State of Madhya Pradesh Vs. Mir Basit
Ali Khan & Ors  INSC 88 (22 March 1971)
SIKRI, S.M. (CJ) SIKRI, S.M. (CJ) REDDY, P.
JAGANMOHAN DUA, I.D.
CITATION: 1971 AIR 1620 1971 SCR 125 1971 SCC
Indian Penal Code, s. 420--Money circulation
schemes--No cheating without misrepresentation or dishonest concealment of
The respondents organised a money circulation
scheme. For alleged cheating and misrepresentation in connection therewith they
were convicted by the Sessions Judge, Bhopal under s. 120B and s. 420 Indian
Penal Code. The High Court however acquitted them. The State of Madhya Pradesh
by special leave appealed to this Court. In support of the appeal the following
facts were stressed: (1) None of the 200 odd persons who purchased the policy
issued under the scheme received Rs. 2309.50, the assured amount in the policy.
(2) The large amounts of Rs. 90,750 and Rs. 5,52,587.95 were detained by the
respondents and showed the extent of wrongful gain by them. (3) The policy
holders had no control over other policy holders which would assure continuance
of the scheme. (4) Merely because some persons receive some amount it could not
be inferred that the scheme was not fraudulent. (5) The evidence showed that
the names entered in columns 3, 4, 5, 6 and 7 of the pamphlet, issued by the
respondents were bogus and that 2696 money orders were sent back to the
remitter, as the persons were not traceable because of wrong address on the
HELD: As held by the Calcutta High Court in
Radha Ballav Pal's case and Haridas Barat's case there was an element of
speculation in money circulation schemes, but those who ran them could not be
held guilty of cheating unless there was misrepresentation or dishonest
concealment of facts. It could not be said in the present case that the
respondents had deceived the public and thereby induced it to contribute money
to the scheme. The appeal must accordingly fail.
[131H-132F] Radha Ballav Pal v. Emperor,
A.I.R. 1939 Cal. 327 and Hari Das Barat v. Emperor, 1939 11 I.L.R. Cal. 81,
Nadir Barga Zaidi v. State of U.P. A.I.R.
1960 All. 103 and In re M. K. Srinivasan, A.I.R. 1944 Mad. 410, referred to.
It is for the legislature to intervene if it
wants to protect people who participate in these schemes, knowing that sooner
or later the schemes are bound to fail. [132F-G]
CRIMINAL APPELLATE JURISDICTION: Criminal
Appeal No. 142 of 1968.
Appeal by special leave from the judgment and
order dated September 8, 1967 of the Madhya Pradesh High Court in Criminal Appeal
No. 81 of 1966.
I. N. Shroff, for the appellant U. P. Singh
and Nur-ud-din Ahmed, for the respondent.
126 The Judgment of the Court was delivered
by Sikri, C.J.--This appeal by special leave by the State of Madhya Pradesh is
against the judgment of the High Court allowing the appeal of the respondents,
Mr Basi Ali Khan, Mir Shahniwaz Ali khan and Mir Sarfaraz Ali Khan, and setting
aside the conviction and sentences passed on them by the learned First
Additional Sessions Judge, Bhopal, who had convicted them under Section 120B
and Section 420, 1. P. C.
The respondents were, however, acquitted of
the charge under Section 406, 1. P. C. We may mention that there were two
committal orders made by the learned Magistrate, First Class, Bhopal, on April
5, 1965 and on October 12, 1965, respectively, which gave rise to two Sessions
Trials, No. 90 of 1965 and No. 98 of 1965. The learned Sessions Judge disposed
of both the trials by a single judgment as he was of the view that both the
trials were in effect a single trial of a single conspiracy and of several
incidents of cheating. The respondents also filed one appeal before the High
Court and the High Court disposed of that appeal by one judgment.
The facts are not very much in dispute. The
prosecution case, in brief, was that Mir Basit Ali Khan, the father, and his
two sons, Mir Shahniwaz Ali Khan and Mir Sarfaraz Ali Khan. entered into a
partnership which was registered on September 21, 1959, under the Indian
Partnership Act of 1932 in the State of Andhra Pradesh at Hyderabad. The
registration number of the firm was 1468. Mir Basit Ali Khan started a money
circulation scheme known as Multi- Purpose Constructive Circulation Scheme with
its head office at Hyderabad, in the year 1960. He, alongwith others, was prosecuted
in the City Magistrate's Court at Hyderabad, but they were acquitted and the
acquittal was maintained in the High Court. The Magistrate had come to the
conclusion that though the scheme appeared to be speculative yet it could not
be said that the accused were running the said scheme with a dishonest
intention to cheat the public.
It is alleged that Mir Basit Ali Khan again
organised the Multi-Purpose Constructive Circulation Scheme on September
20,'1961, at Bhopal with its principal office at Bungalow No. 59, Roshanara
Naka, T. T. Nagar, Bhopal. The firm issued policies and printed pamphlets and
handbills representing that it was a Government of India Registered firm No.
We may reproduce the pamphlet, Ex.-P-9 / 1,
which was one of the pamphlets issued by the firm :
"1. Perform the marriage of marriageable
girls by spending only 5.50 np.
127 2. Only after spending once Rs. 5.50 np.
send your promising children to America or
England for Education.
3. By spending Rs. 5. 50 nP. only once, you
can meet your daily necessities.
4. By spending Rs. 5 50 nP. only once make
provision for education, and books, stationery, etc., etc.
5. By spending Rs. 5.50 nP. get a big sum of
Rs. 2,309 for the progress of your business.
For obtaining all the above mentioned thing,
you can get a big sum of Rs. 2,309 by spending only Rs. 5.50 nP. Please do come
and meet on the address noted below so that you may know how to do it and how
to utilise this golden opportunity.
Otherwise please do not say that you did not
get intimation." It is necessary to reproduce another pamphlet, Ex. P-12,
because according to the State there were clear misrepresentations of fact
which amounted to cheating "Phone : 1266. M. C. C. Bhopal M. P. Grams
"Jansewak" Government of India's Registered X X Firm, 1468.
The Government of India after establishing
the social service Department are doing a great service for the public and to
the nation as a whole by spending lacks of rupees. The public have also been
exerting manual labour in addition to giving their valuable time. But this
Public Service scheme of ours is so unique that without any difficulty every
individual of the country receives direct benefit to the extent of Rs. 2,309-50
by sitting at home. That is, remit your admission fee once through the de T. T.
(sic.) and the Government postman will knock down at your doors several times
to pay you up the amount. The Founder of this unique formula has placed before
you in such a way that a person with ordinary intelligence will be pleased to
HOW THIS IS POSSIBLE: Collect Rs.5.50 from
each of your three friends, and out of this keep Rs. 5.50 for yourself and this
remaining Rs. 11.00 may be remitted according to the schedule. It is thus clear
that you have received your original amount of Rs. 5.50 in full immediately
after the sale of three Policies.
128 From the procedure explained above, it is
very clear that this is neither a Gambling lottery, Riddle nor Satta. There is
not the least possibility of your losing the amount. of course, such persons
will be losers who will not be in a position to sell their three policies.
Therefore, those persons who do not have the capacity of selling their 3
Policies need not join this scheme. But in our opinion we are confident that
there Is no such an unfortunate person who is not having even three well
wishing friends, or relatives in this vast world. But the question of selling 3
policies by an individual is most important.
How.-You should purchase one policy by paying
Rs. 5.50 nP.
from any person who has already enrolled in
this scheme or write to the Firm for the policy, by sending M. 0. of Rs. 5.
Now select three energetic and enthusiastic
friends, collect Rs. 5.50 from each of them and remit the M. Os. to the members
and the Firm as shown in the schedule. Write down the names of your selected 3
friends with their address in full in BLOCK LETTERS ONLY. Send the Policy along
with the M. 0. receipts to the firm by EXPRESS DELIVERY ONLY.
Never send M. Os. to persons in column nos. 2
they will not get any amount to the extent of THIS POLICY ONLY BUT as and when
this Policy goes in circulation they will automatically change their places and
enjoy with their expected amount.
FIRM'S RESPONSIBILITY: The firm will send you
3 policies in which you will stand in column No. 2 and that of the new member
in column No. 1. Hand over these policies immediately to your friends
carefully. As soon as you finish this job, YOUR RESPONSIBILITY IS OVER. The
chain of M. Os., will be continued in such a way that your neighbors will be
fed up with postman's voice. Because the beauty of our scheme is that we allow
15 days period for the sale of the policy to each of our member after the
expiry of- the period we cancel such slack members and the same cancelled
policy in which you stand in No. 2 is sold to other new members through our
authorised agents and field officers, who are spread all over India thereby we
try our utmost to continue your chain.
The cause of failure of other previous
Schemes is only due to not having this wonderful arrangement of continuation of
Chain to which we give much importance. For this reason only we are having a
very 129 good response & our to days membership number is more than a lack
all over India.
Under unavoidable circumstances, extension of
one week can be given on payment of extension fee of 0.37 nP.
SCHEDULE S. NO. No. of Policies Amount
payable Column No. 1 1 5.50 2 3 Nil 3 9 9.00 4 27 27.00 5 81 81.50 6 243 364.50
7 729 1822.50 Total No. of Policies 1093 2309.50 MOST IMPORTANT : If your chain
of M. O.s. are discontinued for two weeks Please inform us immediately so that
they may be continued.
MEER BASITH ALI KHAN Author of Dukhi Kisan
approved by the Ministry of Agr. Govt. of India, Founder of full House Talkie
Formula Regd. by Govt. of India No. 104 Proprietor M. C. C. Govt. of India's
Firm No. 1468 Bhopal.
TIME IS MONEY : If you are inclined to become
agent, contact us and enjoy with the commission of 3.50 np. per member. The
Chief agent will get 75 P. M. salary as well as commission of Rs. 3.50 per
member. The advertisement expenses will also be borne by the learned Sessions
Judge had come to the conclusion that the respondents by using the expression
"Government of India Registered Firm No. 1468" in their policies and
pamphlets misled the public into believing that the scheme was sponsored by the
Government of India or it had its approval.
He also came to the conclusion that there was
a misrepresentation in the pamphlet that the scheme was neither a gambling,
lottery, riddle or a satta, but was an ordinary financial scheme. The learned
9-1 S.C. India/71 130 Sessions Judge had further found that as the remitter of
the money orders was always Mir Basit Ali Khan, respondent No'. I and the
Proprietor of M. C. C., the, member of the policy was left only with a small
piece of paper, Ex. P-69, the -scheme 'contained a misrepresentation and
suppression of material facts which made the respondents liable for conspiracy
to cheat and cheating.
The High Court, however, held that it being
not in dispute that the firm was registered and its number was 1468 there was
no fraudulent or deceitful representation. The High Court further held that
most of the witnesses had clearly stated that they had known the fact that it
was a private firm and the Government had nothing to do with it. The High Court
was of the view that the statement may be an exaggeration or a puffing. The
High Court, after going through the evidence and the various. pamphlets came to
the following conclusion:
"There appears to be no misrepresentation
or suppression of any material facts with a view to defraud or cheat.
How-so-ever speculative and unworkable the scheme may be, unless it is shown
that there is a false representation or suppression of the material facts which
might render it to be fraudulent, it cannot be said that the offence of
cheating has been committed. of course, to judge its effect, the policy and the
pamphlet has to be read as a. whole." The High Court further observed,
after referring to a number of cases which we will presently deal with "In
this scheme as aforesaid, the purchaser also got his amount alright and one can
expect to get even more provided the Chain continued.
As the policy with its rules and pamph let
make it quite clear, the, appellants cannot be held guilty unless it is
positively shown that some, deception had been practiced on the public with the
result that they were deceived and they had paid the money. The prosecution has
not produced any witness to say that some money was due from the company and
they have been in any way deceived and the amount has not been paid. It is only
the. Jhua lot of witnesses who could not be, paid because of the police raid
and the, Ms. being withheld by the Magistrate." The High Court further
found that the name of. Mir Basit Ali Khan, Proprietor, M. C. C., was mentioned
simply because it was a chain scheme and that it may go on, working
continuously, otherwise there is every possibility that some policy holder
might not send the full amount or may not be traceable for one reason 131 or
the other. The High Court observed that nothing was kept secret from the policy
holders and it was known to them alright that they had joined the scheme with
the conditions laid down in the policy and the pamphlet. The High Court did not
think that the size, of the taken had anything to do with cheating. The High
Court accordingly came to the concl usion that the respondents had committed no
Regarding the money which had been seized by
the police the High Court said that the money belonged to the policy holders
and the respondents and it was a case where the money in question had 'to go
back to them and it could not be ordered to be confiscated. The High Court
accordingly directed that the respondents would be entitled to get back their amount
which had .been withheld as property in the Sessions Trials referred to above.
It is common ground that the Scheme is highly
speculative, and the question which arises is whether it amounts to cheating
under Section 420, 1. P. C. The learned counsel for the State ,stresses the
following facts (1)None of the 2000 odd persons who purchased the policy had
received Rs. 2309.50, the assured amount in the policy.
(2) The large amounts of Rs. 90,750 and Rs. 5,52,587-95
were obtained by the respondents showed the extent of wrongful gain by them.
(3)The policy holders had no control over
other Policy holders which would assure continuance of the .scheme.
(4)Merely because some persons received some
:amount it could not be inferred that the scheme was not fraudulent (5)The
evidence showed that the names entered in columns 3, 4, 5, 6 and 7 were bogus
and that 2696 money orders were sent back to the remitter, as the persons were
not traceable because of wrong addresses on the form.
The learned counsel for the respondents
contends that since the year 1939 similar schemes have been held not to fall
within Section 420, I. P. C. , and the legislature must be deemed to have
accepted the law as laid down in the cases.
The learned counsel has drawn our, attention
to two decisions of the Calcutta High Court on similar schemes.
The earliest case pointed out by the learned
counsel is Radha Ballav Pal, v. Emperor In that case (1) A. I. R. 1939 Cal.
132 the society was described as Government
Registered No. 5934.
registered under Act 11 of 1932. The High
Court held that it was not a misrepresentation as this society was actually
registered under that Act. Regarding the scheme the High Court held on the
facts of that case that the scheme was one of those snowball schemes which were
speculative to the highest degree and unworkable but it was not dishonest or
fraudulent in the sense that it either represented to the public something
which was not true or, concealed from them something which should have been
disclosed. The High Court thought that it was an appeal to the gambling
instinct of humanity but this cannot per se amount to cheating.
This case was followed by another Bench of
the Calcutta High Court in Hari Das Barat v. Emperor (1). The headnote brings
out the decision thus :
"Promoters of a financial snowball
scheme, which could run only so long as there would be a continuous
uninterrupted and enormously progressive increase in subscribers, but which
could not go on indefinitely, would not be guilty of cheating, in the absence
of false representations and dishonest concealment of facts either in the
prospectus issued or in the conduct of the promoters, calculated to deceive the
public and thereby induce it to contribute money to the scheme." These
cases were distinguished in Nadir Barga Zaidi v. The State of U. P. (1) as the
High Court felt that on the facts of that case there were misrepresentations
made to the depositors and certain facts had been dishonestly concealed from
In re M. K. Srinivasan (3) the facts were slightly
different and the case does not assist us.
It seems to us that the Calcutta cases,
referred to above, were correctly decided and the High Court came to the
correct conclusion. This appeal must accordingly fail. It is for the
legislature to intervene if it wants to protect people who participate in these
schemes knowing that sooner or later the schemes are bound to fail.
In the result the appeal fails and is
(1)  11 I. L. R. Cal. 81.
(2) A. 1. R. 1960 All. 103.