JAGANNATHA SHETTY, J. - (1.) THIS appeal by special leave is by the Registrar of Firms, Societies and Chits of the State of Uttar Pradesh and directed against the judgment and order passed by the High Court of Allahabad in Writ Petn. No. 630 of 1982 (reported in AIR 1984 All 28).
(2.) THE said writ petition was filed by the respondent which is a partnership firm called as "M/s. Secured Investment Company" ("THE Company"). THE company mainly carries on business at Lucknow. It has branch offices at Kanpur and Bareilly. THE nature of business of the company is termed as "a scheme for investment". THE question raised in this appeal is whether that scheme for investment falls within the category of 'prize chit' as defined under the "Prize Chits and Money Circulation Scheme (Banning) Act, 1978 (for short "the Act") THE Registrar of Firms, Societies and Chits was of the opinion that the scheme of the company falls within the prohibited category of prize chits as defined under the Act. So he seized all the documents of the company and also directed the concerned banks not to have accounts in relation thereto. Challenging the action of the Registrar, the company moved the High Court with a writ petition under Art. 226 of the Constitution. THE High Court allowed the writ petition and quashed the orders made by the Registrar. In order to correctly appreciate the question raised in this appeal, it is better to have first the clear picture of the law governing the question. Section 3 of the Act imposes a ban not merely on promoting or conducting any prize chit or money circulation scheme, but also on participation in such chit or schemes. Section 4 makes a contravention of the provisions of S. 3 punishable with imprisonment which may extend to three years or with fine which may extend to Rs. 5,000.00 or with both. Section 5 provides penalty for other offences like printing or publishing any ticket, coupon or other document for use in the prize chit or money circulation scheme with a view to promote such scheme in contravention of the Act. Section 6 deals with offences by companies. Section 7 confers power on the police officers not below the rank of an officer in charge of a police station to enter, search and seize. Section 9 provides for the forfeiture of newspapers or other publications containing prize chit or money circulation scheme. Section 11 provides exemption to certain categories of prize chits or money circulation schemes. The prize chits or money circulation schemes promoted by the State Government or any officer or authority on its behalf, or by a Company wholly owned by a State Government are exempted from the provisions of the Act. 'Conventional Chit, has been defined under S. 2(a) and "Prize Chit" has been defined tinder S. 2(e) of the Act. Conventional chit stands excluded from the definition of prize chit, and so much so, the conventional chit remains untouched by provisions of the Act. The definition of the conventional chit is as follows : "Section 2(a). "Conventional chit" means a transaction whether called chit, chit fund, kuri or by any other name 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 chit."
(3.) WE may presently refer to the definition of 'prize chit' and before that it is better to have a little bit of history of chit transactions. The words 'Chitty' or 'kuri', Chit or Chit Fund appear to be the common words but with regional variations. Although there is no clear evidence to show the exact place of origin of chit fund, the available text [(i) 'Chit Finance' by C. P. Somanath Nayar (1973); (ii) Chit Funds and Finance Corporation by S. Radha Krishnan (1974)] indicate that it had spread from the Southern most parts of India. In the Travancore area of the State of Kerala it is generally called 'chitty'. Within the same State, in Cochin and Malabar areas it is popularly called 'kuri'. In other parts of the country it is ordinarily called 'chit' or 'chit fund'. In Tamil it is termed as 'chit'. In Malayalam it is called as 'chitti' or 'kuri'. These terms appear to be synonymous, meaning thereby a written piece of paper. These transactions were purely indigenous institutions. They originated in village life organised by a small group of people well known to each other. They agreed to contribute periodically a certain amount of grain or money and to distribute the entire collection which was termed as 'fund' to one of the subscribers. It was carried on with some mutually agreed basis. In the nineteenth century if not earlier, it was very popular in central Travancore and Trichur areas probably among Church congregations. The chit funds appear to have originated from two legitimate demands of the rural people : (i) a necessity for a lump sum amount to meet some unusual expenditure and (ii) to provide a form of accumulated saving when people had no banking facilities. It was considered as a source of credit and mode of saving. It was meant for mutual benefit in which some people joined to save and others to borrow. What distinguishes the chit fund, however, from other financial transactions is that it connects the borrowing class directly with the lending class. The pooled saving is lent out to the same group of contributors. A chit fund collects the savings of the members by periodical subscriptions for a definite period. At the same time, it makes available the pooled savings to each member by turn as agreed by them. The collected fund may be given either by drawing lots or by bidding. Lots are drawn periodically and the member whose name appears on the winning chit gets the collection without any deductions. He, however, continues to pay his subscriptions but his name is removed from subsequent lots. Thus every member gets a chance to receive the whole amount of the chit. This is generally the features of a conventional chit. It is operated without a professional promoter or manager and without any risk of loss of capital.;