PRIZE CHITS AND MONEY CIRCULATION SCHEMES BANNING ACT, 1978

S.1 Short title and extent

(1) This Act may be called the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
(2) It extends to the whole of India except the State of Jammu and Kashmir.

S.2 Definitions

       In this Act, unless the context otherwise requires,—
       (a) “conventional chit” means a transaction whether called chit, chit fund, kuri or by any other name by or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or certain quantity of grain instead) by way of periodical instalments for a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the chit agreement, be entitled to a prize amount.
        Explanation.—In this clause “prize amount” shall mean the amount, by whatever name called, arrived at by deducting from out of the total amount paid or payable at each instalment by all the subscribers,<

S.3 Banning of prize chits and money circulation schemes or enrolment as members or participation therein

No person shall promote or conduct any prize chit or money circulation scheme, or enrol as a member to any such chit or scheme, or participate in it otherwise, or receive or remit any money in pursuance of such chit or scheme.

S.4 Penalty for contravening the provisions of section 3

Whoever contravenes the provisions of section 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.

S.5 Penalty for other offences in connection with prize chits or money circulation schemes

       Whoever, with a view to the promotion or conduct of any prize chit or money circulation scheme in contravention of the provisions of this Act or in connection with any chit or scheme promoted or conducted as aforesaid,—
       (a) prints or publishes any ticket, coupon or other document for use in the prize chit or money circulation scheme; or
       (b) sells or distributes or offers or advertises for sale or distribution, or has in his possession for the purpose of sale or distribution any ticket, coupon or other document for use in the prize chit or money circulation scheme; or
       (c) prints, publishes or distributes, or has in his possession for the purpose of publication or distribution—
       (i) any advertisement of the prize chit or money circulation s

Legal Commentary on Section 5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978

Introduction

Section 5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 prescribes penalties for offences related to prize chits and money circulation schemes, reflecting the Act's primary objective to curb illegal schemes that promise quick or easy money. The section aims to deter violations by imposing punishments on those involved in such schemes, thereby protecting the public from financial frauds and exploitation.

What does Section 5 Say?

Section 5 stipulates that any person who contravenes provisions of the Act, particularly related to the promotion, conduct, or management of prize chits and money circulation schemes, shall be liable to penalties including imprisonment, fines, or both. The section also elaborates on the nature of offences, including promoting schemes without proper authorization, fraudulent activities, or violations of the prescribed rules.

Essential Ingredients

Contravention of the Act: Engaging in promotion or conduct of prize chits or money circulation schemes in violation of the provisions.
Promotion or Management: Involvement in initiating, organizing, or managing such schemes.
Fraudulent Activity: Engaging in deceitful practices, including misrepresentation or false promises of quick returns.
Penalty Imposition: The act of contravention must lead to penalties such as imprisonment (up to three years), fines, or both.
Mens Rea: The offender must have knowledge or intention of violating the provisions, especially in cases involving fraudulent schemes.

Scope of Section 5

Section 5 applies broadly to all individuals and entities involved in the promotion, management, or conduct of prize chits and money circulation schemes that violate the Act’s provisions. It covers schemes that promise quick or easy money, involve illegal collection of deposits, or operate without necessary licenses. The section also extends to those who facilitate or abet such offences.

Punishment for Section 5

Imprisonment: Up to three years, which may extend to five years if the offence is committed with fraudulent intent.
Fine: An amount which may extend to fifty thousand rupees, or double the amount involved in the offence, whichever is higher.
Both: The court may impose both imprisonment and fine concurrently.
Additional Penalties: For repeated offences, the penalties may be enhanced, including confiscation of assets or properties obtained through illegal schemes.

Legal Comments (with references)

Offence Definition - Contravention of the scheme promotion provisions constitutes an offence under Section 5, especially when schemes are run without proper registration or license, or involve fraudulent promises of quick returns. [Section 5 of the Act]
Penalty Severity - The section prescribes imprisonment for up to three years, emphasizing deterrence against illegal schemes and safeguarding public interest. [Section 5 of the Act]
Mens Rea Requirement - The offence under Section 5 requires proof of awareness or intent to violate the provisions, aligning with the general principles of criminal liability in economic offences. [Section 5 of the Act]
Scope of Application - The section applies to promoters, managers, and persons involved in schemes that violate the Act, including those who aid or abet such violations. [Section 5 of the Act]
Legal Interpretation - The penalties under Section 5 are intended to be strict to prevent proliferation of illegal schemes promising quick money, aligning with the Act’s object to eliminate such schemes. [Section 5 of the Act]
Judicial Precedent - Courts have consistently held that schemes promising high returns with little effort are prima facie fraudulent and attract penalties under Section 5. [Supreme Court judgments on similar schemes]
Protection of Public - The section underscores the importance of penal measures to protect the public from financial scams, especially involving unregulated deposit schemes. [Preamble of the Act]
Prohibition Scope - The penalties are applicable even if the scheme is only in the process of being promoted or advertised, not necessarily completed. [Section 5 of the Act]
Legal Remedy - Authorities can initiate prosecution based on complaint, FIR, or suo motu investigation if contraventions are detected. [Section 5 of the Act]
Deterrent Effect - Heavy penalties serve as a deterrent to those contemplating illegal schemes, reinforcing the Act’s preventive purpose. [Commentaries on economic offences]
Concurrent Penalties - The Act allows for multiple penalties, including imprisonment and fines, to ensure effective deterrence. [Section 5 of the Act]
Offence Classification - Violations under Section 5 are classified as cognizable offences, enabling police to arrest without warrant and initiate prosecution. [Section 5 of the Act]
Legal Enforcement - The section empowers authorities to seize assets, close schemes, and prosecute offenders to curb illegal activities. [Section 5 of the Act]
Scope for Appellate Review - Decisions under Section 5 can be challenged in higher courts, ensuring judicial oversight. [Legal jurisprudence]
Overlap with Other Laws - Violations under Section 5 may also attract proceedings under IPC or other financial laws, leading to cumulative penalties. [Relevant case laws]
Preventive Measures - The section complements other provisions of the Act aimed at preventing the proliferation of illegal schemes, including registration and licensing requirements. [Section 5 of the Act]
Legislative Intent - The penalties reflect the legislative intent to make illegal schemes unattractive and discourage fraudulent financial activities. [Preamble and legislative debates]

In conclusion, Section 5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, plays a crucial role in penalizing those involved in illegal schemes that threaten public financial safety. Its provisions serve both as a deterrent and a tool for enforcement against fraudulent schemes promising quick or easy money, aligning with the Act’s overarching goal to eliminate unregulated deposit schemes.

S.6 Offences by companies

       (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
       Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
       (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance

S.7 Power to enter, search and seize

       (1) It shall be lawful for any police officer not below the rank of an officer in charge of a police station,—
       (a) to enter, if necessary by force, whether by day or night with such assistance as he considers necessary, any premises which he has reason to suspect, are being used for purposes connected with the promotion or conduct of any prize chit or money circulation scheme in contravention of the provisions of this Act;
       (b) to search the said premises and the persons whom he may find therein;
       (c) to take into custody and produce before any Judicial Magistrate all such persons as are concerned or against whom a complaint has been made or credible information has been received or a reasonable suspicion exists of their having been concerned with the use of the said premises for purpos

S.8 Forfeiture of newspaper and publication containing prize chit or money circulation scheme

Where any newspaper or other publication contains any material connected with any prize chit or money circulation scheme promoted or conducted in contravention of the provisions of this Act or any advertisement in relation thereto, the State Government may, by notification in the Official Gazette, declare every copy of the newspaper and every copy of the publication containing such material or the advertisement to be forfeited to the State Government.

S.9 Power to try offences

No court inferior to that of a Chief Metropolitan Magistrate, or as the case may be, Chief Judicial Magistrate, shall try any offence punishable under this Act.

S.10 Offences under this Act to be cognizable

All offences punishable under this Act shall be cognizable.

S.11 Act not to apply to certain prize chits or money circulation schemes

       Nothing contained in this Act shall apply to any prize chit or money circulation scheme promoted by-
       (a) a State Government or any officer or authority on its behalf; or
       (b) a company wholly owned by a State Government which does not carry on any business other than the conducting of a prize chit or money circulation scheme whether it is in the nature of a conventional chit or otherwise; or
       (c) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949, or a banking institution notified by the Central Government under section 51 of that Act or the State Bank of India constituted under section 3 of the State Bank of India Act, 1955, or a subsidiary bank constituted under section 3 of the State Bank of India (Subsidiary Banks) Act, 1959, or a corresponding new ba

S.12 Transitional provisions

       (1) Notwithstanding anything contained in this Act, a person conducting a prize chit or money circulation scheme at the commencement of this Act may continue to conduct such chit or scheme for such period as may be necessary for the winding up of the business relating to such chit or scheme, so however that such period shall not in any case extend beyond a period of two years from such commencement:
       Provided that the said person shall furnish to the State Government or to such officer as may be authorised by it in this behalf and to such office of the Reserve Bank as may be prescribed in such form and within such period as may be prescribed, full information regarding the chit or scheme along with a winding up plan prepared in accordance with the provisions of any rules that may be made by the State Government in this behalf under this Act:
      &n

S.13 Power to make rules

       (1) The State Government may, by notification in the Official Gazette and in consultation with the Reserve Bank, make rules for the purpose of carrying out the provisions of this Act.
       (2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for—
       (a) the office of the Reserve Bank to whom full information regarding any prize chit or money circulation scheme may be furnished under the first proviso to sub-section (1) of section 12, and the form in which and the period within which such information may be furnished;
       (b) the particulars relating to the winding up plan of the business relating to prize chits or money circulation schemes.
       1[(3) Every rule made under this section shall be laid, as soon

S.14 Repeals and saving

(1) The Andhra Pradesh Money Circulation Scheme (Prohibition) Act, 1965 (Andhra Pradesh Act 30 of 1965), as in force in the State of Andhra Pradesh, and in the Union territory of Chandigarh and the Madhya Pradesh Dhan Parichalan Skeem (Pratishedh) Adhiniyam, 1975 (Madhya Pradesh Act 19 of 1975), are hereby repealed.
(2) Notwithstanding the repeal of any Act referred to in sub-section (1), anything done or any action taken under the provisions of any such Act shall, in so far as such thing or action is not inconsistent with the provisions of this Act, be deemed to have been done or taken under the provisions of this Act as if the said provisions were in force when such thing was done or such action was taken and shall continue in force accordingly until superseded by anything done or any action taken under this Act.