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S.B.Cr.Misc. Bail Application No. /2012Arun Kumar & Ors. Vs. State of Rajasthan.

IN THE HIGH COURT OF JUDICATURE FOR

RAJASTHAN AT JODHPUR.

...

S.B. CR. MISC. BAIL APPLICATION NO._____/2012.

...

PETITIONERS :

1. Arun Kumar S/o Shri Shanker

Shrivastava, resident of D-294, Azad Nagar,

Bhilwara, Tehsil & District Bhilwara.

2. Ashok Kumar S/o Shri Shiv Kumar Dixit,

resident of E-419, Azad Nagar, Bhilwara, Tehsil

& District Bhilwara.

3. Vinay Kumar S/o Shri Jugal Dev Mishra,

resident of 52-I Bapu Nagar, Bhilwara, Tehsil &

District Bhilwara.

4. Raj Kumar S/o Shri Bhagwan Sahai Mali,

res ident of Azad Nagar, Bhi lwara, Tehsil &

District Bhilwara.

[at present lodged in Central Jai l,

Bhilwara]

Versus

RESPONDENT:

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The State of Rajasthan.

...

S. B. CRIMINAL MISC. BAIL

APPLICATION UNDER SECTION 439

Cr.P.C. AGAINST THE ORDER

DATED 24.12.2011 PASSED BY SH.

VINOD KUMAR ARYA, RHJS,

LEARNED SESSIONS JUDGE,

BHILWARA IN CRIMINAL MISC.

CASE NO. 1265/2011 REJECTING

BAIL APPLICATION UNDER SECTION

439 CR.P.C. ARISING OUT OF F.I.R.

NO. 188/2011 P.S. HAMIRGARH,

BHILWARA FOR THE OFFENCES

UNDER SECTIONS 406, 420 AND

120B of IPC AND SECTIONS 3,4,5

AND 6 OF THE PRIZE CHITS AND

MONEY CIRCULATION SCHEMES

(BANNING ACT), 1978

...

TO,

HONBLE THE CHIEF JUSTICE AND HIS LORDSHIPS

OTHER COMPANION JUSTICES OF THE HONBLE

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HIGH COURT OF JUDICATURE FOR RAJASTHAN AT

JODHPUR.

...

MAY IT PLEASE YOUR HONOUR:

Your Lordships humble pet it ioners most

respectfully submit as under :-

1. That on 10.12.2011, a F.I.R. alleging

offences under section 3, 4, and 5 of the Prize

Chits and Money Circulation Schemes (Banning

Act), 1978 and section 420, 120-B of IPC came to

be registered by SHO, Police Station, Hamirgarh,

District Bhilwara stating inter alia that on the

basis of information received by Special Mukhbir

that on 9.12.2011 the police party proceeded to

the premises owned by the company. The F.I.R.

states that RCM Business Company is multi level

marketing company and is offer ing lucrative

schemes to people so as to make them members.

In the premises the employees of the said

company wrongly mentioned as RCM Business

company on the basis of internet search informed

the police party that a person who becomes a

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member of the scheme is ent it led to bonus of

Rs.10/- to Rs.25/- on every person he enrolls as a

member from 5000 business volume (BV) to 9999

business volume (BV). Here BV denotes the

incentive given to the distributor for total sales

of company products affected by him. It is further

mentioned therein that i f more members are

enrolled then royalty bonus, leadership bonus

and technical bonus is also offered to customers

and that the company has 1127 branches in India

and as per l ist of commissions distr ibuted in

Nov., 2011 one Seema W/o Kailash Chhabra got

Rs.5,97,431/- and Indra Devi W/o Bhag Chand

Chhabra was paid Rs.2,28,351/-. One blank stamp

paper purchased by one Shri Trilok Chand in his

own name for Rs.10 was also found which as per

the F.I .R. was l ikely to be used in future for

cheating purposes. It was also found that the

company is registered s ince 1988-89 and is

having bank accounts in various cit ies in India

including Bhilwara but since the company does

not have any registration with the Reserved Bank

of India. On these allegations, a case

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aforementioned was registered. In the said F.I.R.

it was also recorded that in the premises which is

a registered address of the company, a huge

stock of various articles was found and the

godown itself was seized includ ing a truck

bearing the name RCM Business. The computer

servers and other hardware were closed and

seized at the spot and all the accounts and

papers of the company were taken away and the

petitioners employees who were present in the

premises at the time of visit by the police were

arrested.

2. That it is submitted at the outset that the

Act of 1978 pre-supposes agreement with a

person or number of persons for subscription of a

certain amount of money by way of periodical

installments for a definite period in consideration

of a pr ize amount. For the purpose of ready

reference, the relevant provisions of Sections 2,

3,4 and 5 of the Act of 1978 are reproduced as

under:

" 2. Definitions: In this Act, unless thecontext otherwise requires,-

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(a) "conventional chit" means atransaction whether cal led chit, chit fund, kuri or by any other name by orunder which a person responsible forthe conduct of the chit enters into anagreement with a specified number of

persons that every one of them shallsubscribe a certain sum of money (orcertain quant ity of grain instead) byway of per iodica l insta lments for a

definite period and that each such sub-scriber shall, in his turn, as determinedby lot or by auction or by tender or insuch other manner as may be providedfor in the chit agreement, be entitled toa prize amount.

Explanation.-In this clause "prizeamount" shall mean the amount, bywhatever name cal led, arr ived at by

deducting from out of the total amount paid or payable at each instalment byall the subscribers,

(i) the commission charged asservice charges as a promoter or aforeman or an agent; and

( ii ) any sum which a subscr iber agrees to forego, from out of the

total subscriptions of eachinstalment, in consideration of thebalance being paid to him;

(b) **** **** **** *** *** ***

(c) "money circulation scheme" meansany 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 fora promise to pay money, on any eventor contingency relative or applicable tothe enro lment of members into thescheme, whether or not such money or

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thing is derived from the entrancemoneyof the members of such scheme or

periodical subscriptions;

(d) **** **** **** *** *** ***;

(e) **** **** **** *** *** ***

(f) **** **** **** *** *** ***

3. Banning of prize chit and moneycirculation schemes or enrolment asmembers or participation therein:No person shall promote or conduct any

prize chit or money circulation scheme,or enrol as a member to any such chitor scheme, or participate in it otherwise, o r rece ive or remit any money in pursuance of such chit or

scheme.

4. Penalty for contravening the provisions of section 3: Whoever contravenes the provisions of section 3shall be punishable with imprisonmentfor a term which may extend to three

years, or with fine which may extend tofive thousand rupees, or with both:

Provided that in the absence of special and adequate reasons to thecontrary to be mentioned in the

judgment of the court, theimprisonment shall not be less than one

year and the fine shall not be less thanone thousand rupees.

5. Penalty for other offences inconnection with prize chits or

money circulation schemes.Whoever, with a view to the promotionor conduct of any prize chit or moneycirculation scheme in contravention ofthe provisions of this Act or in

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connect ion wi th any chi t or schemepromoted or conducted as aforesaid,-

(a) prints or publishes any ticket,coupon or other document for usein the prize chit or money circulation scheme; or(b) sells or distributes or offers oradvertises for sale or distribution,or has in h is possess ion for the

purpose of sale or distribution anyticket, coupon or other documentfor use in the prize chit or moneycirculation scheme; or(c) prints, publishes or distributes,or has in h is possess ion for the

purpose of publication or distribution-

( i) any advertisement of the

price chit or money circulationscheme; or

(ii) any list, whether completeor not, of members in the

price chit or money circulationscheme;(iii) any such matter descr iptive of, or otherwiserelat ing to the prize chit or

money circulation scheme, asis calculated to act as aninducement to persons to

participate in that prize chitor money circulation schemeor any other prize chit or money circulation scheme; or

(d) brings, or invites any person tosend, for the purpose of sale or

distribution, any ticket, coupon orother document for use in a prizechit or money circulation schemeor any advertisement of such prizechit or money circulation scheme;or

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(e) uses any premises, or causesor knowingly permits any premisesto be used, for purposes connectedwith the promotion or conduct ofthe prize chit or money circulationscheme; or

(f) causes or procures or attemptsto procure any person to do any of

the above-mentioned acts,shall be punishable withimprisonment for a term whichmay extend to two years, or withf ine which may extend to threethousand rupees, or with both:

Provided that in the absenceof special and adequate reasons tothe contrary to be mentioned in

the judgment of the court, theimprisonment shall not be lessthan one year and the f ine shallnot be less than one thousandrupees."

In the present case as shall be narrated

hereinafter the Company M/s. Fashion

Suiting Pvt. Ltd. undertakes manufacturing,

sourcing and quality check of various

products from all over the country and sale

of those products directly to the consumer

with a view to provide quali ty product at

affordable prices. There is no element of

money in cash or cheque except by way sale

consideration being taken from any

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consumer or distributor of the company. It is

further submitted that the functioning of the

company is similar to a well known company

called AMWAY; however, there is no element

of cash or any other form of money that is

ever offered by the company.

3. That in order to elucidate the functioning of

the company, it is worthwhile to mention here

that RCM business is the brand name owned by

M/s. Fashion Suiting Pvt. Ltd. and is not a

separate company as wrongly assumed. The

success behind the huge turn over of RCM

business l ies in marketing of products in such a

manner that monopoly of any one person is

avoided and opportunity is given to unlimited

number of persons to carry out the business.

There is no competition in this business. No

capital, shop, staff or experience is required to

do this business because the products are either

manufactured by the company or sourced from

all over India and quality checked for which a

large number of depots/warehouses have been

established by the company and the sale of the

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products is done through RCM Retail shops which

are available in numerous cities of Rajasthan and

all over India. A person who hears about quality

of the products by word of mouth and on being

satisfied about the sa id quality chooses to

purchase the product can do so by buying the

same from any RCM shop where the price (MRP)

is fixed. The same person then if satisfied with

the product spreads the goodwill of the company

by inviting other persons and in this manner, the

company sells products directly to the consumers

by cutting costs for intermediatories and saving

on marketing expenditure so as to make the

product affordable while keeping the quality in

check. To put it by way of a simple illustration if

"A" purchases a commodity from RCM and feel

satisfied with quality and usefulness he is

expected to tel l this to others so that others

would fol low despi te the fact that "A" is not

under any obligation to do so and chances are

that he may choose not to talk about the product

with anyone. Now in order to encourage people

for sharing their views on the product with others

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i f they so desire, RCM has devised a method by

which it is provided that if it is found that some

people have purchased the goods due to sharing

of views about the goods by "A" then "A" gets a

portion of the profit being earned by the

company and this way a marketing cha in is

formed on its own and the goodwill of the product

is carried forward by word of mouth and profits

are generated for those persons who end up

disclosing their names by filling up a simple form

sample where of shall be produced at the time of

arguments. There is absolutely no amount of

money i .e ., g iven by the company to "A" for

f il ling up the form or for advert is ing for the

companies products yet i f another applicant

approaches the company because he wants to

purchase the product on account of

advertisement by "A" then "A" is given a share

from out of profits of the company. There is no

involvement of receipt of cash as deposit and the

only receipts are those against sale of products

by the company. There is no sale without bill and

all products are sold directly to the consumer at

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share in profi ts of the company. The Royalty

Bonus, Performance Commission and Technical

Bonus were the incentives offered to the

distr ibutors at a g iven point of t ime so as to

boost sales of the companys products and for

achieving the pre-set sales targets.

4. That the said company has been undertaking

the business of direct marketing in the name of

RCM business since the year 2000 and has not

been involved in any complaint, case or litigation

since then at the instance of any person

whatsoever. The activities of company result in

generation and payment of revenue to the tune

of approximately Rs. 125 crores every year

including central excise, service tax, income tax,

VAT to the Government in addition to

contribution by the company for its employees

for provident fund, E.S.I., gratuity etc. and is

similar to another well known multi level

marketing company called AMWAY and the names

of both these companies were being cited in the

past as examples of multi level marketing in text

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book of 11th

standard by the Rajasthan Board of

Secondary Education.

5. That for the aforementioned purposes, the

company also procures var ious food art ic les

including wheat grain, wheat floor etc. and the

same is done from dealers l icensed by the local

agricultural produce market committees. There is

absolutely no allegation or complaint against the

petitioners or the said company of having taken

money by way of deposit or otherwise from any

person except for sale of its products nor there is

any complaint against the pet it ioners or the

company of having cheated or defrauded any

person yet the pet it ioners are being unduly

harassed by coercive action taken by the

investigation agency despite the fact that the

basic ingredients of Section 3, 4 and 5 of the Act

of 1978 are missing in the F.I.R. itself.

6. That it is further submitted that the police

authorities have not only closed down the server

of the petitioner but have also seized the papers

and accounts from the said premises with the

result that the 10 years old business of the

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company has v irtually come to stand sti ll as

because the entire working of the company is

computer based and all data, records, transaction

are duly stored in the said computer, its hard

drive etc which can be copied and saved by the

investigating agency without further detailing the

same. In fact, the petit ioners are required to

submit income tax for payment of advance tax

but are unable to do so on account of i llegal

action of the respondents. That till date despite

some of the co accused a lready having been

arrested for whom the pet it ioners shall take

remedies separately the investigating agency has

been unable to make out the offences alleged yet

being desperate to do so the police have

registered 2 more FIRs just to harass and brow

beat the petitioners. F IR No. 253/2011 P.S .

Mandal, district Bhilwara has been lodged only on

15.12.2011 at the instance of one

Rajendra Bir la and offences alleged are under

section 420, 120-B IPC and section 4,5, and 6 of

the Act of 1978. The same had been filed only to

strengthen the present F.I.R. and ultimately the

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complainant vide communication dated

23.12.2011 has chosen to withdraw the said F.I.R.

The other FIR No. 189/2011, P.S. Hamirgarh,

district Bhilwara has been filed on 10.12.2011 for

offences alleged under sections 3/7 of the EC

Act and the same has been filed because the IO

has been unable to find any material to make a

case under the offences alleged.

7. That the petitioners are nothing but

employees of the company since last more than 5

years. It is also worthwhile to mention here that

in SB Cr. Misc. Petition No.________/2011 filed by

other co-accused before this Hon'ble Court on

22.12.2011, this Hon'ble Court has been pleased

to stay arrest of the petitioners therein.

Consequently, the petitioners who arenothing but

the employees of the company and have

remained in custody for more than 20 days were

entitled to be released on bail under Section 439

Cr.P.C. However, the bail application filed by the

petitioners came to be rejected by the learned

trial court vide order dated 24.12.2011.

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8. That in such circumstances, the present bail

application being preferred on the fol lowing

grounds amongst other but without prejudice to

each other: -

G R O U N D S

(a) That the petitioners have not committed

an offence whatsoever and are being wrongly

implicated in this case.

(b) The learned trial court has erred in law in

rejecting the petitioners' application. The

petit ioners are employees of the company and

have been working in the company since last 5 - 10

years. It is further submitted that the petitioners

are not connected with the company as distributors

or business associates otherwise and are

employed on fixed monthly salary. Consequently,

when the petitioners have undergone police

custody as well as judicial custody and all

necessary interrogation has been undertaken by

the investigating agency, then it is wholly unfair to

keep the pet it ioners in jai l pending trial which

itself is going to take a long time on account of the

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fact the offences as alleged are tribal by

magistrate and therefore, the trial of the case is

likely to take a long time.

(c) That the learned t rial court fa iled to

appreciate that even the F.I.R. does not contain the

basic ingredients required to constitute the

offences under Sect ion 3, 4 and 5 of the Act of

1978. It is submitted at the outset that the said

company is a company duly incorporated under the

companies Act and is fi ling annual returns as

provided in Section 159 of the Companies Act every

year as and when requirements of the Act make it

necessary. It is further submitted that the said

company is also filing VAT every year in addition to

income tax, service tax etc and the company

stands registered under various enactments having

T IN No. 08461005171. The company's annual

accounts have been audited by the certified CA

every year and is having a PAN No. AAACF3294L

and the company has been complying requirements

of Company's Act by ho lding AGMs, Board of

Directors ' meeting etc in order to conduct i ts

business. Consequently, there is no element of

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uncertainty, fraud, cheating or ambiguity towards

existence of the company and its functioning within

the four corners of law. None of the acts of the

petitioner company can be said to fall within the

purview of the Act 1978. In fact unlike in a typical

chit-fund company, the present company and its

functioning are not hidden for public view and are

duly ref lected on paper in accordance with the

statutory requirements. The activities of company

result in generation and payment of revenue to the

tune of approximately Rs. 125 crores every year

including central excise, service tax, income tax,

VAT to the Government as submitted hereinabove.

More ever, there has been no sudden rise and fall

in the profi ts of the company and the company

continues to grow cons istently. To further

reiterate it is worthwhile to mention here that the

company has 6 depots/ware house and 225 pickup

centers (bigger version of retail shop) and 25 retail

shops (RCM Bazaar) in Rajasthan and 90

Depots/warehouse and 4500 pickup centers and

400 retail shops (RCM Bazaar) all over Ind ia

including Rajasthan. Similarly, the company has 4

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pickup centers and 1 depot/warehouse in Jodhpur.

The company effects direct sale to the consumers

for as many as approx imately 500 number of

products spanning from texti le to food grains to

electronics and consumer goods, all of which are

sold on the basis of goodwill earned by consistent

quali ty and spread by word of mouth. For this

purpose, the company has adequate quality control

arrangements which ensure that every product that

is manufactured or sourced from external source is

subjected to a rigorous quality checking so that the

spread of goodwill by the consumers continues in

order to fuel the growth of company and its

distributors. Consequently, merely because the

petitioners are directors of the said company or

connected to the family promoting the same

company, no offence can be made out against the

petit ioners or the company since no amount of

money is aver offered or distributed to any of its

consumers except the commission that is paid to a

consumer for having advertised about products of

the company after having use the same personally.

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(d) That it is submitted that under the Act of

1978 the mischief that was sought to be eradicated

was money circulation schemes where a hapless

investor being lured by high interest returns would

end up depositing cash, gold etc. into a company

ant ic ipat ing a wind fa ll return. The present

company however, does not accept cash or gold or

any of the commodity except by way of

consideration from sale of its products and merely

because a person is offered incentive in

accordance with the amount of goodwill spread by

him i t does not bring the company with in the

purview of mischief sought to be eradicated by the

Act of 1978. In fact, soon after the enactment of

the Act of 1978 in var ious cases, the Hon'b le

Supreme Court has time and again interpreted the

provisions of the Act of 1978 including Section 2(c)

which is also mentioned in the F .I.R. and has

consistently held that even in cases where the

company is involved in transaction of accepting

money deposits from public for investing them in

high r isks investments so as to earn huge and

unaccounted pro fits or to promise to pay the

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depositors interest at a much higher rate but in a

clandestine manner, sti ll the company and i ts

business does not fal ls within the def init ion of

"money circulation scheme" as mentioned in

Section 2(c) and hence, does not const itute an

offence under Section 3,4 or 5 of the Act of 1978

and the F.I.R. against the company and its

Directors was quashed. Similarly, in case involving

the Peer company, the Hon'ble Supreme Court held

that even where a company that offered

endowment certi fication scheme under which a

subscriber was required to pay a fix annual

subscription (money) for a fixed number of years

varying between 10 to 30 years so as to be entitled

to receiving the total sum on expiry of period in

addition to guaranteed fixed bonus, 30%

commission to agents etc., the same does not fall

within the meaning of prize chit under the Act of

1978. In fact, in writ petition No.15615/2005 filed

by one Samarpan Products Pvt Ltd. the question

was as to whether even the company like the

present one that is not involving money deposit but

only in sale of goods can be subjected to the Act of

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1978 and the Honble Madras High Court has been

pleased to grant interim order. In fact, after

commencement of the Act of 1978 the question

whether every multi level marking company is

likely to fall within the ambit of the Act of 1978

was raised before the Government of India and vide

communication dated 9.4.2003 the Under Secretary

to the Government of India under the instructions

of the then Prime Minister and Home Minister

informed the Chief Secretaries of all the States and

Union Territories that the agencies involved in sale

of goods through direct/multi level marketing do

not come under the provisions of the Act of 1978.

This letter itself was based on above mentioned

Supreme Court judgments. In fact subsequently

whi le the states were press ing for a separate

legislation in this regard the Honble minister of

state while answering a question in the Parliament

stated that there was no need for a separate

enactment. The petitioners carve leave to produce

the same at the time of arguments. It is therefore,

submitted that the petit ioners are being unduly

harassed to the extent that not only the petitioners

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l iberty is at stake but the petitioners are suffering

immensely on account of vir tual c losure of the

business because of closure of the computer sever

and seizure of all computer machinery etc. and it

shall be necessary in order to secure the ends of

justice that the petitioners may be released on

bail.

(e) That the learned trial court has failed to

appreciate the misconception about the Act of

1978 that has prevailed in the minds of prosecution

agency as a result of which the present F.I.R. has

been lodged against the petitioners and other co-

accused. There is no allegation whatsoever in the

F.I.R. about wrongful loss being caused to anyone

by the company or the petitioners and the sale of

kits to the distributors and offering of incentive for

promoting sale of the same with or without to

other persons after his satisfaction does not fal l

within the ambit of the Act of 1978 so as to warrant

any action or to deny a bail much after

investigation from the petitioners got over. It is

worthwhile to mention here that the F.I.R. itself

notices existence of around 13157666 distributors

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as on Nov., 2011 all over India. The learned trial

court on the other hand has misinterpreted the

said figure so as to record a finding that the

petitioners are defrauding crores of people

whereas there is no such allegation in the F.I.R. nor

to the knowledge of the petitioners the

investigation has been able to find out any

evidence in this regard.

(f) That without prejudice to above and in

addition thereto it is submitted that even if the

allegations in the F.I.R. are taken to be as it is the

petit ioners Nos. 1 to 3 are managers of the said

company while the petitioner no.4 is the accounts

head of the company and the investigating agency

after arresting the petitioners on 10.12.2011 has

kept the petitioners in pol ice custody for almost

ten days and therefore, there remains no

investigation pending against the petitioners so as

to justify refusal of bail. Moreover, it is not the

allegat ion in the F.I .R. that the pet it ioners are

responsible for day to day affairs of the company

and assuming while denying that any offence is

made out against the company, then also,

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petitioners employees cannot be held vicariously

liable for the same and the petitioners deserves to

be released on bail forthwith.

(g) That the petitioners are residents of their

addresses mentioned above and is not l ikely to

abscond.

(h) That the petitioners, if released on bail,

will not temper with the prosecution evidence.

(i) That the petitioners are ready to abide

by the conditions imposed by this Honble Court.

(j) That the petitioners are ready and willing

to furnish the required bail bonds and surety bonds

for the entire satisfaction, for their appearance.

(k) That the other grounds shall be urged at

the time of arguments with the prior permission of

this Honble Court.

PRAYER:

It is, therefore, most respectfully prayed that

this bail petition may kindly be allowed and the

petitioner may kindly be ordered to be released

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on bai l in F.I .R. no.188/2011 P.S. Hamirgarh,

Bhilwara

(Manish Shishodia)

Counsel for the petitioners.

Settled by

[M.S. Singhvi]Sr.Advocate.NOTES :

1. No such bail application has b een f iledpreviously, in this matter.

2 . Copy o f this bail application has been servedto the learned P.P.

3. Due to non availabil ity of pie papers, this bai lapplication has been typed on these stoutpapers.

4. This bail application has been typed by myprivate Steno.

5. It is certif ied that t it l ing of top of pages, soalso internal and external pagination has beendone in all the sets of the pleadings (fi led incourt, copy which may be supplied to opposite

counsel and copy retained by counsel for thepetitioner).

COUNSEL FOR THE PETITIONER.

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Bail Petition - 439 (1)

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Transcript of Bail Petition - 439 (1)