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SUPREME COURT OF INDIA
O. CHINNAPPA REDDY AND V. KHALID, JJ.
Reserve Bank of India, Appellant
Versus
Peerless General Finance and Investment Co. Ltd., and others, Respondents.
Civil Appeals Nos. 3562 to 3567 and 4459 of 1986, D/- 22-1-1987.
AND
Union of India, Appellant
Versus
Peerless General Finance and Investment Co. Ltd., and others, Respondents.
AND
Peerless General Finance and Investment Co. Ltd., Appellant
Versus
Reserve Bank of India and others, Respondents
AND
State of W.B. and another, Appellants
Versus
Peerless General Finance and Investment Co. Ltd., and others, Respondents.
Advocates appeared :
Mr. K. Parasaran, Attorney General, Mr. G. Rama Swamy, Addl. Solicitor General, Mr. S. Roy Chowdhary, Mr. Some Nath Chatterjee, Mr S. N. Kacker, Mr. A. K. Ganguli, Mr. Sankar Ghosh and Mr. N. N. Gooptu, Sr. Advocates, Mr. T. K. Banerjee, Mr. A. K. Sil, Mr. H. S. Parihar, Mr. A. Mitra, Mr. G. Joshi, Mr. S. Roy, Mr. A. Subba Rao, Mr. P. Parmeshwaran, Mr. Bhaskar Gupta, Mr. P. Basu, Mr. A. Chatterjee, Mr. B. Lehari, Mr. S. Sukumaran, Mr. Dilip Sinha, Mr. J. R. Das, Mr. K. R. Nambiar, Mr. H. K. Puri, Mr. P. K. Pillai, Mr. S. K. Jain and Mr. J. R. Das, Advocates with them for the appearing parties.
Reserve Bank of India Act - Hire-Purchase Act, 1972 - Industrial Development Bank of India Act, 1964, - Indian Partnership Act, 1932 - Articles 38(2) and 39(c) - Section 45 I(c) and 45K - Business Chits - Certificates - Extent of the Directions - Adequacy in regulating the conduct of business - Whether by way of making loans or advances or otherwise of any activity other than its own - Whether in cash or kind or disbursing monies in any other way to persons from whom monies are collected or to any other person but does not include any institution - 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 whether or not ecipients of prize or gift is under a liability to make any further payment in respect of such scheme or arrangement - Peerless General Insurance and Investment Co Ltd was incorporated in 1932 - After nationalization of business of life insurance name of company was changed to Peerless General Finance and Investment Co Ltd - For over a quarter of a century now business of company has been that of finance and investment - Company offers three schemes principal of which is Endowment Certificate Scheme - Under this scheme a subscriber is required to pay a fixed annual subscription for a fixed number of years varying between minimum and maximum - On expiry of period subscriber will be paid by company a sum of money called Endowment Sum which is face value of Certificate - Subscriber is also entitled to be paid a guaranteed fixed bonus - For example an annual subscription will fetch subscriber at end period a sum as endowment sum and a sum as bonus making a total - If any instalment that is any amount of annual subscription is not paid within stipulated period and period of grace Certificate lapses unless it has acquired a surrender value At this stage it may be useful to refer to business practices and working results of company - Company advertises its schemes widely in beguiling terms - Held, Court fully agree with observations made by Court learned brother regarding some of aspects of Life Insurance Corporation schemes - Court wish only to emphasise that Court - should at least in future be liberal and generous when claims are made by those unfortunate few who when robbed of their bread earners claim for insured amount and who are invariably met on technical pleas of concealment of ailment and like - Life Insurance Corporation does not come out with glory when some of its dealings are considered - Court do not think it would be proper to make more harsh reference about Life Insurance Corporation when it is not a party before us - Court felt it necessary to make these observations with utmost restraint since an opportunity afforded itself in this case - court share Court brothers concern about mushroom growth of financial companies all over country - Such companies have proliferated - Victims of schemes that are attractively put forward in public media are mostly middle class and lower middle class people - Instances are legion where such needy people have been reduced penniless because of fraud played by such financial vultures - It is necessary for authorities to evolve fool-proof schemes to see that fraud is not allowed to be played upon persons who are not conversant with practice of such financial enterprises who pose themselves as benefactors of people - Order accordingly
Judgement
CHINNAPPA REDDY, J. : - The question is "Is a prize-less chit a prize chit?" So posed the answer appears to be self-evident. That is what it is in the ultimate analysis.
2. The Peerless General Insurance and Investment Co. Ltd. was incorporated in 1932. After the nationalisation of the business of life insurance the name of the company was changed to the Peerless General Finance and Investment Co. Ltd. For over a quarter of a century now, the business of the company has been that of finance and investment. The company offers three schemes, the principal of which is the Endowment Certificate Scheme. Under this scheme, a subscriber is required to pay a fixed annual subscription for a fixed number of years varying between the minimum of 10 years and the maximum of 30 years. On the expiry of the period, the subscriber will be paid by the company a sum of money called the Endowment Sum which is the face value of the Certificate. The subscriber is also entitled to be paid a guaranteed fixed bonus. For example, an annual subscription of Rs. 77/- for 10 years will fetch the subscriber at the end of the 10 years period a sum of Rs. 1,000/- as endowment sum and a sum of Rs. 100/- as bonus, making a total of Rs. 1,100/-. If any instalment, that is, any amount of annual subscription is not paid within the stipulated period and period of grace, the Certificate lapses unless it has acquired a surrender value. A Certificate acquires surrender value after the expiry of three years from the date of commencement if the subscription for two full years has been paid. A Certificate which has not acquired surrender value lapses on non-payment of instalments and the amounts paid become forfeit to the company. A lapsed certificate may, however, be revived at any time before the expiry date of maturity on payment of all dues together with interest at one paisa per rupee per month. There is also provision in the scheme for conversion of the Certificate into a paid up Certificate, the paid up amount to be paid at the end of the period, but without bonus. A person purchasing a Certificate automatically becomes entitled to a free accident insurance policy under a group insurance scheme.
3. A noticeable feature of the scheme is the remarkably low yield to the subscriber on his investment. In the example that we gave we said a subscriber investing Rs. 77/- every year for ten years will get, at the end of the tenth year, a return of Rs. 1,000/- by way of Endowment Sum and Rs. 100/- as bonus. Treating the total sum of Rs. 1,100/- as the amount which the investor gets back on his ten-years annual investment of Rs. 77/-, the yield on his investment works out of compound interest of about 6 or simple interest of a little over 7 . This is on the assumption that he does not commit default but pays his annual subscription regularly. But consider what happens to the investments of those who commit default; a subscriber who defaults in payment of annual subscription after payment of the first subscription, forfeits the subscription previously paid, by him. A subscriber who pays the first two subscriptions but commits default thereafter is entitled to have a refund of the subscriptions paid by him but only at the end of the full endowment period. That is to say, the amount invested by the subscriber up to the time of default will be with the company, earning interest for the company but nothing for the subscriber himself. The subscriber who commits default after payment of two annual subscriptions is entitled to have the surrender value paid to him after the expiry of three years from the date of commencement. The surrender value is 90 of the subscriptions paid by him excluding the first years subscription. In other words, if a subscriber who commits default after payment of two subscriptions opts for immediate payment after three years he forfeits his first years subscription and 10 of the subsequent years subscription. On the other hand, if he opts for pa
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