JUDGMENT V.A. Mohta, J. - Against an order of acquittal from an offence of promoting a "prize chit" in contravention of section 3 and punishable under section 4 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, ("the Act"), the State has filed the present appeal with leave under section 378 of the Code of Criminal Procedure. The complainant H.R. Pahuja at whose instance the police machinery was moved, has also filed a criminal revision. Both the matters are heard together. 2. The basic facts are not in dispute. The firm M/s. Ganesh Traders - (described as Company) sponsored a gift scheme for getting a Rajdoot Motor-cycle. Eleven ingredients and conditions of the scheme printed overleaf the application form for membership are: (i) the membership fee will be Rs. 11/- and each group shall consist of 200 members; (ii) every member will have to deposit a sum of Rs. 330/- per month for a period of 30 months; (iii) installment will have to be deposited in the office every month between 1st to 10th. In the event of a member not depositing the installment in time he would be declared as a defaulter and the rule applicable to a defaulter member would be applicable to him; (iv) Lot will be drawn in the presence of the members every month on 15th and lucky member would not be required to deposit further installments; (iv) defaulter members will not be entitled to receive the benefit of the gift scheme If a defaulter is found to be a lucky winner, the Company will have right to receive the benefit; (vi) the defaulter member will be refunded on the expiry of 30 months his dues after deducting the amount equivalent to two installments ; (vii) the defaulter member, in order to become a regular member will have to pay Rs. 10/- per month as penalty; (viii) the membership number of a member who is defaulter for three months can be allotted to another member by the company and the membership can be changed with the consent of the company; (ix) the lucky winner will be presented with Rajdoot Motor-cycle (as per price of the manufacturer). 10/- per month as penalty; (viii) the membership number of a member who is defaulter for three months can be allotted to another member by the company and the membership can be changed with the consent of the company; (ix) the lucky winner will be presented with Rajdoot Motor-cycle (as per price of the manufacturer). All expenses over and above the manufacturer's actual price of the motor-cycle will be born by the lucky winner; (x) on the expiry of the scheme after 30 months, the remaining members will be given Rajdoot Motor-cycle at the price then prevalent. The difference will be paid by the member; (xi) the company will have right to change the rules from time to time and so also the date of lucky draw. 3. The complainant had applied for the membership, had deposited a sum of Rs. 11 as subscription and paid six installments admittedly. Payment of seventh installment is disputed. At the time of the 7th draw, Pahuja was the lucky winner. Delivery of the motor-cycle was however, not given to him on the ground that he had not paid the 7th installment. The complaisant reported to the police that the scheme was illegal and that he was cheated. Police presented charge-sheet in the Court of Judicial Magistrate. Complainant also filed a private complaint. Both cases were merged. No charge under section 420 I.P.C. was framed. In the criminal trial application form for membership with conditions printed overleaf (Ex. 49) was filed and oral evidence of as many as 6 witnesses including the complainant other members, police officer, Bank Officer dealer of Rajdoot Motor-cycle was recorded. It is in the evidence that the scheme was sponsored with the concurrence of the manufacturer, and local dealer of the vehicle. Waiting period for getting the vehicle was nearly two years and it was not available on installments. 4. The trial Court came to the conclusion that under the scheme, there was guarantee of delivery of a motor-cycle to a every member, there was a chance for the poor people to get a motor-cycle at negligible and/or low price and on installments, the amount deposited with the promoters was safe with them and under the circumstances, it cannot be said that the accused persons, the partners of the company, had contravened any provisions of the Act. We find it difficult to sustain this view and consequently the order of acquittal for the following reasons. 5. The Act, as the preamble indicates, is intended to "ban the promotion or conduct of prize chits and money circulation schemes." The statement of objects and reasons reads thus: "In June 1974, the Reserve Bank of India had constituted a Study Group under the Chairmanship of Shri James S. Raj, the then Chairman, Unit Trust of India, for examining in depth the provisions of Chapter III-B of the Reserve Bank of India Act, 1934, and the directions issued there under to non-banking companies in order to assess their adequacy in the context of ensuring the efficacy of the monetary and credit policies of the country and affording a degree of protection to the interests of the depositors who place their savings with such companies. In its report submitted to the Reserve Bank in July 1975, the Group observed that the prize chit/ benefit/ savings schemes benefit primarily the promoters and do not serve any social purpose. On the contrary the Groups has stated that they are prejudicial to the public interest and affect the efficacy of the fiscal and monetary policies of the country. 2. Price chits would cover any kind of arrangement under which moneys are collected by way of subscriptions, contributions etc. and prizes, gifts, etc. are awarded. The prize chit is really a form of lottery. Its basic feature is that the foreman or promoter who ostensibly charges no commission collects regular subscriptions from the members. Once the member gets the prize, he is very often not required to pay further installments and his name is dropped from further lots. The institutions conducting prize chits are private limited companies with a very low capital base contributed by the promoters, directors or their close relatives. Such schemes confer monetary benefit only on a few members and on the promoter companies. The Group had therefore, recommended that prize chits or money circulation schemes, by whatever name called, should be totally banned in the larger interests of the public and suitable legislative measures should be undertaken for the purpose. 3. Such schemes confer monetary benefit only on a few members and on the promoter companies. The Group had therefore, recommended that prize chits or money circulation schemes, by whatever name called, should be totally banned in the larger interests of the public and suitable legislative measures should be undertaken for the purpose. 3. The Bill proposes to implement the above recommendation of the Group by providing for the banning of the promotion or conduct of any prize chit or money circulation scheme, by whatever name called, and of the participation of any person in such chit or scheme. The Bill provides for a period of two years within which the existing units carrying on the business of prize chits or money circulation schemes may be wound up and provides for penalties and other incidental matters. The repeal of the existing State Legislations on the subject has also been provided for in the Bill." Gaz. Of India dated 15-5-1978, Pt. II, S. 2 Ext. P.649. 6. Section 2 is a definition clause. Three terms are relevant: (i) ‘conventional chit' sec. 2(a); (ii) 'money circulation scheme' section 2(c); arid (iii) 'prize chits' section 2(e). "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 everyone of them shall subscribe a certain sum of money (or certain quantity of grain instead) by way of periodical installments 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 installment by all the subscribers. - 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 installment by all the subscribers. (1) the commission charged as service charges as a promoter or a foreman or an agent, and (2) any sum which a subscriber agrees to forego, from out of the total subscriptions of each installments, in consideration of the balance being paid to him." "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. "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 installments 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: of - 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; of 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. 7. 7. Section 3 bans prize chits and money circulation schemes or enrolment as members to such chits and schemes and participation therein. Section 4 makes contravention of section 3 punishable with imprisonment for a term which may extent to three years, or with fine which may extend to five thousand rupees, or with both. Proviso to section 4 prescribes a minimum sentence. Section 5 deals with penalty for other offences in connection with prize chits or money circulation scheme. Section 6 deals with the subject of offences by companies. Sec. 10 makes the offences under the Act cognizable. Section 11 provides for exclusion of certain prize chits or money circulation schemes from the operation of the Act. Section 12 deals with transitional matters. 8. Supreme Court had three occasions to examine the object and scheme of the Act and hence there is sufficient light on the subject. In the case of Srinivasa Enterprises v. Union of India1, the validity of the Act on the touchstone of Articles 14, 19(1)(g) and legislative competence was tested. The Act was found valid. Dealing with prize chits it is observed: "The quiet essential aspects of a prize chit are that the organizer collects money in lump-sum or installments, pursuant to a scheme or arrangement, and he utilises such moneys as he fancies primarily for his private appetite and for (1) awarding periodically or otherwise to a specified number of subscribers, prizes in cash or kind and (2) refunding to the subscribers the whole or part of the money collected on the termination of the scheme or otherwise. The apparent tenor may not fully bring out the exploitative import lurking beneath the surface of the words which describe the scheme. Small sums are collected from vast numbers of persons, ordinarily of slender means, in urban and rural areas. They are reduced to believe by blare of glittering publicity and the dangling of astronomical amounts that they stand a chance-in practice, negligible of getting a huge fortune by making petty periodical payments. The indigent agrestics and the proletarian urbanites, pressured by dire poverty and doped by the hazy hope of a lucky draw, subscribe to the scheme although they can ill afford to spare any money. The indigent agrestics and the proletarian urbanites, pressured by dire poverty and doped by the hazy hope of a lucky draw, subscribe to the scheme although they can ill afford to spare any money. This is not promotion of thrift or wholesome small savings because the poor who pay, are bound to continue to pay for a whole period of a few years over peril of losing what has been paid and, at the end of it, the fragile prospects of their getting prizes are next to nil and even the hard earned money which they have invested hardly carries any interest. They are eligible to get back the money they have paid in driblets, virtually without interest, the expression 'bonus' in section 2(e) being an euphemism for a normal sum - What is more, the repayable amount being small and the subscribers being scattered all over the country, they find it difficult even to recover the money by expensive, dilatory litigative process." In the case of State of West Bengal v., Swapan Kumar Ghua2, the term "money circulation scheme" fell for consideration A First Information Report was lodged against M/s Sanchaita Investments alleging that the said firm had been offering nearly 48 to 36 percent interest which showed that a "money circulating scheme" was being promoted and conducted for making quick and easy money. Considering the details of the said scheme it was held that every activity for making quick or easy money is not comprehended in the definition and chance of making such money must depend upon a contingency applicable to the enrolment of members in the scheme in order to bring the activity in the net of the definition. In the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd.3, the Endowment Certification Scheme sponsored by M/s Peerless General Finance and Investment Company Limited, fell for consideration. It was held that the Act was designed to fight the baser human instinct of gambling aroused by the prize element which was essential to constitute 'prize chit'. Ltd.3, the Endowment Certification Scheme sponsored by M/s Peerless General Finance and Investment Company Limited, fell for consideration. It was held that the Act was designed to fight the baser human instinct of gambling aroused by the prize element which was essential to constitute 'prize chit'. Dealing with the concept of prize chit sought to be prohibited it is observed: ",..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 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. " 9. The Study Group headed by Dr. Datta constituted by the Banking Commission has the following report to make about a prize chit: "Prize Chits. - In the ‘prize chit', there is a foreman who ostensibly charges no commission and promises to return the whole of the contributions made by a member back to him at the end of a certain period. Periodically, the names of 'non-prized' members are put to draw and the lucky member gets the prize either in cash or in the form of an article of jewellery or utility. Once a person gets a prize, he does not have to pay further installments. The lucky member will get the prize irrespective of the number of installments he has paid provided all the due installments till the drawal of prize have been paid; he will then be exempted from further liability to pay. On the contrary the majority of the members may not have got the prize when -the scheme closes though they get back their total contributions without any deduction or its equivalent in the shape of an article. This is a scheme which is nothing short of lottery which is an offence punishable under section 294-A of the Indian Penal Code. The name 'Chit Fund' is rather a misnomer in this case." 10. This is a scheme which is nothing short of lottery which is an offence punishable under section 294-A of the Indian Penal Code. The name 'Chit Fund' is rather a misnomer in this case." 10. A Division Bench of this Court (to which one of us was a party) had an occasion to deal with somewhat similar scheme in the context of the Bombay Lotteries (Control and Tax) and Price Competitions (Tax) Act, 1958 in the case of Santosh Enterprises, Amravati and others v. State of Maharashtra4. The sponsors of that scheme were dealers in plots and several consumer goods. The number of the members registered ranged from 150 to 250. Spedfied price of the plot/ articles was to be paid in 40 monthly installments. Every month one draw was taken out. A member whose name was declared in the draw was entitled to get a plot/article without being required to pay further installments. From that stage the lucky winner ceased to be a member of the scheme. This exercise was to go on for 40 months on expiry of which the unlucky remaining members were entitled to get a plot/article at a specified price or refund without interest of the 4. Crl Writ Petitions No. 49 and S1 of 1985, decided on 3-2-1986 (Born.) amounts deposited. This Court held that the scheme was a "lottery" within the meaning of section 2(1) of the said Act. An argument similar to the one which is advanced before us' in support of an order of acquittal was advanced, in that case viz. there was guarantee of refund and so also a chance of getting an article at almost no price and at installments and hence it was beneficial specially to those poor who cannot even dream of having that article at market rate and what is lost by them is nothing but 'negligible' amount of interest. Dealing with this aspect it was observed: "So examined, it will be clear to any discerning mind that the Schemes have sinister features and have tendencies for exploitation of a vast number of persons generally of slender means for whom getting money at right time even for their genuine needs is difficult. They are persuaded by means of irresistible propaganda and publicity to believe that they stand a chance of getting a fortune by making small periodical contributions. They are persuaded by means of irresistible propaganda and publicity to believe that they stand a chance of getting a fortune by making small periodical contributions. They are further impressed with the idea that even if they are unlucky they stand to lose almost nothing as the Schemes provide for refund of the whole amount after the last lot is drawn. People are either greedy or ignorant or both. There is always a dormant desire to gemble in every human being and all these weaknesses are fully exploited by these schemes. Ignorant people do not realise in a moment of weakness the money value of retaining the amount for a long period, which toes upto nearly 4 years. The promoters of such Schemes stand to again and the contributors stand to lose a huge amount by way of interest. Commercial current rate of interest even for a reputed business is nearly 18% per annum-by and large, that is also a bank rate of interest-and after periodical credits the amount of interest becomes equivalent to principal in four years. Surely, poor people with lieder means cannot get loan at that rate of interest which in their cases is many fold than the normal. The people fall pray to these illusory temptations and remain either half hungry or cut down their genuine needs for fulfilling the obligations imposed under the Schemes. Examples are not unknown where people have even pledged their utensils to obtain loans at astronomical rates of interest, solely with a view to participate in such schemes. Thus their structure is based a chance and one cannot be guided merely by a facade. These schemes thus have a great antisocial impact. Many times people need protection against themselves and this is what the Act provides." In our view, what is said about the scheme in that case squarely applies to the scheme in question. Predominant in the scheme in question is element of chance for a very small number of 30 out of 200 members and for a large number of remaining 170 members loss of interest for 30 months. 11. The learned counsel for the complainant has placed before us a chart of the probable income derived from one scheme by the Company on investment of a 'negligible' amount of incidental expenses. After reducing the contribution, of each member every month by a sum of Rs. 11. The learned counsel for the complainant has placed before us a chart of the probable income derived from one scheme by the Company on investment of a 'negligible' amount of incidental expenses. After reducing the contribution, of each member every month by a sum of Rs. 10,000/- (price of motor-cycle) the total receipts come to Rs. 15,29,150/- at the end of 30th month. The amount of simple interest calculated at 18% per annum comes to Rs. 3,66,987/-. Thus the company got a total sum of Rs. 18,96,137/- in a span of 30 months and was required to incur (if at all) expense of Rs. 16,83,000/- in distributing the motor-cycles to 'unlucky l70 members after 30 mouths. Thus it earned a profit of Rs. 2.17 lakhs. To this income will have to be added amount of subscription and the amount forfeited from defaulters. That in the absence of any security there was no guarantee of recovery of the dues of the members is an added factor. What a lucky draw indeed for the company? Is there any doubt that 170 out of 200 members have together lost nearly a sum of Rs. 2.17 lakhs in the bargain in return of a mere chance of being a lucky winner in a draw? 12. The learned counsel for the respondents-accused invited our attention to the title of the, scheme which reads as 'Rules and conditions for obtaining Rajdoot Motor-cycle'. It is contended that in substance and reality this was a scheme for purchase of a Rajdoot Motor-cycle on installments with a view to promote sales and there was no intention on the part of the promoters to violate the provisions of the Act. We are unable to see how the innocent title of the scheme will change its basic character. We are told that waiting period for Rajdoot Motor-cycle was approximately two years. We are somewhat perplexed to hear this. If the demand of the motor-cycle was so heavy, why was sponsoring of such a scheme at all necessary. But we do not want to enter into this controversy, because nothing turns on that. In the whole of the judgment of the learned Magistrate we do not find "even a whisper about the definition of 'prize-chit' and the object behind the Act. He seems to have been overwhelmed by "utility" of the scheme for those who do not normally afford the vehicle. In the whole of the judgment of the learned Magistrate we do not find "even a whisper about the definition of 'prize-chit' and the object behind the Act. He seems to have been overwhelmed by "utility" of the scheme for those who do not normally afford the vehicle. 13. What punishment and to whom is the next question. It is contended before us that only accused No. 1 Shivji Patel was managing the affairs of the Company and the rest of the accused had no knowledge whatsoever of the scheme. We have ascertained as to whether the other accused persons belong to the family of accused Shivji. We are informed that all the four partners are major independent businessmen belonging to different families. No suggestion that only accused Shivji was in charge of the business was made to any prosecution witness. Therefore, it is difficult to hold that the scheme was sponsored without the knowledge and/or connivance of the other partners or that they had exercised all due diligence to prevent the commission of an offence. Thus the case of the other accused persons is not covered by proviso to section 6 of the Act which deals with the offences by companies. All the four accused are, therefore, equally guilty of the offence and no one can be exonerated. 14. Though not obliged to do so, we heard the parties even on the question of sentence. The learned counsel for the accused informed us-and this statement is not controverted-that it was for the first and the last time that such a scheme was sponsored by the accused and that the said business has been closed as soon as prosecution was launched. 15. Having regard to all the circumstances, we allow the State appeal and convict the accused for promoting a "prize chit" in contravention of section 3 of the Act and impose a fine of Rs. 3,010/- under section 4 of the Act on each of the accused. . In default of payment of fine within a period of 15 days, the accused shall undergo simple imprisonment for a period of one year. 1. 1980 (IV) SCC 507 . 2. 1982(1) SCC 561 . 3. 1987(1) SCC 424 . 4. Crl. Writ Petitions No. 49 and 51 of 1985, decided on 3-2-1986.