A scheme that involves the collection of money from members, the utilization of the money for the purpose of giving prizes to a specified number of subscribers, and the refunding of the money to the subscribers who did not win prizes, is a "prize chit" within the meaning of section 2(e) of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

Headnote:
PRIZE CHIT - PROMOTION - ACT AND SECTIONS - SECTION 3, 4, 6 - COURT HELD THAT THE SCHEME IN QUESTION WAS A "PRIZE CHIT" WITHIN THE MEANING OF SECTION 2(E) OF THE ACT AND THAT THE ACCUSED WERE GUILTY OF PROMOTING A "PRIZE CHIT" IN CONTRAVENTION OF SECTION 3 OF THE ACT.
Fact of the Case:

A firm sponsored a gift scheme for getting a Rajdoot Motor Cycle. The scheme involved collecting money from members in installments and conducting monthly draws to determine the lucky winner who would receive the motor cycle without having to pay further installments. The complainant, who had applied for membership and paid several installments, was declared the lucky winner but was not given the motor cycle on the ground that he had not paid the seventh installment. The complainant reported the matter to the police, leading to the filing of charges against the partners of the firm under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
Finding of the Court:

The court found that the scheme in question was a "prize chit" within the meaning of section 2(e) of the Act and that the accused were guilty of promoting a "prize chit" in contravention of section 3 of the Act. The court held that the scheme was not a conventional chit or a money circulation scheme but a prize chit because it involved the collection of money from members, the utilization of the money for the purpose of giving prizes to a specified number of subscribers, and the refunding of the money to the subscribers who did not win prizes.
Issues: Whether the scheme in question was a "prize chit" within the meaning of the Act.
Ratio Decidendi: The court relied on the definition of "prize chit" in section 2(e) of the Act and the objects and scheme of the Act as explained in various Supreme Court judgments. The court held that the scheme in question satisfied the definition of "prize chit" because it involved the collection of money from members, the utilization of the money for the purpose of giving prizes to a specified number of subscribers, and the refunding of the money to the subscribers who did not win prizes.
Final Decision: The court allowed the State appeal and convicted the accused for promoting a "prize chit" in contravention of section 3 of the Act and imposed a fine of Rs. 3,000/- 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 were to undergo simple imprisonment for a period of one year.

JUDGMENT - MOHTA V.A., 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) instalment will have to be deposited in the office every month between 1st to 10th. In the event of a member not depositing the instalment 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 instalment; (v) 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 instalments; (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). All expenses over and above the manufacturer's actual price of the motor cycle will be borne by the lucky winner; (x) On the expiry of the scheme after 30th 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 a right to change the rules form 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 instalments admittedly. Payment of seventh instalment 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 instalment. The complainant 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, Indian Penal Code 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 instalments.

4. The trial Court came to the conclusion that under the scheme, there was guarantee of delivery of a motor cycle to every member, there was a chance for the poor people to get a motor cycle at negligible and/or low price and on instalments, 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 compan

Click Here to Read the rest of this document