Money Circulation; Abdul Arshad Vs. State of Kerala [Kerala High Court, 12-08-2011]

Prize Chits and Money Circulation Schemes Banning Act, 1978 – Ss. 6 & 10 – Companies Act, 1956 – Ss. 242, 621 & 624 – Criminal P.C. 1973 – Section 4(2) – An offence punishable under Prize Chits Act is cognizable, even if it is committed by a Company – A company, as well as a person in charge of a company, can be prosecuted under the provisions of the Prize Chits Act.

2011 (3) KLT 796 : 2011 (3) KLJ 715 : ILR 2011 (3) Ker. 856 : 2011 (3) KHC 519


The Hon’ble Justice K.T. Sankaran

Dated this the 12th day of August, 2011

B.A. No.5641 of 2011, B.A. No.5776 of 2011, B.A. No.4642 of 2011

For Petitioners: K. Ramakumar, Senior Advocate, T. Ramprasad Unni; For the Respondents: V. Tekchand, Public Prosecutor


B.A.Nos.5641 of 2011 and 5776 of 2011 are under Section 439 of the Code of Criminal Procedure. B.A.No.4642 of 2011 is for anticipatory bail, filed under Section 438 of the Code of Criminal Procedure.

2. The name of accused, rank in the case, Crime number, date of arrest and Bail Application number are shown below.

Sl.No Name of accused Rank Crime No. and Police Station Date of arrest Bail Application Number
1 Abdul Arshad A9 497/11 Sulthan Bathery 11-6-11 5641/11
2 Kunhumuhammad Pradeep Baurajan Shaji Krishnan Arun.B Pratheesh Preyesh Joseph A8 A2 A3 A4 A5 A6 A7 491/11 -do- 10.6.11 5776/11
3 K.T.Gopinathan Town North Police Station, Ernakulam 4642/11

3. The offences alleged against the accused are under Section 420 of the Indian Penal Code and Sections 3 and 4 of the

Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (Central Act No.43 of 1978)

(hereinafter referred to as ‘Prize Chits Act.’)

4. The prosecution case is the following: Accused No.9 Abdul Arshad is the Managing Director of Bizarre Global Marketing Public Limited Company (hereinafter referred to as the Company). The Company was originally a Private Limited Company under the name Bizarre Marketing Systems Private Limited, which was incorporated on 2-11-2007. With effect from 18-6-2008, the name of the Company was changed as Bizzare Global Marketing Systems Private Limited. The Company became a Public Limited Company with effect from 14-7-2008. The allegation is that the accused persons induced several persons to subscribe to the membership and to take shares in the Company. The promise extended was that if they take shares, they will get commodities at reduced rates from the Supermarkets to be established by the Company at different places in the State. It was also promised that if those who take shares canvass other persons to take shares, the former would be paid commission. Campaigns were held by the accused to induce persons to invest money. It was promised that those who canvass more persons would get more and more commission. About a lakh people were thus induced to invest money. In the Wynad District alone, more than five thousand persons were so induced to invest money. The promise given by the accused was that within two years, they would get about eight times the money invested by them. The accused indulged in money chain business under the pretext that they were floating shares of the Company. The investors did not get the returns or the money invested by them. The accused did not fulfil the promises and the investors were cheated.

5. The learned Public Prosecutor submitted that 36 cases were registered in Wynad District against the accused. Crimes were registered against them in other Districts also. It is submitted that the preliminary figures show that a sum of Rs.120 Crores was collected from the investors. A raid was conducted in the office of the Company. Only one computer could be located in the raid. In the two bank accounts located, transactions of only Rs.36 crores were found. It is necessary to find out where more than Rupees Eighty crores were siphoned off. The learned Public Prosecutor submitted that in brochure of the Company, a PAN Card number was shown. On investigation, it was revealed that the same relates to a firm in the State of Madhya Pradesh.

6. The learned Public Prosecutor submitted that the investigation of the cases registered in Wynad District is now being conducted by the Crime Branch. Investigating agency has sought the help of National Investigation Agency to find out whether the money collected from the people was utilized for anti national activities. Investigation revealed that when a person invested Rs.14,750/-, he was given 55 coupons of Rs.100/- each which could be used for purchasing commodities from the supermarkets to be established by the Company. A sum of Rs.750/- was taken as service charges and the balance Rs.8500/- would constitute the share of the investor.

7. Heard Senior Advocates Sri. M.K. Damodaran and Senior Advocate Sri. K. Ramakumar appearing for the petitioners and Sri. V. Tekchand, the learned Public Prosecutor.

8. Senior Advocate Sri. M.K. Damodaran submitted the following: The first petitioner in B.A. No.5776 of 2011 (Kunhumuhammad) is one of the Directors of “Bizarre Business Corporation Limited”, a company registered under the Companies Act, 1956. Petitioners 2 to 7 therein are the “subscribers of shares and organizers employed by the said company. Out of 60,000 shareholders of the company, only 42 persons approached the police raising grievances. The petitioners are prepared to pay off the entire liability to the said 42 persons. Majority of the shareholders have not come forward to withdraw amounts invested by them. In view of the provisions contained in Section 76, 205, 235 to 244, 621 and 624 of the Companies Act, the police was not justified in registering the Crimes against the petitioners. No offence under Section 420 of the Indian Penal Code or Sections 3 and 4 of the Prize Chits Act are made out against the petitioners. Powers of the police cannot be misused in matters relating to the affairs of the Company. The Companies Act is a self contained Act and it provides for prosecution in certain matters. Instead of resorting to the machinery provided under the Companies Act, prosecution cannot be initiated against the Company or its directors or members. Even under Section 621 of the Companies Act, a complaint in writing is required. All offences under the Companies Act are non cognizable. This is with the purpose that a few persons should not be allowed to meddle with the affairs of the Company and upset its functioning. Therefore, the police should not have registered the case at all. There is no specific allegation against the Company, its Managing Director or other Directors. It would appear that the grievance of the de facto complainants is that no profit was paid to them. Without there being a profit, dividend cannot be paid. No money circulation scheme is involved in the affairs of the Company. Even if all the allegations made by the de facto complainants are taken as true, no offence is made out. No element of cheating is established. No false representation was made by the Company. Therefore, Section 420 of the Indian Penal Code is also not attracted in the case. The senior counsel submitted that the petitioners are entitled to bail.

9. The petitioner is B.A.No.4642 of 2011 (K.T. Gopinathan) stated in the Bail Application thus: