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Interpretation of statute-Text and Context bases value of, explained-Whether the two clauses (i) and (ii) in section 2(e) of the definition of "Prize chit" in Prize Chits and Money Circulation Scheme (Banning) Act, 1978 are to be read disjunctively-Phrase "for all or any of the following purposes", construction of Prize Chits and Money Circulation Scheme (Banning) Act, 1978 section 2(e)-Definition of "prize chit"-Whether the Endowment Certificate Scheme of the Peerless Company attracts the provisions of Constitution of India, 1950, Articles 38, 39, 41 and 43-Goal of minimising inequalities of income-Failure of the Life Insurance Corporation in this regard deprecated-Need to improve their efforts to devise several methods to serve the poorer sections of the people, stressed. 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 an!' 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. 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.A noticeable feature of the scheme is the remarkably low yield to the subscriber on his investment. Not only that, the subscriber is always at the losing end. Despite the same, the message of Peerless is made to penetrate the rural areas to tap the small savings of the poor ignorant villagers through a special structure of agents, special agents, sub-organizers, special organizers and so on chosen from amongst those noted for their social political or official connections. The agents Commission was 30% (now 35%) of the first year's subscription and 5% only of subsequent years' subscription. The incentive of 30% of the collection of the subscription of the first year automatically operates as a disincentive for collecting subscriptions of subsequent years resulting in heavy default in payment and forfeiture of subscriptions earlier paid. The first subscription is literally shared between the company and its agents under the method of accountancy adopted by the company treating the entire amount as income and not liability of the company. The company adopted the "actuarial system" of accountancy followed by the Life Insurance Corporation, though the company itself does not and cannot do insurance business. However, the company has now deleted the "forfeiture clause'' and everyone is entitled to payment after the maturity period of the certificate. Section 45K of the Reserve Bank of India Act empowers the Reserve Bank to collect information from Non-Banking Institutions as to deposits and to give directions in the public interest, in particular "in respect of any matters relating lo or connected with the receipt of deposits, including the rates of interest payable on such deposits, and the periods for which deposits may be received." Section 45L empowers the Reserve Bank to call for information from financial institutions and to give directions, in particular directions relating to the conduct of business by them, etc. Taking advantage of the 1970 Report of the Banking Commission's Study Group headed by Dr. Bhabatosh Dutta on the role of various non-banking financial institutions, the Reserve Bank purporting to exercise its powers under Sections 45L and 45K of the Reserve Bank of India Act gave certain directions called "Miscellaneous Non-Banking Companies (Reserve Bank) Directions 1973". Para 4(a) prescribed six months as the minimum period for which a Miscellaneous Non-Banking Company could accept a deposit, but no maximum period was prescribed. Paragraph 4(b)(ii) prescribed a ceiling of 25% of the aggregate of the paid up capital and free reserve of the company in the case of deposits accepted by Miscellaneous Non-Banking Companies. Paragraph 13 enabled the Reserve· Bank to exempt any company or class of companies from, all or any of the provisions of the directions either generally or for a specified period, if it considered necessary for avoiding any hardship or for any other just and sufficient reason. On September 14, 1973 the Peerless Company addressed a letter to the Reserve Bank of India explaining the nature of their business and claiming that their business was outside the scope of the directions issued by the Reserve Bank, while pointing out that their business was a special type, that it was carried on scientific lines and actuarial principles, that over 90% of the concerned public fund was invested in Government securities and in nationalised Banks. The Reserve Bank of India by their order dated December 3, 1973 exempted the company from the provisions of paragraph 4 of the notification in so far as those provisions restricted the acceptance of subscriptions under the scheme upto 25% of the paid-up capital and free reserve fund. Certain conditions were, however, imposed. The company was directed to transfer every year to the reserve fund a sum not less than 50% of the profit after taxes. The company was directed not to declare any dividend at rates higher than 6% and 7% on ordinary and preferential shares till the free reserve became equal to the paid-up capital. The company was also required to maintain not less than 75% of its total assets in the form of investments and Government Trustee-securities, etc. The company was directed to submit every year a certificate from their Auditors in regard to compliance with the conditions imposed. The exemption was to be reviewed every two years. The said exemption was granted, having regard to the satisfactory financial position of the Peerless and the fact that it was a well established one and having regard to the certificate furnished by the actuarial consultant of the Peerless supported by data. In the year 1974, there was yet another Study Group headed by Dr. J .S. Raj appointed this time by the Reserve Bank. In para 6.21 the Study Group made its recommendations for a total ban on the conduct of prize chits of the kind described by them in paragraph 6.3. Simple Recurring Deposits Schemes were not contemplated. Thereafter, as a follow up of the recommendations of the Raj Committee, in 1977 two sets of directions were issued by the Reserve Bank, called the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977 and the Non-Banking Financial Companies (Reserve Bank) Directions. 1977. Paragraph 5 of the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977 which corresponded to paragraph 4 of the 1973 directions, however, made a radical departure from the earlier provision. For the first time, a ceiling was fixed on the period for which deposits could be accepted. It was provided that the period of a deposit could not be more than thirty-six months. Paragraph 14 also vasted in the Reserve Bank the power to grant exemption in suitable cases. Paragraph 5( 1) of the Miscellaneous Non-Banking Financial Companies (Reserve Bank) Directions, 1977 dealt with period of deposits for hire-purchase finance, loan and investment companies and provided that the period of deposits shall not be less than six months or more than thirty-six months. Paragraph 19 made the directions applicable to a loan company also applicable to every company which was a "financial institution" hut not belonging to any of the categories of companies mentioned in paragraph 2(1) or which was not a miscellaneous non-banking company within the meaning of the Miscellaneous Non-Banking Companies Directions, 1977.Thereafter in 1978 the Prize Chits and Money Circulation Schemes (Banning) Act 1978 was enacted "to ban the promotion or conduct of prize chits and money circulations schemes and for matters connected therewith or incidental thereto. Section 2(a) defines "Conventional Chits" on practically the same lines as the type of business covered by the second part of paragraph 2 of the Miscellaneous Non-Banking Companies (Reserve Bank) Directions 1973 and the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977. Section 3, banned not merely promoting or conducting any prize chit or money circulation but also on participation in the Scheme of any kind contravention of which carried penal action. Section 11 exempts from the operation of the Act prize chits or money circulation schemes promoted by a State Government or any office or authority on its behalf, 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, a banking institution notified by the Central Government under Section S 1 of the Banking Regulation Act, the State Bank of India or a subsidiary bank of the State Bank of India or a corresponding new bank, a Regional Rural Bank, a co-operative bank and any charitable or educational institution notified in that behalf by the State Government in consultation with the Reserve Bank of India. There is no general provision which empowers the Central Government or the Reserve Bank of India to exempt any other prize chit or money circulation scheme from the applicability of the Act. In exercise of its powers under Section 13 of the Act the Government of West Bengal has made the Prize Chits and Money Circulation Scheme (Banning) (West Bengal) Rules, 1979.The Miscellaneous Non-Banking Companies (Reserve Bank) Directions 1977 and the Non-Banking Financial Companies (Reserve Bank) Directions came into force on July 1, 1977. On March 3, 1978 the Reserve Bank informed the Peerless Company that under the Miscellaneous Non-Banking Companies Directions which applied to the Company, the Company was prohibited from accepting deposits for more than 36 months and since the deposits accepted by the Company were for periods exceeding 36 months, the Reserve Bank wanted to know what action the Company proposed to take to comply with the requirement stipulating the maximum period for which deposits might be accepted. In reply, the Company, by its letter dated 31st March, 1978, pointed out the special features of the Company which persuaded the Reserve Bank to grant exemption to the Company from the 1973 directions. The Company invited the attention of the Reserve Bank of the various elements of the scheme which made it impracticable to comply with the stipulation regarding the maximum period of 36 months as that would make the scheme wholly unviable. The Company requested that further exemption may be granted in the public interest. The alternative, it was said, would be to close the business and that would mean loss of employment to several thousands of employees and financial loss to millions of depositors. The Company suggested that the Reserve Bank might recommend to the Central Government to convert the undertaking into a joint-sector enterprise. The letter ended with an appeal to the Reserve Bank to grant exemption from the restrictions relating to maximum period. By its letter dated July 23, 1979, the Reserve Bank pointed out to the company that the schemes conducted by the Company were covered by the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 which had come into force with effect from December 12, 1978. As the Company was banned from doing fresh business and was required to wind up its existing business under the Act, there was no question of granting any exemption to the company. Nevertheless the Reserve Bank stated that they had considered the claim for exemption on merits and found that it was necessary to cancel the exemption already granted. The reasons for the proposed cancellation were set out and the Company was asked to show cause why the exemption should not be cancelled. On August 30, 1979 the Company replied at great length stating how necessary it was in the public interest to grant exemption to the Company. On August 10, 1979, the Government of West Bengal addressed a communication to the Peerless Company pointing out that the Prize Chits/Money Circulation Schemes conducted by the Company came within the purview of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 and, therefore, the Company was under an obligation to submit a winding up plan under Rule 4 of the Prize Chits and Money Circulation Schemes (Banning) (West Bengal) Rules, 1979.On September 3, 1979, the Company filed a writ petition in the Calcutta High Court for a declaration that the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 did not apply to the business carried on by the company. A Rule was issued and an Interim Order was made in favour of the company, first for a limited period and, later, till the disposal of the writ petition. 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 Rule and Interim Order were issued. During the pendency of the writ petition exemption was refused by the Reserve Bank on 19.3.1980. Appeals preferred by the company under the Letters Patent against the judgment of the Single Judge were allowed. It was declared that the business carried on by the company did not come within the mischief of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. 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 have preferred Civil Appeal Nos.3562, 3563, 3564, 3565 and 4459 of 1986. In the course of the judgment, the Division Bench of the Calcutta High Court had observed that the company was a financial institution within the meaning of paragraph 11 of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977 and therefore, the Directions contained therein applied to the business carried on by the company. Against this observation of the Division Bench, the Company has also preferred Civil Appeal Nos. 3566 and 3567 of 1986. After the judgment of the Division Bench of the Calcutta High Court, the Company, pursuant to the observations of the Division Bench that it was a financial institution within the meaning of paragraph 11 of the Non-Banking Financial Companies Directions, applied afresh to the Reserve Bank of India for exemption from complying with the Directions. The Reserve Bank of India by its order dated August 22, 1986 refused to grant the exemption sought. The company has filed another writ petition in the Calcutta High Court against the said refusal by the Reserve Bank to grant exemption. Therefore, the court preferred to apply "Non liquet" on the question whether the company is a financial Institution within the meaning of para 11 of the Non-Banking Financial Companies (Reserve Bank) Directions. |
