of reason to suspect the commission of a cogniznble offence and they cannot, reasonably, have reason so to suspectunless the F. I. R. , prima facie, discloses the commission of such offence. If that condition is satisfied, the investigation must go on and the rule in Khwaja Najir Ahmad" will apply. The court has then no power to stop the investigation, for to do so would be to trench upon the lawful power of the police to investigate into cognizable offences. On the other hand, if the F. I. R. does not disclose the commission of a cognizable offence, the court would be justified in quashing the investigation on the basis of the information as laid or received. ( 22 ) THERE is no such thing like unfettered discretion in the realm of powers defined by statutes and indeed, unlimited discretion ip that sphere can become a ruthless destroyer of personal freedom. The power to investigate into cognizable offences must, therefore, be exercised Strictly on the condition on which it is granted by the Code. I may, in this behalf, usefully draw attention to the warning uttered by Mathew, J. in his majority judgment in Prabhu Dayal Deorah v. D. M. , Kamrup to the following effect: (SCO p. 114, para 21) WE say, and we think it is necessary to repeat, that the gravity of the evil to the community resulting from anti-social activities can never furnish an adequate reason for invading the personal liberty of a citizen, except in accordance with the procedure established by the Constitution and the laws. The history of personal liberty is largely the history of insistence on. The history of personal liberty is largely the history of insistence on. observance of procedure. And observance of procedure has been the bastion against wanton assaults on personal liberty over the years. Under our Constitution, the only guarantee of personal liberty for a person is that he shall not be deprived of it except in accordance with the procedure established by law. ( 23 ) FOR these reasons, which, frankly, are no different from those given by my learned brother A. N. Sen, I am of the opinion that the investigation which has been commenced upon the First Information Report is without jurisdiction and must, therefore, be quashed. I do accordingly and direct that no further investigation shall take place in pursuance or on the basis of the F. I. R. dated December 13, 1980 lodged by the Commercial Tax Officer, Bureau of Investigation, with the Deputy Superintendent of Police, Bureau of Investigation, Madan Street, Calcutta. ( 24 ) I am free to confess that it is with considerable regret that I have come to the conclusion that the investigation must be quashed. If the State authorities had applied their mind carefully to the requirements of S. 2 (c) of the Act, this appeal might have had a different story to tell, the bare outlines of which I must now proceed to narrate. ( 25 ) THE firm sanchaita Investments commenced its business on 1/07/1975, its three partners contributing a total capital of Rs. 7,000. 00 (rupees seven thousand ). On 25/12/1978 an advertisement appeared in the Hindu in the name of the firm, claiming falsely that its business was"approved by the Reserve Bank of India". Since the representation was likely to mislead the public, the Reserve Bank advised the firm in May 1979 to issue a suitable corrigendum, which the firm did. ( 26 ) ON 6/07/1979, Shri Rudolph L. Rodrigues, a Member of the Lok Sabha, wrote a confidential letter to Shri Gharan Singh, the then Deputy Prime Minister, complaining that the business of the firm was "a cover-up for a parallel banking system for black money". A copy of Shri Rodrigues letter was forwarded by the Director, Department of Economic Affairs, Ministry of Finance, to the Chief Officer, Department of Non-Banking Companies, Reserve Bank of India, Calcutta, for enquiry. A copy of Shri Rodrigues letter was forwarded by the Director, Department of Economic Affairs, Ministry of Finance, to the Chief Officer, Department of Non-Banking Companies, Reserve Bank of India, Calcutta, for enquiry. By his letter dated 7/08/1979 the Chief Officer pointed out the difficulty in directing investigation into the affairs of the firm since, its capital being less than Rs. 1 lakh, it did not come within the Definition of a Non-Banking institution as provided in S. 54 (c) of the Reserve Bank of India Act, 1934. On 13/09/1980 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 not, under which Act the affairs of the firm could be regulated. On October I, 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, complaining 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 not subjected to any regulatory control. The letter of Shri Ashok Mitra appears to have been handed over informally to Dr. K. S. Krishnaswamy, Deputy governor of the Reserve Bank, who, by his reply dated 22/10/1980, 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 not ordinarily be covered by the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. There was further correspondence on the subject between the authorities of the government of India and the State government, but nothing came out of it. ( 27 ) THE Act came into force on 13/12/1978 and immediately on the expiry of the two years period of grace allowed by it, the F. I. R. was lodged against the firm on 13/12/1980. On that day, the office of the firm at 5-6, Fancy Lane, Calcutta, was searched by the police, during the course of which a sum of Rs. 42,16,530. 00 (rupees forty-two lacs sixteen thousand five hundred and thirty) was recovered. The amount was tied in separate bundles of notes of different denominations. Several books of accounts were also seized during the search. 42,16,530. 00 (rupees forty-two lacs sixteen thousand five hundred and thirty) was recovered. The amount was tied in separate bundles of notes of different denominations. Several books of accounts were also seized during the search. ( 28 ) ON the same date, a search was carried out at the residence of Shambhu Prasad Mukherjee, a partner of the firm, when the following articles were seized: (1) One passbook of Syndicate Bank, Gariahat Branch, Calcutta, in the name of "apcar Ave Toon", 9, Royd Street, Calcutta-17. (The account was in a fictitious name and the passbook shows that a sum of Rs. 28 crores was lying in credit in that account.) (2) A sum of Rs. 9,95,000. 00 (rupees nine lacs and ninety-five thousand) tied in separate bundles of notes of the denomination of Rs. 100. 00 and 50. 00. (3) A country-made six-chamber revolver, with one bullet inside. ( 29 ) FROM the house of another partner, Bihari Lal Murarka, certain account books were seized. ( 30 ) DURING the course of investigation until 8/01/1981 when it was stopped by an Order of this court, as many as 80 places were searched by the police and a large number of documents were seized. It is apparent from these documents that the firm was paying to its depositors interest at the rate of 48 per cent up to September 1979 and 36 per cent thereafter for a short period. The interest was paid to each depositor every month by the agents who called on each depositor personally for that. purpose. The interest in excess of 12. per cent was invariably paid in cash. The oncoming 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. Which parties, I do not know, but this much is fairly certain from the facts which have emerged before us that the funds available to the firm were diverted frequpntly for the use of political parties. ( 31 ) CERTAIN lists of agents were seized during the investigation which show that code numbers were assigned to at least 84 of them. The agents have acquired large properties at various places, consisting of lands, apartments, cars etc. Some of the agents have started new business activities. ( 31 ) CERTAIN lists of agents were seized during the investigation which show that code numbers were assigned to at least 84 of them. The agents have acquired large properties at various places, consisting of lands, apartments, cars etc. Some of the agents have started new business activities. ( 32 ) 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. 73,51,23,500. 00 (rupees seventy-three crores fifty-one lacs twenty-three thousand and five hundred ). These deposits were received by the firm from persons drawn from all parts of the country, the pride of place belonging to Calcutta, Bombay, Delhi, Madras and Hyderabad. Remittances also appear to have been received by the firm from overseas clients. Acompilation prepared by the State authorities in pursuance of an interim order passed by this court shows that the total amount of deposits made by persons who had deposited a sum of Rs. 10,000. 00 or less each comes to Rs. 11,49,40,950. 00 (rupees eleven crores forty-nine lacs forty thousand nine hundred and fifty ). ( 33 ) 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 Shambhu Prasad Mukherjee. The passbook relating to the account (Current Account No. 210) shows that the account was opened with a cash deposit of Rs. 28 lacs. A total sum of rupees twenty-seven crores ninety-Seven lacs eighty-six thousand and odd was deposited in that account until 6/12/1980, all deposits being in cash. Such cash deposits varied often between 50 and 80 lacs at a time. The amount of nearly Rs. 28 crores was withdrawn from the account steadily from 11/11/1980. The account was closed on Decembers, 1980, that is, a week before the F. I. R. was lodged on 13/12/1980. Some of the entries in the passbook do not tally with the Banks ledger. ( 34 ) A study of Current Account No. S-502 in the name of the firm with the United Bank of India, High court Branch, Calcutta, shows that the firm had invested several lacs of rupees in various concerns numbering about forty. Some of the entries in the passbook do not tally with the Banks ledger. ( 34 ) A study of Current Account No. S-502 in the name of the firm with the United Bank of India, High court Branch, Calcutta, shows that the firm had invested several lacs of rupees in various concerns numbering about forty. Lacs of rupees have been transferred by the firm to various concerns. ( 35 ) DOCUMENTS seized from the office premises of the firm show that the partners and their family members are insured with the L. I. C. in heavy amounts. They have acquired large properties, particularly in Bombay. ( 36 ) SEVERAL offices and concerns in Bombay were searched by the police and interesting discoveries were made. Their magnitude and variety are too large for the scope of this judgment. I will close this narrative by saying that the income tax returns of Shambhu Prasad Mukherjee reveal that he had shown a sum of Rs. 8,00,000. 00 as prizes received from Delhi Lotteries in 1979 and that the firm has not filed any income tax return after the financial year ending 30/06/1977. It had asked for an extension of time on the ground that its accounts were not finalised but the Department rejected that prayer on 9/12/1980. What further indulgence they have managed cleverly to secure is not yet known. ( 37 ) THESE facts disclose a bizarre state of affairs. A token capital of Rs. 7,000. 00 has begotten a wealth of crores of rupees within a span of five years. A Bank account opened by the firm in a fictitious name had a sum of Rs. 28 crores in it, which was withdrawn within a week before the lodging of the F. I. R. Interest was being paid to depositors at the incredible rate of 48 per cent per annum. The firm had no ostensible source of income from. which such exorbitant amounts could be paid and its account books, such as were seized from its head office, give no clue to its income or its assets. The partners of the firm have become millionaires overnight. Clerks and Chemists that they and some of their agents were in 1975, today they own properties which will put a prince to shame. "rags to riches" is how one may justly describe this story of quick and easy enrichment. The partners of the firm have become millionaires overnight. Clerks and Chemists that they and some of their agents were in 1975, today they own properties which will put a prince to shame. "rags to riches" is how one may justly describe this story of quick and easy enrichment. There is no question that this vast wealth has been acquired by the firm by generating and circulating black money. Indeed, rightly did Shri Ashok Sen appearing, for the firm, ask us to be free to. proceed on the assumption that the exorbitant amount of interest was being paid from out of unaccounted money. ( 38 ) IN these circumstances, though I see no alternative save to stop all further investigation on the basis of the F. I. R. as laid, no offence being disclosed by it under S. 4 of the Act, I am unable to accept the contention of Shri Ashok Sen that all documents, books, papers and cash seized so far during the investigation should be returned to the firm and its partners forthwith. The firm appears to be on the brink of an economic crisis, as any scheme of this nature is eventua. lly bound to be. Considering the manner in which the firm has manipulated its accounts and its affairs, I have no doubt that it will secret, the large funds and destroy the incriminating documents if they are returned to it. The State government, the central government and the Reserve Bank of India must be given a reasonable opportunity to see if it is possible, under the law, to institute an enquiry into the affairs of the firm and, in the meanwhile, to regulate its affairs. I consider such a step essential in the interests of countless small depositors who, otherwise, will be ruined by being deprived of their lifes savings. The big black money bosses will take any loss within their stride but the small man must receive the protection of the State, which must see to it that the small depositors are paid back their deposits with the agreed interest as quickly as possible. The big black money bosses will take any loss within their stride but the small man must receive the protection of the State, which must see to it that the small depositors are paid back their deposits with the agreed interest as quickly as possible. I therefore direct that the documents, books, papers, cash and other articles seized during the investigation shall be retained, by the police in their custody for a period of two months from today and will be returned, on the expiry of that period, to persons from whom they were seized, subject to any lawful directions which may be given or obtained in the meanwhile regarding their custody and return. ( 39 ) WITH this modification, I agree respectfully with brother A. N. Sun that the appeals be dismissed. ( 40 ) I agree with the judgment and the final order proposed by the learned chief justice. ( 41 ) 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 court. 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. The facts material for the purpose of this appeal may, however, be briefly indicated: ( 42 ) SANCHAITA Investments is a partnership firm duly registered under the Indian Partnership Act. Sanchaita Investments (hereinafter referred to as the firm) has its principal place of business at 5-6, Fancy Lane, Calcutta. Shambhu Prasad Mukherjee, Bihari Lal Murarka and Swapan Kumar Guha are the three partners of the firm. The capital of the partnership firm is Rs. 7,000. 00. 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 at the rate of12 per cent per annum. 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. In case of premature withdrawal, the depositors however loses interest of one per cent and is paid interest at the rate of 11 per cent per annum. 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. In case of premature withdrawal, the depositors however loses interest of one per cent and is paid interest at the rate of 11 per cent per annum. Under the terms and conditions 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 not required under the terms and conditions of the deposit or loan, to give any reason. It appears that the firm has been carrying on its business on a very extensive scale. ( 43 ) 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 ). ( 44 ) ON 13/12/1980, the Commercial Tax Officer, Bureau of Investigation, lodged a complaint of violation of the Act by the firm with the police. The F. I. R. has been set out in full in the judgment of the learned Trial Judge and the same reads as follows : TO 13/12/1980 The Deputy Superintendent of Police Bureau of Investigation 10, Madan Street Calcutta-72 Sir, On a secret information that sanchaita Investments of 5-6, Fancy Lane, Calcutta, is carrying on business of promoting and/or conducting 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 Schemes (Banning) Act, 1978. Enquiry was held secretly to verify correctness or otherwise of the aforesaid secret information. Enquiry reveals that the said sanchaita Investments is a partnership firm, partners being Shri Bihari Lal Murarka, Shri Shambhu Prasad Mukherjee and Shri Swapan Kumar Guha and that it was floated in or around 1975. Enquiry further reveals that the said firm had been offering fabulous interest at the rate of 48 per cent per annum t5 its members until very recently. The rate of interest lias of late been reduced to 36 per cent per annum. Enquiry further reveals that the said firm had been offering fabulous interest at the rate of 48 per cent per annum t5 its members until very recently. The rate of interest lias of late been reduced to 36 per cent per annum. Such high rates of interest were and are being paid even though the loan certificate receipts show the rate of interest to be 12 per cent only. Thus, the amount in excess of 12 per cent so paid clearly shows that the money Circulation Scheme is being promoted and conducted for the making of quick and/or easy money, prizes and/or gifts in cash were and are also awarded to agents, promotors and members too. In view of the above, Sarvashri Bihari Lal Murarka, Shambhu Prasad Mukherjee and Swapan Kumar Guha appear to have been carry/ing 583 on business in the trade name of sanchaita Investments in prize chits and money circulation scheme in violation of S. 3 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 and aretherefore, punishable under S. 4 of the said Act. Necessary action may, therefore, be kindly taken against the aforesaid offenders along with other accomplices as provided in the law. Yours faithfully Sd/- Illegible 13/12/1980 Commercial Tax Officer, Bureau of Investigation ( 45 ) ON 13/12/1980 two of the partners of the firm were arrested. The office of the firm and also the houses of the partners were searched. 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. Two partners who were arrested were, however, thereafter enlarged on bail. ( 46 ) THE firm and its two partners, namely, Shambhu Prasad Mukherjee and Bihari Lal Murarka filed this writ petition in the High court challenging the validity of the F. I. R. and the proceedings arising out of the same including the validity of the searches and seizure of documents, papers and cash. The respondents in the writ petition were six. The 1st respondent was the State of West Bengal, respondent 2 was the Officer who had lodged the F. I. R. , respondent 3 was the Assistant Commissioner of Police and Superintendent of Police, Bureau of Investigation, and respondent 4 was the Investigating Officer in the cases pending before the Chief Metropolitan Magistrate, Calcutta. The 1st respondent was the State of West Bengal, respondent 2 was the Officer who had lodged the F. I. R. , respondent 3 was the Assistant Commissioner of Police and Superintendent of Police, Bureau of Investigation, and respondent 4 was the Investigating Officer in the cases pending before the Chief Metropolitan Magistrate, Calcutta. Respondent 5 was the Reserve Bank of India and respondent 6 was the Union of India. ( 47 ) IN brief the case made by the firm and its partners in the writ petition is that the firm is a non-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 lo,an 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 t)etween the parties. 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. 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 F. I. R. are assumed to be correct, there cannot be any question of any violation of the Act and no offence under the Act is disclosed. Itis the positive case of the writ petitioners in the writ petition that the Act has no application. to the firm. 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. does not disclose any offence under the Act which does not apply to the firm and there can be no question of any violation of any provisions of the Act which has no application to the firm at all. ( 48 ) IN answer to the averments made in the writ petition, an affidavit affirmed by Shri Arun Kanti Roy, was filed on behalf of respondents 1 and 2, an affidavit affirmed by Shri Sunil Kumar Ghakravorty on behalf of respondents 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. 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 1 and 2, -that is, the State of West Bengal and Shri B. K. Kundu, there is an assertion that the respondents come within the mischief of the Act and they have violated S. 3 of the Act. 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: 6. 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. Although the professed rate of interest of such deposit is at the rate of 12 per cent per annum, the petitioner firm was actually paying interest at the rate of 48 per cent per annum, which was recently reduced to 36 per cent per annum. The actual payment of such high rate of interest against the professed rate of 12 per cent attracts huge amount of idle money into circulation and the investment of money as collected is not under the regulatory control of the Reserve Bank of India or any other agency of the State dealing with credit control in relation to the country's economy. 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 non-banking companies 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 deployment thereof being unfettered has resulted in the concentration of tremendous economic power in the hands of a few posing a potential threat to the equilibrium of the country's economy. The pooling of the purchasing power and/or the financial resources and the deployment thereof being unfettered has resulted in the concentration of tremendous economic power in the hands of a few posing a potential threat to the equilibrium of the country's economy. The terms of the deposit are unilaterally determined without any scrutiny by the Reserve Bank of India or with reference to the norms as to the credit control which the said Bank lays down and. follows from time to time. The acceptances of such deposits from the members of public with unrestricted use of the moneys so collected are completely repugnant to the accepted modes of public savings and investment thereof for generation of goods and services contributing to the economic growth of the country. 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. 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 contained in the several directions issued 585 by the Reserve Bank of India under the Reserve Bank of India Act, 1934 to the various financial institutions and non-banking companies. The present Act is applicable not only to such companies but also to individuals and firms. All allegations contrary to and save as aforesaid are denied. 7. With reference to paragraph 5 of the petition I call upon the petitioner to disclose full particulars of their deposit scheme, which if disclosed will go to show that the terms and conditions are wholly arbitrary and contrary to the economic norms. The very basis of the so-called contractual 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. The professed rate of interest is a mere subterfuge to provide a cloak of bona fide and legality over the underhand transactions through which unaccounted for money comes 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 per cent paid in cash month by month. All allegations contrary to and save as aforesaid are denied. 8. 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. Whether such deposits are one-time deposits and whether such deposit! actually earn income in excess of the interest actually paid to the depositors are a matter of detailed investigation, which were in progress until the same was stopped by the order of the learned court of Appeal passed on 8/01/1981. From whatever particulars are so far available to the answering respondents it can be stated that the firm did not have so much income as the quantum of. interest that was being paid by it and the irresistible conclusion from such state of affairs is that payment of interest was being made out of capital itself. All allegations contrary to and save as aforesaid are denied. 9. With reference to paragraph 7 of the petition I reiterate the statements made hereinbefore and deny all allegations contrary thereto. I specifically deny that no quick or easy money is accepted or received by the depositors or lenders or that payment of any such money is not contemplated or made by the firm as purported to be alleged. The depositor becomes a member of the investment scheme of the company 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. 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. All allegations contrary to and save as aforesaid aredenied. ( 49 ) THE following further averments contained in paragraph 22 and in paragraph 30 of the said affidavit may also be noted : 22. . . . All allegations contrary to and save as aforesaid aredenied. ( 49 ) THE following further averments contained in paragraph 22 and in paragraph 30 of the said affidavit may also be noted : 22. . . . I furtlier say that payment of interest at the clandestine rate of 36 per cent or 48 per cent as against the aforesaid rate of 12 per 586 cent is in the context of the scheme promoted and conducted by the petitioners tantamount to activity which is banned under the banking provisions of the said Act. 30. . . . No question of the depositors being ruined should arise if the petitioners had been running their business on sound economic line and had invested the fund collected from the depositors in safe and sound investment. 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. In the affidavit affirmed by Shri Sunil Kumar Ghakravorty, Assistant Commissioner of Police and Deputy Superintendent of Police, Bureau of Investigation, government of West Bengal, Finance, Taxation Department and filed on behalf of respondents 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. 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. ( 50 ) 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 control over the firm has been unnecessarily made a party to the proceeding. It has been further stated in the said affidavit that as desired by the parties and the court, the Reserve Bank of India was placing the materials which had come to the knowledge of the Reserve Bank. It has been further stated in the said affidavit that as desired by the parties and the court, the Reserve Bank of India was placing the materials which had come to the knowledge of the Reserve Bank. In this affidavit reference has been made to certain correspondence between the State Finance Minister, Union Finance Minister and the Deputy governor of the Reserve Bank of India and also to various queries made and the enquiries made by the Reserve Bank of India. 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. 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 D and E thereto. Annx. D is the copy of a letter addressed by Shri Ashok Mitra, State Finance Minister to the Union Minister for Finance and the said letter reads as follows: LNFORMALLY handed over to DG (K.) at Calcutta. Ashok Mitra D. O. no. 1,m. 28-2-80 Calcutta, 1/10/1980 Dear Shri Venkataraman, In the context of the action being taken by the government of West Bengal under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, a question has arisen whether an organisation called 'sanchaita Investments' with the 'address at 5-6, Fancy Lane) Calcutta-1, come 587 within the purview of the above Act. A reference in the matter has been made by our authorised officer under the above Act to the Chief Officer, Department of Non-Banking Companies, Reserve Bank of India, Calcutta today. I am enclosing a copy of an advertisement published by the above organisation in the local newspapers as also a copy of a loan certificate receipt issued by the said organisation. I may mention that the authorised officer has issued notice under the above Act to a "sanchaita Savings Scheme (P) Ltd. " which is to be distinguished from 'sanchaita Investments'. It appears that the organisation called "sanchaita Investments" is receiving large amount of monies from the public ostensibly. as loans, and in lieu they are issuing loan certificates receipts. I may mention that the authorised officer has issued notice under the above Act to a "sanchaita Savings Scheme (P) Ltd. " which is to be distinguished from 'sanchaita Investments'. It appears that the organisation called "sanchaita Investments" is receiving large amount of monies from the public ostensibly. as loans, and in lieu they are issuing loan certificates receipts. While we have no documentary evidence, the news is strongly circulating in the market that the organisation is in fact offering rates of interest as high as 30 to 40 per cent even though the loan certificate receipts indicate a rate of interest of 12 per cent only. There seems reasonable grounds for suspicion that this organisation is involved in extremely high-risk investments which only can enable them to pay such rates of interest. Since the security of monies deposited by the public is involved, we would suggest that a thorough enquiry be conducted by the government of India into the activities of this organisation particularly for finding out whether they are infringing provisions of any relevant status. It is felt necessary to conduct such an investigation on an urgent basis since large amounts of public monies are reported to be kept with this organisation, which does not seem as yet to have subjected to any regulatory control. We are meanwhile awaiting a reply to our reference (copy enclosed) to the Reserve Bank of India regarding the applicability of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 to this organisation. With regards, Yours sincerely Sd/- (Ashok Mitra) Shri R. V. Venkataraman Union Minister for Finance North Block New Delhi-110 001annx. E is a letter by Sri K. S. Krishnaswamy, Deputy governor of Reserve Bank to Dr. Ashok Mitra, State Finance Minister. The said letter is also hereunder set out: D. O. DNBC No. 2020/102 (Gen)LO-80/8 1/10/1980 Sailchaita investments My dear Ashok, You might recall that during my recent visit to Calcutta, you had sent me a copy of your D. O. letter dated 1/10/1980 to Shri Venkataraman, Union Minister for Finance as also of a letter dated 30/09/1980 addressed to our Chief Officer, DNBC, Calcutta, in connection with the above firm. I have had the position examined by our Legal Department According to them (vide extract of the note dated 588 17/10/1980, enclosed for your confidential information) the acceptance of loans simpliciter by the firm by issue of receipts (as per the specimen received by us from our Calcutta Office) without floating any scheme or arrangement would not ordinarily be covered by the definition of "prize Chit" and hit by the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act,' 1978. However, you may also like to consult your Legal Adviser on the subject. 2. As you. may know, there are a few Writ Petition pending in the Calcutta High court where the interpretation of S. 2 (e) of the Banning Act is involved. In that context I have thought it advisable to write to you on a confidential basis, rather than send a separate official reply. I shall therefore be grateful if you could leave instructions with your staff to keep this matter and the views of our Legal Department Strictly confidential. With warm regards, Sd/- (K. S. Krishnaswamy) Dr. Ashok Mitra, Minister of Finance