- (1.) Special leave granted in all the petitions.
(2.) This litigation is an upshot of the earlier case Reserve Bank of India v. Peerless General Finance and Investment Company Ltd. ((1 987) 1 SCC 424: (AIR 1987 SC 1023)) decided on January 22, 1987. In 1978 the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 (in short 'the Banning Act') was enacted to ' ban the promotion or conduct of prize chits or money circulation schemes and for matters connected therewith or incidental thereto.' The question which arose in the above case was whether the Endowment Scheme piloted by the Peerless General Finance and Investment Company Ltd., (hereinafter in short 'the Peerless') fell within the definition of 'Prize Chits' within the meaning of S. 2(e) of the above Banning Act. By a letter dated July 23, 1979, the Reserve Bank of India pointed out to, the Peerless that the schemes conducted by it were covered by the provisions of the Banning Act which had come into force w.e.f. December 12, 1978. On September 3, 1979 the Peerless filed a writ petition in the Calcutta High Court for a declaration that the Prize Chits Banning Act did not apply to the business carried on by the Peerless. A similar writ petition was filed questioning a notice issued by the Madhya Pradesh Government on the same lines as that issued by the West Bengal Government. A learned single Judge of the High Court dismissed both the writ petitions but appeals preferred by the Peerless under the Letters Patent were allowed by a Division Bench of the Calcutta High Court. It was declared that the business carried on by the Peerless did not come within the mischief of the Prize Chits Banning lact. Against the judgment of the Division Bench of the Calcutta High Court, the Reserve Bank of India, the Union of India and the State of West Bengal preferred appeals before this Court. The question considered in the above case was "Is the endowment scheme of the Peerless Company a Prize Chit within the meaning of S. 2(e) of the Prize Chits and Monev Circulation Schemes (Banning) Act - This court held that S. 2(e) does not contemplate a scheme without a prize and, therefore, the Endowment Certificate Scheme of the Peerless Company was outside the Prize Chits Banning Act. Appeals filed by the Reserve Bank of India, the Union of India and the State of West Bengal were accordingly dismissed. Chinnappa Reddy, observed (at pp. 1043-44 of AIR): "It is open to them to take such steps as are open to them in law to regulate schemes such as those run by the Peerless Company to prevent exploitation of ignorant subscribers. Care must also be taken to protect the thousands of employees. We must also record our dissatisfaction with some of the schemes of the Life Insurance Corporation which appear to us to be even less advantageous to the subscribers than the Peerless Scheme. We suggest that there should be a complete ban on forfeiture clauses in all savings schemes, including Life Insurance Policies, since these clauses hit hardest the classes of people who need security and protection most. We have explained this earlier and we do wonder whether the weaker sections of the people are not being made to pay the more affluent sections ! Robbing Peter to pay Paul It was further observed "We would also like to query what action the Reserve Bank of India and the Union of India are taking or proposing to take against the mushroom growth of finance and investment companies' offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning's newspaper to be greeted by advertisements inviting deposits and offering interest at astronomic rates. On January 1, 1987 one of the national newspapers published from Hyderabad, where one of us happened to be spending the vacation, carried as many as ten advertisements with 'banner headlines' covering the whole of the last page, a quarter of the first page and conspicuous spaces in other pages offering fabul us sates of interest. At least two of the advertisers offered to double the deposit in 30 months, 2000 for 1000, 10,000 for 5,000, they said..Another advertiser offered interest ranging between 30 per cent to 38 per cent for periods ranging between six months to five years. Almost all the advertisers offered extra interest ranging between 3 per cent to 6 per cent if deposits were made during the Christmas-Pongal season. Several of them offered gifts and prizes. If the Reserve Bank of India considers the Peerless Company with eight hundred crores invested in Government securities, fixed deposits with National Banks etc. unsafe for depositors, one wonders what they have to say about the mushroom nonbanking companies which are accepting deposits, promising most unlikely returns and what action is proposed to be taken to protect the investors. It does not require much imagination to realise the adventurous and precarious character of these businesses. Urgent action appears to be called for to protect the public. While on the one hand these schemes encourage two vices affecting public economy, the desire to make quick and easy money and the habit of excessive and wasteful consumer spending, on the other hand the investors who generally belong to the gullible and less affluent classes have no security whatsoever. Action appears imperative. "
(3.) Khalid, J., another learned Judge agreeing with the judgment of Chinnappa Reddy, J., further added his short but important concluding paragraph as under (AIR 1987 SC 1023, Para 42): "I share my brother's concern about the mushroom growth of financial companies all over the country. Such companies have proliferated. The victims of the 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 the fraud played by such financial vultures. It is necessary for the authorities to evolve fool-proof schemes to see that fraud is not allowed to be played upon persons who are not conversant with the practice of such financial enterprises who pose themselves as benefactors of people.";