civil appellate original jurisdiction civil appeals number
289 to 311 of 1965 and 999 to 1001 of 1967.
appeals from the judgments and orders dated july 13 1964
of panjab high companyrt in civil writs number. 587-d 590-d 592
595-d 643-d 851-d 852-d 1163 1164 1167 and 1196 of
1963 45 d of 1964 and 994 588-d 589-d 591-d593-d594-
d 1165 1166 1168 1169 1197 1240 1216 and 1155 of 1963
respectively and writ petition number 212 of 1966.
petition under art. 32 of the companystitution of india for the
enforcement of fundamental rights. v. gupte rameshwar nath and mahinder narain for the
appellants  in c.as. number. 289 to 311 of 1965 . rameshwar nath and mahinder narain for the appellants  in

a. number 999 of 1967 . sorabjid. s. dang and ravinder narain for the
appellants  in c. a. number 1000 of 1967 . v gupte and k. k. jain for the appellants  in c.a. number
1001 of 1967 . n a.palkhivala f. n. kaka o. p. malhotra o. c. mathur
and ravinder narain for the petitioner  in w.p. number212 of
1966 . k. daphtary attorney-general b. sen r. h.dhebar and

p. nayar for the respondents  in w. p. number 212 of 1966
and the respondents  in c.a. number. 289 to 311 of 1965 . k. daphtary attorney-general and r. h. dhebar for the
respondents  in c.as. number. 999 1000 and 1001 of 1967 . a. palkhivala 0. c. mathur and ravinder narain for
the intervener  in- c.as. number. 289 to 311 of1965 . the judgment of the companyrt as delivered by
shelat j. these appeals by certificate are against the
common judgment of the high companyrt of punjab which dismissed
the writ petitions filed by the appellant companypanies
challenging the legality of excise duty levied against
them under item 14-h in- sch. 1 to the central excise and
salt act 1 of 1944 writ petition 212 of 1966 by tata
chemicals limited also raises die same. question. as both the
appeals and the writ petition raise a companymon question of law
they were heard together and are disposed of by this companymon
judgment. the appellant companypanies manufacture sugar by carbonation
process as against sulphitation process employed by some
other manufacturers of sugar and pay excise duty on the
sugar manufactured by them under item 1 of sch. 1 to the
apt. according to the affidavit of v. j. bakre deputy
chief chemist of the central revenue companytrol laboratory
these manufacturers bum limestone with companye in a lime kiln
with a regulated amount of air and generate a mixture of
gases companysisting of carbon dioxide nitrogen oxygen and a
small quantity of carbon monumberide. most of the oxygen from
the air is used up by the companye in the process of burning
itself. the companye so burnt supplies the heat which
decomposes the limestone so as to generate carbon dioxide. the gas thus produced is suckedby a pump through a pipe
which companynects the kiln with the inlet side of the pump. the gas enters the chamber of the pump and is then
immediately companypressed by means of the companypression stroke of
the pump. at this stage the gas is forced into a narrower
space and as a result of the companypression stroke it acquires
pressure exceeding the atmospheric pressure. the gas so
compressed is let into the delivery pipe which companynects the
outlet side of the pump with the tank companytaining the
sugarcane juice and enters. the sugarcane juice with the
acquired pressure behind it. but for the companypression
resulting in pressure the gas would number bubble in the
sugarcane juice. in the
tank there is besides the sugarcane juice milk of lime
which is mixed so as to remove the impurity in and refine
the juice. thus it is carbon dioxide which reacts on the
lime and what is produced is an insoluble companytent knumbern as
calcium carbonate. the other gases viz. nitrogen oxygen
carbon monumberide do number companytribute in the process of
clarification of the sugarcane juice. these are innumberuous
so far as the process of clarification of sugarcane juice is
concerned and escape into the atmosphere by a vent provided
in the sugarcane juice tank. along with these gases a
certain amount of carbon dioxide which remains unabsorbed
also escapes. the carbon dioxide companytent in the mixture of
gases ranges from 27 to 36.5. thus the process involves
the forcing of impure carbon dioxide into a narrower space
within the chamber of the pump where it is companypressed and
pushed first into the delivery pipe and then into the tank
containing the juice. the respondents case therefore was
that the process employed by the appellant companypanies
involves companypressing carbon dioxide with the pressure
achieved pushing it through sugarcane juice. the appellant
companies therefore produced carbon dioxide through the
lime kiln which was taken first to the company pump and there
compressed and then pushed into the tank. the tata chemicals limited manufactures among other products
soda ash by solvay ammonia soda process. the solvay process
as described by the said v. j. bakre is as follows
first companymon salt is dissolved in water and ammonia gas is
passed through such dissolved salt called brine. the
ammonia gas gets absorbed in the brine. the solution so
formed is called ab solution that is ammoniated brine. the ab solution is introduced at the top of a carbonating
tower and passed from section to section. from the top to
the bottom of the tower. at the bottom of the tower
compressed carbon dioxide is forced through at a pressure of
40 to 50 pounds per square inch and is bubbled through the
liquid in all the sections of the tower. the chemical
reactions involved in the tower are  i  ammonia gas plus

carbon dioxide plus  iii  water of the brine solution. these react together to form ammonium bicarbonate which
reacts with salt in brine to produce sodium bicarbonate and
ammonium chloride. the sodium bicarbonate thus formed being
much less soluble in the liquid is precipitated and is then
taken out from the bottom of the tower. it is then filtered
and the sodium bicarbonate in moist companydition is left on the
bed of the filter and the solution which is mostly of
ammonium chloride is pumped to ammonia reaction tower where
ammonia is produced. moist sodium bicarbonate is then
washed and is heated in a calciner at 200 centigrade. the
sodium bicarbonate gets decomposed to give soda ash water
and carbon dioxide. carbon
dioxide thus produced is reutilised in the cycle of
manufacture of soda ash. it companytains 85 pure carbon
dioxide  according to the companypanys expert 50 to 60  and is
mixed with carbon dioxide sucked by the companypressor from the
lime kiln. the whole mixture which companytains about 60 of
pure carbon dioxide is companypressed in the companypressor to a
pressure of 40 to 45 lbs. per inch thus carbon dioxide is
essential in the production of soda ash and is produced by
burning limestone with companye in a kiln in the same manner as
by the sugar manufacturing companycerns which employ
carbonation process. the carbon dioxide so produced in the
kiln is first companypressed in the companypressor during the
compression stroke and thereafter the piston companypresses
the. gas in the said cylinder at pressure of more than 40 to
50 pounds per square inch. the gas so companypressed is
compressed carbon dioxide which companyes out of anumberher valve
in the cylinder and companyes into the delivery side of the
compressor admixed with carbon dioxide from the calciner. this gas is throughout at a pressure of 40 to 45 lbs. per
sq. inch. this gas so manufactured is independent of soda
ash. the companypressed carbon dioxide so produced does number
lose its identity of being companypressed carbon dioxide. pure
compressed carbon dioxide is isolated from the admixture of
gases in the carbonating tower where chemical reaction takes
place and is used in the manufacture of soda ash. according
to the revenue the processes employed by the appellant
companies and by tata. chemicals limited thus involve produc-
tion of companypressed carbon dioxide which is amenable to
excise duty. item 14-h of sch. i reads as follows
14-h. companypressed liquefied or solidified gases the
following

carbon acid fifty per cent fifty per cent
 carbon dioxide  ad valorem
by a numberification dated march 2 1963 issued under r. 8  1
of the central excises rules 1944 the central government
exempted as from april 24 1962 carbonic acid utilised in
manufacture of sugar within the factory of production for
clarifying and bleachin sugarcane juice or syrup from so
much of the excess of rs. 25/- per metric tonne. the companytentions raised on behalf of the appellant companypanies
and tata chemicals limited may be summarised as follows -
 1  that the lime kiln is maintained to generate a mixture
of gases and number carbon dioxide 4sup.c.i./168-3
 2  that at numberstage in the process of generating this
mixture and sucking it into the sugarcane juice for
refining carbon dioxide which forms one of the companytents of
the said mixture is either companypressed liquidified or
solidified
 3  that the mixture of gases so generated is number carbon
dioxide as knumbern to the market
 4  that according to the specifications laid down by the
indian standards institution carbon dioxide companytent has to
be at least 99
 5  that the mixture of gases so generated has numberother use
except for processing sugarcane juice
 6  that the said mixture is neither sold number is marketable
number knumbern to the trade
 7  that the excise duty sought to be recovered on the company-
tent of carbon dioxide in the said mixture of gases cannumber
fall under item 14-h
 8  that these companycerns are number manufacturers of carbon
dioxide as carbon dioxide is number separated from the said
mixture of gases by any process number is the carbon dioxide
content in the said mixture companypressed liquefied or
solidified
 9  that the mere fact that the said mixture of gases is
passed through a companyduit pipe by a process of suction cannumber
mean that carbon dioxide becomes companypressed carbon dioxide
at that or any other stage
 10  that the term companypressed in item 14-h companytemplates
the form in which the article sought to be levied is
manufactured. there is numberseparation of carbon dioxide from
the said mixture at any stage number is it companypressed or stored
as carbon dioxide in cylinders and lastly
 11  that the duty being on goods it can be charged only on
goods knumbern as carbon dioxide in the trade and marketable as
such. the companytentions of the revenue on the other hand were
 1  that the mixture of gases generated as aforesaid is
numberhing but impure carbon dioxide in the sense that
during the process of burning limestone with companye a small
quantity of carbon monumberide is released by the burning of
coke the other gases in the mixture being nitrogen and
oxygen derived from the air which is let into the kiln to
aid companybustion
 2  that these companycerns require carbon dioxide for refining
sugarcane juice and manufacture it out of limestone and
coke. the other gases which get mixed up are unavoidable on
account of the process employed by them
 3  that these extraneous gases can be separated and the
manufacturers would separate them if what they require is
pure carbon dioxide. they do number do so because carbon
dioxide mixed with other gases produces the same effect in
the process of refining as without them
 4  that the fact that in the process of its manufacture
carbon dioxide gets mixed up with other gases does number mean
that carbon dioxide which is intended to be and is in fact
produced loses its characteristics as such. the gas thus
produced companytains 30 to 35 carbon dioxide
 5  that the specifications laid down by the indian
standards institution are number relevant as they are for
cylindered carbon dioxide bought and sold in the market
as pure carbon dioxide
 6  that carbon dioxide produced by these companycerns can be
sold in the companydition in which it is produced and used by
other sugar mills and by factories manufacturing soda ash by
solvay process. in support of their companytentions the appellant companypanies as
also the tata chemicals limited relied on the specifications
laid down by the indian standards institution and the
several affidavits made by companycerns using carbon dioxide for
the manufacture of their respective goods. as most of them
are identical it is sufficient to take the affidavit of one
shantilal patel as typical. the deponent there asserts that
the companypany of which he is the senior chemist uses carbon
dioxide in companysiderable quantity in manufacturing aerated
waters that carbon dioxide so used companytains 99.5 of pure
carbon dioxide that companypressed liquidified or solidified
carbon dioxide as knumbern to the trade or sold in the market
contains a minimum of 99 carbon dioxide companyforming to the
specifications of the indian standards institution that
such carbon dioxide is companytained in steel cylinders under a
pressure of minimum of 1000 lbs. per sq. inch and that kiln
or calciner gas is number knumbern to the trade as carbon dioxide
number is it marketed as such. dr. homi ruttonji whose
affidavit was produced by tata chemicals limited states that
for the purpose of manufacturing carbon dioxide an elaborate
plant shown in the annexure to his affidavit would have to
be set up separate from the plant and equipment used in the
manufacture of soda ash and refutes the statement of the
said bakre that companypressed carbon dioxide is forced through
at a pressure of 40 to 45 lbs. per sq. inch or that
at the bottom of the said carbonating tower pure companypressed
carbon dioxide is or can be isolated from the mixture of
gases in that tower where chemical reaction takes place. he
also refutes the statement that the process of generating
kiln gas is independent of the manufacture of soda ash and
states that the process of manufacture of soda ash is a
continuous and integrated process wherein a certain quantity
of kiln gas is released which is directly utilised without
removal or storage in the manufacture of soda ash. according to him kiln gas released during the manufacture
of soda ash is never knumbern as carbon dioxide in the market. to obtain marketable carbon dioxide from kiln gas an
elaborate plant would be required for separation and
purification and it is such carbon dioxide which becomes
marketable after it is companypressed at a pressure of 1000 to
1800 lbs. per sq. inch in cylinders of the specifications
laid down by the government of india under rule ii of the
gas cylinder rules 1940.
numberwithstanding the divergence of opinion between the two
experts one thing is clear and that is that in the case of
both sugar and soda ash the manufacturer does require carbon
dioxide for the purpose of producing the two articles and
sets up lime kiln for that purpose. the question is whether
what he actually produces by companybusting limestone with companye
is carbon dioxide and if so whetheris companypressed carbon
dioxide as companytemplated by item 14-h.
in the companyrseof their arguments companynsel referred to
certain works on chemistry in general and sugarcane industry
in particular. there are observations in some of them
which. might throw some light on the question before us. the handbook of cane sugar engineering by e. hugot  1960
ed.  at pp. 286 to 289 states that carbon dioxide necessary
for the carbonation process is produced at the same time as
lime in a lime kiln adjacent to the sugar factory. the
combustion of limestone with companye produces kiln gases
consisting of carbon dioxide carbon monumberide oxygen
nitrogen and a certain amount of moisture. the proportion
of carbon dioxide in these kiln gases varies from 25 to 33
averaging about 30. the carbon dioxide leaving the washer
is at a temperature of 60c. its pressure at the suction of
the pump varies from 1.6 to 5 in of mercury and the delivery
pressure varies from 4 to 10 lbs. per sq. inch. it is also
stated that thepumps knumbern as company pumps are fully analogous
to air pumps.  see also cane sugar handbook by guildord l.
spencer and g. p. meade p. 138 . the carbonation process
according to hugot is one of the cheapest cleanest id most
reliable process in the sugarcane industry ensuring standard
quality of sugar. rogers industrial chemistry  6th ed.  p. 415
in the chapter dealing with alkali and chlorine production
states thus
the kilns used in the process are built and
operated with special precautions to produce
as high a companycentration of company as possible. in practice 41 to 43 per cent of company is. obtained in kiln gases with very little companyor
02 the rest of the gas being n15/2. at pp. 415 to 417 of the said work the solvay process is
described in the same terms as in the affidavit in support
of the petition of tata chemicals limited j.a. timm in his
general chemistry  4th ed.  p. 470 states that companymercial
carbon dioxide can be obtained as a bye-product of certain
industries e.g. flue gases r. numberris shreve in his
chemical process industries  3rd ed.  states that there are
three important processes for companymercial production of
carbon dioxide viz. flue gases by burning carbonacious
material bye-product from fermentation industries through
dextrose breakdown into alcohol and carbon dioxide and bye-
product of lime kiln operation. he also states that an
absorption system is used for companycentrating c02 gas obtained
from sources 1 and 3 to over 99 and that in all cases the
almost pure carbon dioxide must be given various chemical
treatments for the removal of minumber impurities which
contaminate the gas. similarly kirkothmer in the
encyclopedia of chemical technumberogy  2nd ed.  vol. 1 p.
722 observe as follows --
the carbon dioxide evolved companysists of both
that generated by the decomposing limestone
and that resulting from companybustion of the
carbon in the companye. the kiln gases are
considerably diluted with nitrogen from the
air used to burn the companye they usually company-
tain 37 to 42 carbon dioxide together with
stone dust companye ash particles and gaseous
impurities. the gas is companyled to some extent
in the kiln itself by the upper layers of
stone it is further companyled and purified in
water scrubbers until it is absolutely free
from dust and tarry matters and then in the
more modern plants which make a very pure soda
ash the gas is finally purified
electrostatically. arthur and elizabeth rose in their companydensed chemical dic-
tionary  7th ed.  p. 178 divide companymercial carbon dioxide
into two grades both of them having at least 99 carbon
dioxide. such carbon dioxide when solidified is packed in
50 lbs. blocks in insulated boxes and is at a temperature
of 109 below zero. when liquified it is packed in steel
cylinders. the uses of solidified or liquefied carbon
dioxide are refrigeration of foods carbonated beverages
industrial refrigeration fire extinguishers welding etc. these extracts show that companymercial carbon dioxide as
brought to the market for being bought or sold and used for
the purposes enumerated above has companytent of at least 99 of
carbon dioxide and is either companypressed and packed in steel
cylinders or liquefied or solidified. as the revenue argued these companycerns undoubtedly require
carbon dioxide in the processes employed by them while manu-
facturing sugar and soda ash and to meet their requirement
they have set up lime kilns by which they produce kiln gas
which includes carbon dioxide to the extent of about 30 to
35 which they in fact use after companypressing it through a
pump or otherwise at one stage or the other in their
manufacturing processes. numberetheless is it possible to say
that the lime kilns set up for the aforesaid purpose produce
carbon dioxide and even if it be so that at one stage or
the other through the pump or otherwise the carbon dioxide
so produced becomes companypressed carbon dioxide as envisaged
by the legislature when it decided to introduce item 14-h in
the first schedule ? it cannumber be gain said that by burning
limestone with companye in the kiln the manufacturer actually
produces kiln gas of which one of the companystituents
undoubtedly is carbon dioxide and which he utilises while
producing his ultimate excisable goods. but if it is
possible to say that what he produces is carbon dioxide
during the process which mr. palkhiwala termed as an
integrated and companytinuous manufacturing process or
separately as the revenue insisted it is equally possible
to say that the companybustion of limestone with companye results in
the manufacture of nitrogen whose companytent in the kiln gas
is about 53. as the text-books produced before us and the
affidavits show the companyrect picture is that what is
produced is kiln gas which companysists of several gases viz. carbon dioxide carbon monumberide oxygen and nitrogen the
last one being in a larger quantity than carbon dioxide. the mixture of gases so generated is knumbern as kiln gas in
the trade i.e. to those who manufacture sugar and soda ash. the affidavits of companycerns which use carbon dioxide
definitely assert that kiln gas is never knumbern in the market
as carbon dioxide number is it a marketable article in the
sense that it is loose and is number transportable number is it
brought to the market for being bought and sold unless
carbon dioxide is extracted out of it. such extraction
requires an elaborate plant. after extraction it would have
to be companypressed in cylinders of certain specifications or
liquefied or solidified before it can become a marketable
article. it is true as the revenue companytended that the gas produce
through the kiln can be made marketable in the sense that it
car be sold in the very same companydition in which it is
produced to companycerns interested in the carbonation process
through for example pipes. but apart from such a method
of disposal being
uneconumberic and hardly likely to be employed by the trade
though it is possible in theory what would be transported
is that which is produced through the kiln viz. the kiln
gas companytaining among other things a certain quantity of
carbon dioxide. as one of the text-books points out
carbonation process is employed by manufacturers of sugar
because it is one of the cheapest methods to ensure
production of sugar of standard quality. the fact is that
in employing carbonation process the manufacturer who
requires carbon dioxide produces kiln gas and as that
mixture of gases companytains carbon dioxide he pumps through a
pipe that mixture of gases and number carbon dioxide alone ex-
tracted from it. therefore in truth and in fact what he
uses is the kiln gas produced by him in the lime kiln. even
assuming that this gas is companypressed either through a narrow
pipe what is companypressed is the kiln gas and it is that kiln
gas companytaining numberdoubt a certain percentage of carbon
dioxide which is inducted in the sugarcane juice for
refining. the same must also be said of the solvay process
used in the production of soda ash though in that case the
percentage of carbon dioxide is larger than in the case of
refining sugarcane juice. the act charges duty on manufacture of goods. the word
manufacture implies a change but every change in the raw
material is number manufacture. there must be such a
transformation that a new and different article must emerge
having a distinctive name character or use. the duty is
levied on goods. as the act does number define goods the
legislature must be taken to have used that word in its
ordinary dictionary meaning. the dictionary meaning is
that to become goods it must be something which can
ordinarily companye to the market to be bought and sold and is
knumbern to the market. that it would be such an article which
would attract the act was brought out in union of india v.
delhi cloth general mills limited 1  the companytention there was
that in the companyrse of manufacture of vanaspati a vegetable
product from groundnut and til oil the respondents brought
into existence at an intermediate stage of manufacturing
refined oil which fell within the description of vegetable
numberessential oil all sorts in item 23 of the first
schedule. the companytention would seem to assume that the
goods subjected to duty must be goods knumbern as such in the
market. the companytention was that the respondents after they
bought raw oil with all its impurities manufactured by
application of certain processes of refinement refined oil
which was the same as refined oil available in the market
and that it was refined oil which became after further
processes the ultimate vegetable product. it was argued
that the fact that the vegetable product was the ultimate
 1  1963 supp. 1 s.c.r. 586.
product and was chargeable to duty did number alter the
position that at an earlier stage the respondents
manufactured refined oil as knumbern to the market and that
the fact that they did number put this refined oil in the
market but used it to produce the finished product did number
affect their liability. this companyrt held that if a new
substance was brought into existence from raw materials and
that substance was the same as refined oil as knumbern to the
market it would be subject to duty. the question
therefore was was the substance sought to be charged
refined oil knumbern to the market ? the affidavits showed-
that deodorization was necessary before the product companyld be
called refined oil. it was number in dispute that that
process was employed after hydrogenation and number at the
stage when what was called refined oil came into existence
at an intermediate stage. numberevidence was produced by the
union of refined oil being brought to the market without
deodorization. it was held that raw oil purchased by the
respondents for the purpose of manufacturing vanaspati did
number become at any stage refined oil as knumbern to the
consumers and the companymercial companymunity. the affidavits filed in the instant cases and the scientific
works referred to above show that the mixture of gases
produced from the kiln is knumbern both in trade and in science
as kiln gas and number as carbon dioxide. the revenue has number
produced any affidavit of persons dealing in carbon dioxide
to show that kiln .gas is knumbern to the market as carbon
dioxide. the aforesaid affidavits show that carbon dioxide
knumbern to and brought in the market for being bought and sold
for its diverse uses is carbon dioxide companypressed liquefied
or solidified as item 14-h describes it. the analogy given
by the learned attorney-general of a manufacturer of companyton
cloth also producing at an intermediate stage companyton yarn
and such companyton yarn being liable to excise duty would number
help the revenue as companyton yarn obtained by such a manufac-
turer is knumbern as such in the companymercial companymunity and
brought to the market for being bought and sold. that
cannumber be said of kiln gas. if kiln gas were to be offered
in discharge of a companytract to supply carbon dioxide it would
certainly be rejected on the ground that it is numbercarbon
dioxide but is kiln gas. it is also number companyrect to say that
because the sugar manufacturer wants carbon dioxide for
carbonation purpose and sets up a kiln for it that he
produces carbon dioxide and number kiln gas. in fact what he
produces is a mixture knumbern both to trade and science as
kiln gas one of the companystituents of which is numberdoubt
carbon dioxide. the kiln gas which is generated in these
cases is admittedly never liquefied number solidified and is
therefore neither liquefied number solidified carbon dioxide
assuming that it can be termed carbon dioxide. it cannumber be
called companypressed carbon dioxide as
understood in the market among those who deal in companypressed
carbon dioxide. companypressed carbon dioxide is understood
generally as carbon dioxide companypressed in cylinders with
pressure ranging from 1000 to 1800 lbs. per sq. inch. the
mere fact that at one stage or the other kiln gas is pressed
at 40 to 45 lbs. per sq. inch by a pump or otherwise cannumber
mean that it is companypressed carbon dioxide. at the same time
the duty being on manufacture and number on sale the mere fact
that kiln gas generated by these companycerns is number actually
sold would number make any difference if what they generate and
use in their manufacturing processes is carbon dioxide. the
fact that the gas so generated has carbon dioxide below 99
and does number companyform to the specifications of the indian
standards institution also would number matter for the gas may
be sub-standard provided what is produced is carbon
dioxide. in our view the gas generated by these companycerns is kiln gas
and number carbon dioxide as knumbern to the trade i.e. to those
who deal in it or who use it. the kiln gas in question
therefore is neither carbon dioxide number companypressed carbon
dioxide knumbern as such to the companymercial companymunity and
therefore cannumber attract item 14-h in the first schedule. in this view it is number necessary for us to companysider certain
other companytentions raised by the appellants and the
petitioners in the writ petition. in the result the appeals and the writ petition must
allowed and the orders passed by the high companyrt in the
appeals must be set aside. we hold that the demand numberices
served on these companycerns are illegal and must be quashed.


civil appellate jurisdiction civil appeal number 1988 of
1982.
from the judgment and order dated 20.4.1982 of the high
court of allahabad in writ petition number 630 of 1982. e
anil dev singh and mrs. shobha dikshit for the
appellant. m. singhvi and c.l. sahu for the respondent. the following judgment of the companyrt was delivered by f
jagannatha shetty j. 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 companyrt of allahabad in writ petition number
630 of 1982.
the said writ petition was filed by the respondent
which is a partnership firm called as m s. secured
investment companypany  the companypany . the companypany mainly
carries on business at lucknumber. it has branch offices at
kanpur and bareilly. the nature of business of the companypany
is termed as a scheme for investment. the question raised
in this appeal is whether that scheme for investment falls
within h
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 companypany
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 companycerned banks number to have
accounts in relation thereto. challenging the action of the
registrar the companypany moved the high companyrt with a writ
petition under art 226 of the companystitution. the high companyrt
allowed the writ petition and quashed the orders made by
the registrar. in order to companyrectly 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 number merely on promoting or companyducting any prize chit
or money circulation scheme but also on participation in
such chit or schemes. section 4 makes a companytravention of the
provisions of section 3 punishable with imprisonment which
may extend to three years or with fine which may extend to
rs.5000 or with both. section 5 provides penalty for other
offences like printing or publishing any ticket companypon 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 companyfers power on the police officers
number below the rank of an officer in charge of a police
station to enter search and seize. section 8 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 companypany wholly
owned by a state government are exempted from the provisions
of the act. companyventional chit has been defined under section
2 a  and prize chit has been defined under section 2 e
of the act. companyventional chit stands excluded from the
definition of prize chit and so much so the companyventional
chit remains untouched by provisions of the act. the
definition of the companyventional chit is as follows
section 2 a . companyventional chit means a
transaction whether called chit chit fund kuri
or by any other name or under which a person
responsible for the companyduct 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. 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 companymon words but with
regional variations. although there is numberclear 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 companyporation by s. radha krishan an
 1974  indicate that it has 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 companyhin and malabar areas it is popularly called
kuri. in other parts of the companyntry 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 synumberymous meaning thereby a
written piece of paper. these transactions were purely
indigenumbers institution. they originated in village life
originated by a small group of people well knumber to each
other. they agreed to companytribute 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 number earlier it was
very popular in central travancore and trichur areas
probably among church companygregations. 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 companysidered 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 companynects the borrowing class
directly with the lending class. the pooled saving is lent
out to the same group of companytributors. a chit fund companylects
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 win-
ning chit gets the companylection without any deductions. he
however companytinues 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 companyventional chit. it is
operated without a professional promoter or manager and
without any risk of loss of capital. during the companyrse of years the chit funds became more
and more popular and attractive. in the usual process of
social growth the chitties crossed boundaries of its birth
place. it assumed new institutional forms with emergence of
new types of interpreneurs. the partnership firms private
or public limited companypanies took over the chit business in
various forms. they gave different names such as price
chit lucky-draw benefit scheme or money circulation
scheme. they offered prizes to attract subscribers. the
basic features however remained the same in all such
schemes. periodically the names of the subscribers were put
to draw and the lucky member was given a prize either in
cash or in kind like articles of utility. the subscribers
were also given refund of a portion of their companytributions. this became regular business in ever so many people. undoubtedly this rapid growth of chit funds has
carried with it some unhealthy features of exploitation. that has been graphically described by krishna iyer j. in
srinivasa enterprises ors. v. union of india etc.1981
1 scr 80 1 at 804 as follows
the quintessential aspects of a prize chit
are that the organiser companylects moneys in lump sum
or instalments pursuant to a scheme or
arrangement and he utilises such moneys as he
fancies primarily for his private appetite and for
 1  awarding periodically or otherwise to a
specified number of subscribers prizes in cash or
kind and  2  refunding to the subscribers the
whole or part of the money companylected on the
termination of the scheme or otherwise. the
apparent tenumber may number fully bring out the
exploitative import lurking beneath the surface of
the words which describe the scheme. small sums
are companylected from vast numbers of persons
ordinarily of slender means in urban and rural
areas. they are reduced to believe by the blare of
glittering publicity and the dangling of
astronumberical amounts that they stand a chance-in
practice negligible- of getting a huge fortune by
making petty periodical payments. the indigent
agrestics and the proletarian urbani-
tes pressured by dire poverty and doped by the
hazy hope of a lucky draw subscribe to the scheme
although they can ill afford to spare any money. this is number promotion of thrift or wholesome small
savings because the poor who pay are bound to
continue to pay for a whole period of a few years
over peril of losing what has been paid and at
the end of it the fragile prospects of their
getting prizes are next to nil and even the hard
earned money which they have invested hardly
carries any interest. they are eligible to get
back the money they have paid in driblets
virtually without interest the expression bonus
in s. 2 a  being an euphemism for a numberinal sum. what is more the repayable amount being small and
the subscribers being scattered all over the
country they find it difficult even to recover
the money by expensive dilatory litigative
process. in 1974 the reserve bank of india intervened. the
reserve bank companystituted a study group headed by dr. j.s. raj to examine the adequacy of existing statutory provisions
in regulating the companyduct of business by number-banking
companies. the study group was also asked to suggest
remedial measures so as to ensure that the activities of
such companypanies in so for as they pertained to the
acceptance of deposits investment lending operations etc. subserved the national interest
the study group went into the matter in some depth. chapter vi of their report was devoted to miscellaneous number-
banking companypanies which were companyducting prize chits
benefit savings scheme or lucky draws etc. paragraph 6.3 of
the report companytains interesting informations and it reads as
follows
6.3 companypanies companyducting the above types of
schemes are companyparatively of a recent origin and
of late there has been a mushroom growth of such
companies which are doing brisk business in
several parts of the companyntry especially in big
cities like ahemdabad bangalore bombay calcutta
and delhi. they had also established branches in
various states. these companypanies float schemes for
collecting money from the public and the modus
operandi of such schemes is generally as described
below
the companypany acts as the foreman or promoter
and
collects subscriptions in one lump sum or by
monthly instalments spread over a specified period
from the subscribers to the schemes. periodically
the numbers allotted to members holding the
tickets or units are put to a draw and the number
holding the lucky ticket gets the prize either in
cash or in the form of an article of utility such
as a motor car scooter etc. once a person gets
the prize he is very often number required to pay
further instalments and his name is deleted from
further draws. the schemes usually provide for the
return of subscriptions paid by the members with
or without an additional sum by way of bonus or
premium at the end of the stipulated period in
case they do number get any prize. the principal
items of income of these companypanies are interests
earned on loans given to the subscribers against
the security of the subscriptions paid or on
unsecured basis as also loans to other parties
service charges and member ship fees companylected
from the subscribers at the time of admission to
the membership of the schemes. the major heads of
expenditure are prizes given in accordance with
the rules and regulations of the schemes
advertisements and publicity expenses and
remuneration and other perquisites to the
directors. the study group recorded its companyclusions in paragraph
6.11 as follows
from the foregoing discussion it would be
obvious that prize chits or benefit schemes
benefit primarily the promoters and do number serve
any social purpose. on the companytrary they are
prejudicial to the public interest and also
adversely affect the efficacy of fiscal and
monetary policy. there has also been a public
clamour for banning of such schemes this stems
largely from the mal-practices indulged in by the
promoters and also the possible exploitation of
such schemes by unscrupulous elements to their own
advantage. we are therefore of the view that the
conduct of prize chits or benefit schemes by
whatever name called should be totally banned in
the larger interests of the public and that
suitable legislative measures should be taken for
the purpose if the provisions of the existing
enactments are companysidered inadequate. companypanies
conducting prize chits benefit schemes etc. may
be allowed a period of three years which may be
extended by one more year to wind up
their business in respect of such schemes and or
switch over to any other type of business
permissible under the law. it will be seen that the study group was of the
opinion that prize chits or benefit schemes primarily
benefit the promoters and do number serve any social purpose. they are prejudicial to the public interest. they adversely
affect the fiscal and monetary policies of the government. the study group was firmly of the view that the companyduct of
prize chits or benefit schemes by whatever name called
should be totally banned in the larger interests of the
public. the government of india accepted that report and
decided to implement the above recommendations of the study
group. in 1978 the act with which we are companycerned was
passed in the parliament. the act provides for banning the
promotion or companyduct of money circulation scheme or prize
chit which have been defined as follows
section 2 c  money circulation scheme
means any scheme by whatever name called for the
making of quick or easy money or for the receipt
of any money or valuable thing as the
consideration for a promise to pay money on any
event or companytingency relative or applicable to the
enrolment of members into the scheme whether or
number such money or thing is derived from the
entrance money of the member of such scheme or
periodical subscription
section 2 e  prize chit includes any
transaction or arrangement by whatever name called
under which a person companylects whether as a
promoter foreman agent or in any other capacity
moneys in one lump sum or in instalments by way of
contributions or subscriptions or by sale of
units certificates or other instruments or in any
other manner or as membership fees or admission
fees or service charges to or in respect of any
savings mutual benefits thrift or any other
scheme or arrangement by whatever name called and
utilises the moneys so companylected or any part
thereof or the income accruing from investment or
other use of such moneys for all or any of the
following purposes namely

giving or awarding periodically or otherwise
to a specified number of subscribers as determined
by lot draw or in any other manner prizes or
gifts in c
whether or number the recipient of the prize or gift
is under a liability to make any further payment
in respect of such scheme or arrangement. refunding to the subscribers or such of them
as have number won any prize or gift the whole or
part of the subscription companytributions or other
moneys companylected with or with out any bonus
premium interest or other advantage by whatever
name called on the termination of the scheme or
arrangement or on or after the expiry of the
period stipulated therein but does number include a
conventional chit. the scheme for investment with which the companypany has
been carrying on its business is neither a companyventional chit
number a money circulation scheme. that is number disputed by
the registrar of firms. according to him the scheme is a
prize chit as defined under section 2 e  of the act. to
understand the companyrect scope of the definition we must
first try to ascertain the purpose of the legislation. the
legal interpretation is number an activity sui generis. under
the view number widely held the purpose of the enactment is
the touchstone of interpretation. the first step in
interpretation therefore is to gather all informations
about the purpose of the act. if the act was meant for the
public good then every provision thereof must receive fair
and liberal companystruction. it must be companystrued with vision
to ensure the achievement of the object of the act. the purpose of the act companyld be gathered by having
recourse to the statement of objects and reasons
accompanying the bill and in long title of the enactment. the statement of objects and reasons reads as follows
in june 1974 the reserve bank of india had
con stituted a study group under the chairmanship
of shri james s. raj the then chairman unit
trust of india for examining in depth the
provisions of chapter iii-b of the reserve bank of
india act 1934 and the directions issued
thereunder to number-banking companypanies in order to
assess their adequacy in the companytext of ensuring
the efficacy of the monetary and credit policies
of the companyntry and affording a degree of
protection to the interests of the depositors who
place their savings with such companypanies. in its
report submitted to the reserve bank in july 1975
the group ob-
served that the prize chit benefit savings schemes
benefit primarily the promoters and do number serve
any social purpose. on the companytrary the group have
stated that they are prejudicial to the public
interest and affect the afficacy of the fiscal and
monetary policies of the companyntry. 2. prize chits would companyer any kind of
arrangement under which moneys are companylected by
way of subscriptions companytributions etc. and
prizes gifts etc. are awarded. the prize chit is
really a form of lottery. its basic feature is
that the foreman or promoter who ostensibly
charges numbercommission companylects regular
subscriptions from the members. once the member
gets the prize he is very often number required to
pay further instalments and his name is dropped
from further lots. the institutions companyducting
prize chits are private limited companypanies with a
very low capital base companytributed by the
promoters directors or their close relatives. such schemes companyfer monetary benefit only on a few
members and on the promoter companypanies. the group
had therefore recommended that prize chits or
money circulation schemes by whatever name called
should be totally banned in the larger interests
of the public and suitable legislative measures
should be undertaken for the purpose. the bill proposes to implement the above
recommendations of the group by providing for the
banning of the promotion or companyduct of any prize
chit or money circulation scheme by whatever name
called and of the participation of any person in
such chit or scheme. the bill provides for a
period of two years within which the existing
units carrying on the business of prize chits or
money circulation schemes may be wound up and
provides for penalties and other incidental
matters. the repeal of the existing state
legislations on the subject has also been provided
for in the bill. the long title of the act reads an act to ban the
promotion or companyduct of prize chits and money circulation
scheme and for matters companynected therewith or incidental
thereto. it will be clear from these recitals that the
parliament intended to ban all prize chits and money
circulation scheme. some of the aspects of the definition of
prize chit has been companysidered by this companyrt. in reserve
bank of india v. peerless
general insurance and investment. company limited air 1987 sc 1023
chinnappa reddy j. speaking for this companyrt observed  p.
1041
we do number think that by using the word
includes in the definition in s. 2 e  of the
act the parliament in tended to so expand the
meaning of prize chit as to take in every scheme
involving subscribing and refunding of money. the
word includes the companytext shows was intended
number to expand the meaning of prize chit but to
cover all transactions or arrangements of the
nature of prize chits but under different names. the expression prize chit had numberwhere been
statutorily defined before. the bhabatosh datta
study group and the raj study group had identified
the schemes popularly called prize chits. the
study group also recognised that prize chits
were also variously called benefit savings schemes
and lucky draws and that the basic companymon features
of the schemes were the giving of a prize and the
ultimate refund of the amount of subscriptions
 vide para 6.3 of the report of the raj study
group . it was recommended that prize chits and
the like by whatever name called differently
prize chits benefit savings schemes lucky
draws etc. it became necessary for the
parliament to resort to an inclusive definitions
so as to bring in all transactions or arrangements
containing these two elements. we do number think
that in defining the expression prize chit the
parliament intended to depart from the meaning
which the expression had companye to acquire in the
world of finance the meaning which the datta and
the raj study group had
the learned judge while examining the scope of two
clauses  i  and  ii  of sec. 2 e  observed  p. 1042-43
the argument is that the two clauses  i  and

are to be read disjunctively and that they
should number be read as if they are joined by the
conjunction and. we do number agree. there is no
need to introduce the word or either. how
clauses  i  and  ii  of sec. 2 e  have to be read
depends on the companytext. the companytext requires the
definition to be read as if both clauses have to
be satisfied. there is numberhing in the text which
makes it imperative that it be read otherwise. the
learned companynsel urges that the expression
all or any of the following purposes indicates
that the purpose may be either the one mentioned
in  i  or the one mentioned in  ii . we do number
agree with this submission. each of the clauses

and  ii  companytains a number of alternatives and
it is to those several alternatives that the
expression all or any of the following purposes
refer and number to  i  or  ii  which are number
alternatives at all. in fact a prize chit by
whatever name it may be called does number
contemplate exhaustion of the entire fund by the
giving of prizes it invariably provides for a
refund of the amount of subscription less the
deductions to all the subscribers or to those who
have number won prizes depending on the nature of
the scheme. clauses  i  and  ii  refer to the twin
attributes of a prize chit or like scheme and number
to two alternative attributes . in the light of these principles we may number have a
close look at the definition of prize chit under sec. 2 e . we may cull out the following attributes
there must be companylection of moneys from persons. the
moneys may be companylected in one lumpsum-or in instalments. the moneys may be companylected by way of companytributions
subscriptions or as membership fees admission fees or
service charges. it may be companylected by sale of units
certificates or other instruments. the companylection may be in
respect of any savings mutual benefits thrift or any other
scheme or arrangement numbermatter by what name. the
collection may be made by a promoter foreman. agent or in
any other capacity. the companylection of moneys or any part
thereof is utilised for all or any of the purposes set out
in clauses  i  and  ii . they are the two distinct
attributes of prize chit each of which has to be satisfied. the definition goes a step further. the amount companylected as
such need number be utilised for any of the purposes under
clauses  i  and  ii . it may be sufficient to attract the
definition if the amount accrued from investment of such
collection is used for all or any of the purposes under
clauses  i  and  ii . clauses  i  and  ii  provide for giving or awarding
prize or gift to subscribers. it may be periodical or
otherwise. the prize or gift may be awarded by lot draw or
in any other manner. then there may be refund of the whole
or part of the companylection. the refund may be made to all or
such of them who have number won any prize or gift. the refund
may be made with or without any bonus premium interest or
other advantage. leaving aside the verbiage if we rewrite the
definition which reeks of simplicity it runs like this
prize chit includes a scheme by which a person in whatever
name companylects moneys from individuals for the purpose of
giving prizes and refunding the balance with or with out
premium after the expiry of a specified period. from the above analysis it will be clear that the
reach and range of the definition of prize chit is
sweeping. the generality of the language appears to have
been deliberately used so that the transaction arrangement
or scheme in which subscribers or companytributors agree to
forego a portion of their companytributions in the hope of
getting any prize or gift should number escape from the net of
the definition. even the participation of any person in such
chit or scheme has been prohibited. the object being that
the people should number be attracted to invest their moneys in
the hope of getting prizes or gifts. the reason being that
it has been found by the study group of dr. s. raj that all
such prize chits or schemes are in the form of lottery and
they do number serve any social purpose. they are prejudicial
to the public interest. they affect the monetary policies of
the companyntry. they benefit only the promoters. so much is about the law. let us number have the fact of
the case. the terms and companyditions of the scheme offered by
the companypany are as follows

secured investment companypany will be knumbern
as companypany. every member will deposit with the
company rs.220 only once in return he will get a
reinvestment deposit plan receipt bank cash
certificate  a type of fixed deposit receipt  of a
government nationalised bank

numberinterest will be given to the member
thus the maturity value of the banks r.d.p. will
be rs.220. after a member deposits rs.220 he will
get his banks r.d.p. within 7 days. for members
from lucknumber kanpur and bareilly every effort
will be made to give them the r.d.p. receipt the
very next day. the duration of the scheme is for 66
months. therefore the duration of the banks r.d.p. receipt is also for 66 month. lucky draws for articles totalling
rs.15000 per month will be given every month for
60 months. thus the total value of prizes for 60
months will be rs.9 lakhs. totally 60 lucky draws
will be held one every month after the
recruitment of 19999 members per group. every month 21 1ucky prizes will be
given. the ist prize will be a vijay scooter the
2nd prize will be a kelvinator refrigerator  lo
its.  or a t.v. and 19 other companysolidation prizes
consisting of articles like transistor sewing
machine cycle pressure companyker stainless steel
thali sets alarm clocks etc. if there is any price increase later in
the period of the scheme of the value of the prize
articles which are detailed below the winning
member shall pay for the actual price increase. cash in lieu of the articles will number be given. one vijay super scooter rs.8000

one kelvinator fridge
 10 its.  or one t.v. plus one mixi rs.3900

one cycle rs.400

one table fan rs.350

one sewing machine rs.325
6. 2 number. philips transistors
 rs. 230 each  rs.460
7. 3 number. pressure companykers
 rs.175 each  rs.525

s number. steel thali sets
 rs. loo each set  rs.500
9. 6 number. alarm clocks  rs.90 each  rs.540
total rs. 15000

a winning member will be entitled to
participate in subsequent draws. thus a member can
win prizes over and over again. if a member withdraws during the duration
of the scheme he can encash his banks r.d.p. directly the h
entire amount of rs.200 but will lose interest for
the ba lance months as per reserve bank of india
rules governing from time to time. for example if
a member withdraws immediately after he gets his

d.p. receipt he loses up to a maximum of rs.92. this is the maximum amount a member can lose if he
withdraws from the scheme immediately after he
becomes a member and after getting his bank r.d.p. of companyrse he will also number be entitled for the
balance lucky draws. 11 the reason for deduction of interest is
that the companypany gives these fantastic prizes
through the interest thus gained also this
interest gained has to companyer the companypany. overheads and profit. however a customers refund
of his rs.220 is 100 per cent secured because at
the end of the scheme he can go directly to the
bank and encash the r.d.p. without any companysent
from the companypany. out station members can encash the r.d.p. by presenting it to any bank. the procedure is the
same as one numbermally encashes an outstation
cheque. the companypany reserves the right to accept
or reject any membership without assigning any
reasons. in case the total membership is number
fully sub scribed to members can still be
scruited after the start of the draws. however
the companypany will at numberstage keep memberships
reserved in its own name thus winner of every
draw will go to an actual member. the lucky draws will take place in
rotation at lucknumber kanpur and bareilly on the
ist sunday of every month. the lucky draws will be
taken out by members themselves to ensure fairness
and honesty in the draw. there are as many as 19999 subscribers in each scheme. all of them do number get prizes and indeed they companyld number get
since there are only 60 draws with 2 1 prizes each. the
members are number told that the companypany deducts rs.92 for its
own use. they are only informed that they are assured of the
money deposited in the bank and in the event of premature
withdrawal they will lose interest upto rs.92 only. in spite of all these glaring attributes of exploitive
nature of the scheme the high companyrt appears to have been
carried away with the reinvestment deposit plan receipt for
rs.220. the high companyrt was of the view that the scheme companyld
number be companysidered as prize chit. the high companyrt said
it is thus clear from a reading of the
document  annexure 1  that the so-called member
deposits the amount with the petitioners for the
purpose of obtaining a reinvestment deposit plan
receipt which is promised to him by the
petitioners. he may have been having an idea in
the background that by depositing the amount of
rs.220 with the petitioners and obtaining the
reinvestment deposit plan receipt he would also
be companysidered for the distribution of lucky
prizes. but that is number enumbergh inasmuch as the
amount which he had deposited with the petitioners
was to be invested in a nationalised bank and he
was to get a reinvestment deposit plan receipt. if
the person from whom the money has been companylected
has number deposited it with the petitioners as
contributions or subscription it is
difficult to hold that it is companylected by the
petitioners as his companytribution or subscription. the high companyrt appears to have proceeded on the basis
that the members of the scheme do number pay subscription to
the companypany. number do they pay the amount as companytribution. the
high companyrt was also of the view that payment of money to the
company for the purpose of obtaining r.d.p. receipt with the
hope of getting any prize is number sufficient to attract the
definition of prize chit. in our view the companyclusion of the high companyrt is
patently erroneous. it is unsustainable both on facts and
law. the high companyrt has failed to companysider that the companypany
undisputedly takes away rs.92 out of rs.220 paid by each
member. the high companyrt has further failed to numbere that the
company utilises the deducted amount of rs.92 for the
purpose of giving prizes to members. dr. l.m. singhvi
learned companynsel for the companypany did number and indeed companyld
number dispute that the companypany is deducting rs.92 out of the
payment of rs.220. the companynsel however urged that since the
member gets the full amount of rs.220 from the bank at the
instance of the companypany the scheme is an investment scheme
and number prize chit. we are unable to accept this submission. the fact that the member receives rs.220 from the bank after
the maturity period of his deposit makes little difference
in the nature of
the transaction of the companypany. the fact remains that the
company companylects in one lumpsum rs.220 from every member. it
is only by payment of that amount the individual becomes a
member of the scheme and eligible to get monthly prizes. the
company instead of returning the balance of rs. 128 directly
to the member takes him to a nearby branch of the
nationalised bank. there rs. 128 would be deposited in the
name of the member who gets the same with interest after
maturity. but it should number be forgotten that the member
does number get back rs.92 deducted by the companypany. number he gets
any interest on this amount. he foregoes his amount of rs.92
with the hope of getting prizes offered by the companypany. there is numberguarantee that he will get any prize. he
however takes chance month after month. if he is unlucky he
waits in vain for 60 months. the apparent tenumber of the
scheme may number bring out the exploitative nature of the
scheme. but it is there if anybody wants to knumber it. the
company undisputedly companylects rs.92 from every subscriber
and utilises a portion of it for giving prizes and to meet
overhead charges. the companypany in all companylects an amount of
rs. 1844907.75 at the rate of rs.92 per head from 19999
subscribers. the companypany distributes monthly prizes of the
value of rs. 15000. the total value of all the prizes for
60 months works out to rs.9 iakhs. the balance of about 9.5
iakhs with interest thereon would be utilised by the
company. is this a promotion of thrift investment or
saving? at whose companyts? and for whose benefit? we are however glad to numbere that madhya pradesh high
court while companysidering a similar scheme in sahara india v.
state of m.p. others 1983 m.p. 2 128 has held that it
is prize chit falling within the scope of section 2 e  of
the act. we have numberdoubt that the scheme of the companypany with
which we are companycerned is primarily for the benefit of the
promoter or the companypany at the companyts of the subscribers. this is the kind of transactions or arrangements which dr.

s. raj study group said that it should be banned
altogether. section 2 e  was intended to companyer all such
arrangements or schemes. the interpretation given by the
court should number be stultifying the underlying principle in
the definition which was meant to protect people from
exploitation. we would like to emphasise that the act was
intended to ban all kinds of prize chits where persons part
with their money and risk the chance of getting prizes or
gifts. therefore any scheme or arrangement in which a
person agrees to lose or made to part a portion of his
payment against the chance of getting any prize or gift
should be companysidered as prize chit falling within the
inclusive definition under section 2 e .


civil appellate jurisdiction civil appeal number 780 of 1964.
appeal from the judgment and decree dated december 21 1959
of the allahabad high companyrt in first appeal number 87 of 1948.

s. gupta lalit kumar and s. n. varma for the
appellants

p. goyal and raghunath singli for respondent number 1.
the judgment of the companyrt was delivered by
subba rao c.j. this appeal by certificate is preferred
against the decree of the high companyrt of judicature at
allahabad decreeing the suit filed by the respondents for
possession of the plaint schedule property. shri thakur radhaballabhji the deity represented by yaso-
danandan as next friend filed o. s. number 61 of 1946 in the
court of the 2nd civil judge kanpur against the appellants
for a declaration that the deity was the proprietor of house
number 49/54 situate in ban bazar in the city of kanpur for
possession thereof and for mesne profits. the case of the
plaintiff  1st respondent herein  was that lala jagan prasad
the 2nd defendant to the suit was the manager and
sarvarakar of the deity that the said manager executed a
sale deed dated january 13 1942 companyveying the said
property to one lala behari lal the 1st defendant to the
suit for a companysideration of rs. 10000 and that the sale
number being for necessity or for the benefit of the idol was
number binding on the deity. it was further alleged that as
the 2nd defendant had taken numbersteps to recover the property
in order to safeguard the rights of the idol the suit was
filed through jagan prasad who was one of the devotees and
worshipper of the deity and who had been taking keen
interest in the management of the temple where the deity is
installed. to that suit the alienee was made the 1st
defendant and the manager the 2nd defendant. the 1st defendant set up the case that the suit property did
number companystitute the property of the idol but was the property
of the 2nd defendant purchased by him out of his own funds. he further alleged that the suit house was in a dilapidated
condition that its rebuilding would involve the idol in
heavy and unprofitable expen-
diture that therefore the second defendant as its manager
acting as a prudent man sold the same for a good price to
the 1st defeudant and that as the sale transaction was for
the benefit of the idol it would be binding on the
plaintiff. he also questioned the right of yasodanandan to
represent the idol and to bring the suit on itabehalf. both
the learned 2nd civil judge kanpur in the first
instance and on appeal the high companyrt companycurrently held
that the sale was number for the benefit of the deity and that
the companysideration was number adequate. they also held that in
the circumstances of the case the idol had the right to file
the suit represented by yasodanandan who was a worshipper
of the deity and was helping the second defendant in the
management of the temple. in the result the trail companyrt
gave a decree for possession and for recovery of rs. 1400
as past mense profits against the 1st defendant on companydition
that the plaintiff returned a sum of rs. 10000 to the 1st
defendant within two months from the date of the decree and
also that the plaintiff would be entitled to future mesne
profits at rs. 45 p.m-. till the date of delivery of
possession of the property. the high companyrt companyfirmed the
same. hence the present appeal. mr. m. s. gupta learned companynsel for the appellant
canvassed the companyrectness of the findings of both the
courts on the questions of fact as well as of law. on the
questions of fact namely whether the impugned transaction
was binding on the idol and was supported by companysideration
we do number think we would be justified to permit the
appellant to question their companyrectness because the said
findings are companycurrent and are based upon appreciation of
the relevant evidence. we accept the said findings. the only outstanding question therefore is whether the
suit is maintainable by the idol represented by
yasodanandan who is a worshipper as well as a person who
had been assisting the 2nd defendant in the management of
the temple. two obstacles are raised against the maintainability of the
suit namely  1  s. 92 of the companye of civil procedure is a
bar to the maintainability of the suit and  2  a suit for
possessionumber the property of the idol after setting aside
the alienation companyld only be filed by the shebait and numbere
else companyld represent the deity. it is settled law that to invoke s. 92 of the companye of civil
procedure 3 companyditions have to be satisfied namely  i
the trust is created for public purposes of a a charitable
or religious nature  ii  there was a breach of trust or a
direction of companyrt is necessary in the administration of
such a trust and  iii  the relief claimed ls one or other
of the reliefs enumerated therein. if any of the 3
conditions is number satisfied the suit falls outside the
scope of the said section. a suit by an idol for a
declaration of its title to property and for possession of
the same from the defendant who is in possession thereof
under a void alienation is number one of the reliefs
found in s. 92 of the companye of civil procedure. that a suit
for declaration that a property belongs to a trust is held
to fall outside the scope of s. 92 of the companye of civil
procedure by the privy companyncil in abdul rahim v. barkat
ali 1  and by this companyrt in mahant pragdasji guru
bhagwandasji v. patel ishwarlalbhai narsibhai 2  on the
ground that a relief for declaration is number one of the
reliefs enumerated in s. 92 of the companye of civil procedure. so too for the same reason a suit for a declaration that
certain properties belong to a trust and for possession
thereof from the alienee has also been held to be number
covered by the provisions of s. 92 of the companye of civil
procedure see mukhda mannudas bairagi v. chagan kisan
bhawasar   . other decisions have reached the same result on
i a different ground namely that such a suit is one for
the enforcement of a private right. it was held that a suit
by an idol as a juristic person against persons who
interfered unlawfully with the property of the idol was a
suit for enforcement of its private right and was
therefore number a suit to which s. 92 of the companye of civil
procedure applied see darshon lal v. shibji maharaj
birajman 1  and madhavrao anandrao raste v. shri
omkareshvar ghat 3 . the present suit is filed by the idol
for possession of its property from the person who is in
illegal possession thereof and therefore it is a suit by
the idol to enforce its private right. the suit also is
for. a declaration of the plaintiffrs title and for
possession thereof and is therefore.number a suit for one of
the reliefs mentioned in s. 92 of the companyeof civil
procedure. in either view this is a suit outside the
purviewof s. 92 of the said companye and therefore the said
section is number it bar to its maintainability. the second question turns upon the right of a worshipper to
represent an idol when the shebait or manager of the temple
is acting adversely to its interest. ganapathi iyer in his
valuable treatise on hindu and mahomedan endownments 2nd
edn.. at p. 226 had this to say in regard to the legal
status of an idol in hindu law
the ascription of a legal personality to- the
deity supposed to be residing in the image
meets with all practical purposes. the deity
can be said to possess property only in an
ideal sense and the theory is therefore number
complete unless that legal personality is
linked to a natural person. it would be futile to discuss at this stage the various
decisions which companysidered the relationship between the idol
and its shebait or manager qua the management of its
property as the privy companyncil in maharaja jagadindra nath
roy bahadur v. rani hemanta kumari debi 6  has settled the
legal position and stated thus
 1  1928 l. r. 55 i. a. 96.  3  1. l. r. 1957 bombay 809.  5  1928 31 bom l. r. 192.  2  1952 s.c.r. 513.  4  1922 1. l. r. 45 all. 215.  6  1934 l. r. 31 1. a. 203 209 210-
there is numberdoubt that an idol may be
regarded as a juridical person capable as such
of holding property though it is only in an
ideal sense that property is so held. dealing with the p osition of the shebait of
such an idol the iprivy companyncil proceeded to
state
 it still remains that the
possession and management of the dedicated
property belong to the shebait. and this
carries with it the right to bring whatever
suits are necessary for the protection of the
property. every such right of suit is vested
in the shebait number in the idol
this was a case where the shebait filed a suit for eviction
from the dedicated property within three years after
attaining majority and the board held that as he had the
right to bring the suit for the protection of the dedicated
property s. 7 of the limitation act 1877 would apply to
him. the present question namely if a shebait acts
adversely to the interests of the idol whether the idol
represented by a worshipper can maintain a suit for
eviction did number arise for companysideration in that case. that question falls to be decided on different
considerations. three legal companycepts are well settled  1  an idol of a
hindu temple is a juridical person  2  when there is a
shebait ordinarily numberperson other than the shebait can
represent the idol and  3  worshippers of an idol are its
beneficiaries though only in a spiritual sense. it has
also been held that persons who go in only for the purpose
of devotion have according to hindu law and religion a
greater and deeper interest in temples than mere servants
who serve there for some pecuniary advantage see kalyana
venkataramana ayyangar v. kasturi ranga ayyangar 1 . in the
present case the plaintiff is number only a mere worshipper
but is found to have been assisting the 2nd defendant in the
management of the temple. the question is can such a person represent the idol when
the shebait acts adversely to its interest and fails to take
action to safeguard its interest. on principle we do number
see any justification for denying such a right to the
worshipper. an idol is in the position of a minumber when the
person representing it leaves it in the lurch a person
interested in the worship of the idol can certainly be
clothed with an ad hoc power of representation to protect
its interest. it is a pragmatic yet a legal solution to a
difficult situation. should it be held that a shebait who
transferred the property can only bring a suit for
recovery in most of the cases it will be an indirect
approval of the dereliction of the shebaits duty for more
often than number he will number admit his default and take steps
to recover the property apart from other technical pleas
that may be open to the transferee in a suit. should it be
held that a worshipper can
 1   1916  i.l.r. 40 mad. 212225. 6 23
file only a suit for the removal of a shebait and for the-
appointment of anumberher in order to enable him to take steps. to recover the property such a procedure will be rather a
prolonged and a companyplicated one and the interest of the idol
may irreparably suffer. that is why decisions have
permitted a worshipper in such circumstances to represent
the idol and to recover the property for the idol. it has
been held in a number of decisions that worshippers may file
a suit praying for possession of a property on behalf of an
endowment see radhabai kom chimnaji sali v.chimnaji bin
ramji 1  zafaarab ali v. bakhtawar singhe chidambaranat-
thambiran sivagnana desika gnanasambanda pandara sannadhi

p. s. nallasiva 3  mudaliar dasondhay v. muhammadabu
nasar 4  kalavana venkataramana aiyangar v. kasturi ranga-
aiyangar s  sri radha kirshnaji v. rameshwar prashad
singh 6  manmohan haldar v. dibbendu prosad roy
choudhury.  7
there are two decisions of the privy companyncil namely
pramatha nath mullick v. pradyumna kumar mullick  8  and
kanhaiya lai v. hanid ali  9  wherein the board remanded
the case to the high companyrt in order that the high companyrt
might appoint a disinterested person to represent the idol. numberdoubt in both the cases numberquestion of any deity filing a
suit for its protection arose but the decisions are
authorities for the position that apart from ashebait under
certain circumstances the idol can be represented by
disinterested persons. b. k. mukherjea in his book the
hindu law of religious and charitable trust 2nd edn sum--
marizes the legal position by way of the following
propositions among others at p. 249.

an idol is a juristic person in whom the
title to the properties of the endowment
vests. but it is only in an ideal sense that
the idol is the owner. it has to act through
human agency and that agent is the shebait
who is in law the person entitled to take
proceedings on its. behalf. the personality
of the idol might therefore be said to be
merged in that of the shebait. where however the shebait refuses to
act forthe idol or where the suit is to
challenge the act of theshebait himself as
prejudicial to the interests of the idol then
there must be some other agency which must
have the right to act for the idol. the law
accordingly recognises a right in persons
interested in the endowment to take
proceedings on behalf of the idol.  1  1878 i. l. r. 3 bom. 27.  3   1917  6 law weekly 666.

a. i.-r. 1917 mad. 112.

a. i. r. 1949 cai. 199.  2  1883 1. l. r. 5 all. 497.  4  1911 1. l. r. 33 all. 66  664

a. 1. r. 1934 pat. 584.  8   1925  l. r. 5 2 i.a. 245.  9  1933 l. r. 60 1. a. 263. 6 24
this view is justified by reason as well as by
decisions. two cases have been cited before us which took a companytrary
view. in kunj behari chandra v. sri sri shyam chand
thakur 1  it was held by agarwala j that in the- case of
a public endowment a part of the trust property which had
been alienated by the shebait or lost in companysequence of his
action companyld be recovered only in a suit instituted by a
shebait. the only remedy which the members of the public
have where the property had been alienated by a person who
was a shebait for the time being was to secure the removal
of the shebait by proceedings under s. 92 of the companye of
civil procedure land then to secure the appointment of
anumberher shebait who would then have authority to represent
the idol in a suit to recover the idol properties.