Telangana High Court
Gudimalla Umavathi vs State Of Telangana on 1 November, 2022
Author: D.Nagarjun
Bench: D.Nagarjun
THE HON'BLE DR. JUSTICE D.NAGARJUN
CRIMINAL APPEAL No.38 of 2019
JUDGMENT:
This appeal has been preferred by A3 aggrieved by the judgment dated 10.01.2019 in C.C.No.4 of 2015 on the file of the Principal Sessions Judge at Khammam, wherein the appellant/A3 was found guilty for the offence under Section 5 of the A.P. Protection of Depositors of Financial Establishments Act, 1999 (for short, "the Act") and sentenced to undergo rigorous imprisonment for two years and to pay fine of Rs.1 lakh, in default of payment of fine, she shall undergo simple imprisonment for four months.
2. The facts in brief as per the record would go to show that A1 is the husband of A2. The appellant/A3 is the sister of A1. A1 and A2 have floated Sai Raghu Raghavendra Chit Fund Company (SRR chits) for which A1 was the Managing Director, whereas A2 is the Director. The appellant/A3 was working as Manager of the said chit fund for Khammam and Kothagudem branches.
3. The appellant/A3 has persuaded about 40 subscribers to join the chit fund, including PWs.1 to 4 and 2 6, by giving a false promise that they will get good dividend. Believing her commitment, number of persons joined in various chit groups. PW.1 joined in Rs.9 lakhs chit and deposited Rs.3,10,600/- with A1 company, PW.2 joined in Rs.3 lakh chit and paid Rs.1,50,000/-, PW.3 joined in Rs.5 lakhs chit and paid Rs.74,000/-, PW.4 joined in Rs.1 lakh chit and paid Rs.45,000/-, PW.6 joined in Rs.5 lakhs chit and paid Rs.2,78,500/-. Many other subscribers have also joined in various chits and paid some amounts. The said subscribers used to pay the chit amount in monthly, weekly and daily installments. PWs.1 to 4 and 6 and other subscribers though became successful bidders in the auction. The accused/A1 to A4 have failed to make payments.
4. On a complaint dated 06.03.2015 given by PW.1, a case in Crime No.32 of 2015 was registered by the Inspector of Police, Kothagudem for the offence under Sections 420 IPC and issued FIR under Ex.P7. During the course of investigation, statements of witnesses were recorded, visited the scene of offence in the presence of PWs.5 and 7, the mediators, and scene of offence 3 observations panchanama was conducted under Ex.P8. After completion of investigation, charge sheet is filed alleging that all the accused have committed the offence punishable under Section 420 IPC and Section 5 of the Act.
5. On pleading not guilty by the accused, charges have been framed against all the accused for the offence under Sections 420 IPC and Section 5 of the Act. During the course of trial, the prosecution has examined in all PWs.1 to 9 and marked Exs.P1 to P8. On behalf of the accused, Exs.D1 and D2 are marked.
6. The trial Court on considering the evidence, both oral and documentary, has found all the accused not guilty for the offence under Section 420 IPC. Similarly, A2 to A4 were also not found guilty for the offence under Section 5 of the Act. A1 was sentenced to undergo rigorous imprisonment for a period of 3 years and to pay a fine of Rs.1 lakh, whereas the appellant/A3 was sentenced to undergo rigorous imprisonment for a period of 2 years and to pay a fine of Rs.1 lakh and in default to undergo simple imprisonment for a period of four months and out of the 4 fine amount, an amount of Rs.1,50,000/- shall be paid to PWs.1 to 4 and 6 in proportion to their money bid.
7. Aggrieved by the judgment and sentence and punishment against the appellant/A3, the present appeal is filed on the following grounds:
a. Section 5 of the Act has no application to the facts of the case. Unless the competent authority is satisfied or has reason to believe that the financial establishment has committed default under Section 5 of the Act cannot be launched. In the case on hand, it is the Inspector of Police, who has added Section 5 and thereby against the provisions of the Act and also the rational laid down by this Court in Crl.A.No.1576 of 2005 and batch dated 01.04.2015. There is no record filed by the prosecution to establish involvement of the appellant/A3 as the Manager in the chit fund business, as the prosecution has not examined the Chit Registrar, not filed any documents relating to the chit fund business showing that the appellant/A3 is the Manager, the prosecution depended only on the circumstantial evidence which failed to connect 5 the appellant to the offence and thereby sought for setting aside of the judgment dated 10.01.2019 passed in C.C.No.4 of 2015.
8. Heard both sides and perused the record.
9. Now, the point for determination is whether the judgment dated 10.01.2019 passed in C.C.No.4 of 2015 can be set aside?
10. Though the appellant/A3 was originally charged for the offence under Section 420 IPC and Section 5 of the Act, the trial Court has found the appellant not guilty for the offence under Section 420 IPC, thereby it has to be considered whether the facts that were proved before the Court to disclose any offence under Section 5 of the Act.
11. Section 5 of the A.P. Protection of Depositors of Financial Establishment Act runs as under:
"5. Penalty for default:- Where any financial establishment defaults in the return of the deposit either in cash or kind or defaults in the payment of interest on the deposit as agreed upon, every person responsible for the management of the affairs of the financial establishment including the promoter, Manager or Member of the financial establishment shall be punished with imprisonment for a term which may extend to ten years and with 6 fine which may extend to rupees one lakh and such financial establishment shall also be liable for fine which may extend to rupees five lakh."
12. In order to fasten the liability under Section 5 of the Act, the prosecution is expected to place before the Court the relevant material to show that the accused were running financial establishment and that they have accepted the deposits either in cash or kind and committed default in return of the deposit or in payment of interest, as agreed upon, on which all the persons connected with the management of the affairs of the financial establishment are liable for punishment.
13. Section 2(c) of the Act defines "Financial Establishment", which runs as under:
"Financial Establishment" means any person or group of individuals accepting deposit under any scheme or arrangement or in any other manner but does not include a corporation or a cooperative society owned or controlled by any State Government or the Central Government or a banking company as defined under clause (c) of Section 5 of the Banking Regulation Act, 1949, (Central Act 10 of 1949)."
14. A perusal of the above definition in respect of "Financial Establishment" in order to brand an establishment as financial establishment, there shall be a 7 person or group of individuals accepting the deposits under any scheme or arrangement etc. So far as the first limb of the definition that any person or group of individuals is concerned, the same is satisfied in the case on hand, as the prosecution has charged A1 to A4.
15. Section 2(b) of the Act defines "deposit", which runs as under:
""deposit" means the deposit of a sum of money either in lumpsum or installments made with a financial establishment for a fixed period, for interest or return in any kind."
16. Therefore, in order to attract the definition of deposit, the sum of money shall be deposited either in lumpsum or installments for a fixed period. That means, in order to fasten the criminal liability, the accused herein must have accepted the deposits either in lumpsum or installments for a fixed period for the purpose of getting interest. On summarizing the definition of Sections 5, 2(b) and 2(c) of the Act, it is clear that in order to find a person guilty for the offence under Section 5 of the Act, the person or group of persons shall accept some money either in lumpsum or installment as a deposit for a fixed period for the purpose 8 of returning the said amount with interest, then only either the person or group of persons can be defined as financial establishment and if such financial establishment having accepted the deposit, commits default either in payment of interest as agreed upon or returning of the amount deposited after expiry of the fixed time, then the persons, who are responsible for management of the said financial establishment and persons, who are responsible for such default, can be found guilty under Section 5 of the Act.
17. Considering the above provisions of the Act, so far as Section 5 of the Act is concerned, now it is to be required to be seen whether the evidence placed before the Court by the prosecution in the form of PWs.1 to 4, 6 and other witnesses would disclose that the accused are running financial establishment and that they have accepted the deposits and committed default in payment of either interest or the principle amount as required.
18. It is the case of the prosecution that A1 and A2 being husband and wife as Managing Director and Director have registered a chit fund company in the name of Sai Raghu 9 Raghavendra Chit Finance and in the said chit fund the appellant/A3 was employed as Manager and that she in the capacity of Manager of Khammam and Kothagudem branches is responsible for about 40 persons to become the subscribers of the chit, including PWs.1 to 4 and 6.
19. Therefore, as per the version of the prosecution, the accused have floated Sai Raghu Raghavendra Chit Finance and were doing chit fund business. The de-facto complainant and all other witnesses i.e., PWs.1 to 4 and 6 have deposed that they have become the members of the chit. PW.1 has deposed that he joined in a chit for Rs.9 lakhs, he was to pay Rs.30,000/- per month for 30 installments, he used to pay monthly and daily and in all he paid Rs.3,10,600/-, he participated in the auction and became successful bidder and agreed to receive the bid amount of Rs.6,36,000/-, but subsequently the branch was closed and money was not paid.
20. The story of PW.2, according to his evidence, is that he became member of Rs.10 lakhs chit and he paid nearly 1,60,000/- under various installments chit subscription, 10 but subsequently, the said amount was not paid. PW.3 has deposed that he joined Rs.3 lakhs chit with A1 and A2 with monthly installment of Rs.7,400/- and he has paid Rs.200/- to Rs.300/- per day and the accused have furnished passbook for the chit and office boy used to collect the money and A3 being the in-charge as Manager for seven months, in all he has paid Rs.74,000/- and became successful bidder for Rs.2,16,000/- and A1 and A4 have given him cheque for Rs.60,000/- and it was dishonoured with insufficient funds.
21. PW.4 has deposed that he joined Rs.1 lakh chit and he agreed to pay Rs.4,000/- per month for 25 months, he paid in all Rs.45,280/- including the dividend and became successful bidder, however, the prize amount was not paid. PW.5 has not supported the prosecution, whereas PW.6 deposed that he became member of Rs.5 lakhs chit and he paid Rs.20,000/- per month and in all he paid Rs.2,70,000/- excluding dividend. He became successful bidder for Rs.4,80,000/-. He promised to pay the said amount, but failed to pay. Therefore, PWs.1 to 4 and 6 are the subscribers. They have deposed that all of them 11 became members of different chits, paid some amounts, became successful bidders, but the prize amounts were not paid.
22. Therefore, as per the evidence of PWs.1 to 4 and 6, who are the subscribers, it is clear that they became members of the chit of various groups, they did not deposit the money either in part or in lumpsum expecting returns. As already observed, in order to constitute an offence under Section 5 of the Act, the accused persons should accept the deposits as defined under Section 2(b) of the Act. PWs.1 to 4 and 6 should have deposited the money for a fixed period for interest and in case if the accused persons failed to return the money, either the principal after expiry of the term or the interest as agreed upon, then the accused are liable for punishment under Section 5 of the Act.
23. In the case on hand, as narrated above, it is not the case of the prosecution at all that the accused persons are running a financial establishment. The case of the prosecution is that the accused are doing chit fund 12 business. Therefore, when it is not the case of the prosecution that accused were not running financial establishment and accused were not accepting the deposits, when PWs.1 to 4 and 6 and other subscribers have not deposited the money for interest and when they have not committed the default of the alleged deposit, the question that the accused, including the appellant, have committed the offence punishable under Section 5 of the Act does not arise.
24. The police should not have filed charge sheet under Section 5 of the Act. Similarly cognizance also should not have been taken and that charges also should not have been framed.
25. Then the question is what is the offence committed by the accused. The simple case of the prosecution is that PWs.1 to 4 and 6 and other subscribers have became the members of the chit of various groups being run by the accused Nos.1 to 4 and after sometime, PWs.1 to 4 and 6 have became successful bidders, but the prize amounts 13 were not paid. These issues will attract various provisions under the Chit Funds Act.
26. Chit Funds Act, 1982 is a self-contained Act. It speaks about prohibition of chits not sanctioned or registered under the Act, about the procedure to be followed among the chits, execution of the chit agreement, commencement of chit, aggregate amount of the chit, minutes of the proceedings, rights of the foreman, liability of the foreman to the subscribers, prized subscribers to furnish security and other connected aspects for every probable violations in terms of right from the beginning of the chit until completion the Chit Funds Act is very exhaustive and in case if any violations are there, the Act provides for the procedure for recovery of money from the defaulters either from the subscriber or the organizers of the chit and Section 76 of the Act also speaks about the penalties in case whoever violates Sections 4, 5, 8, 9, 11, 12, 13, 14, 19, 20, 22, 24, 30, 31, sub-section (4) of Section 33, Sections 46, 47 or sub-section (5) of Section 61 are liable for punishment with imprisonment for a term which may extend to two years.
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27. Therefore, on perusal of the above provision it is clear that the violations alleged to have been committed by the accused persons are punishable under various provisions of the Chit Funds Act. But, unfortunately, the prosecution has not filed charge sheet under the various provisions of the Chit Funds Act for the violations committed by A1 to A4 in running the chit, instead Section 5 of the Act has been shown as the offence committed by the accused, when the accused persons were not at all maintaining the financial establishment and when they were not accepting the deposit. The money which is being paid by the subscribers i.e., PWs.1 to 4 and 6 is not the money deposited by them as defined under Section 2(b) of the Act, but it is the subscription amount as defined under the Chit Funds Act. PWs.1 to 4 and 6 have not deposited the monies under various installments expecting the interest, but the money deposited by them in various installments, even according to the witness of the prosecution, is the part of the subscription amount as defined under the Chit Funds Act. Therefore, the prosecution should have 15 actually filed the case against A1 to A4 under the penal provisions of the Chit Funds Act.
28. Considering the circumstances, since there is not even single ingredient of the offence punishable under Section 5 of the Act, the conviction and sentence recorded by the trial Court is against the law and required to be set aside.
29. This Court actually taught of remanding the matter back to the trial Court to consider for de novo trial by framing the appropriate charges under the relevant provisions of the Chit Funds Act. However, the trial Court has found guilty of the offence under Section 5 of the Act only against A1 and the appellant/A3. A2 and A4 were found not guilty. Out of the two accused persons, who are found guilty, A3 is before this Court. It is not sure that what happened to A1. The prosecution has not filed any appeal challenging the judgment of the trial Court acquitting A2 and A4. If at all all four accused are before this Court, this Court would have certainly considered remanding this case back to the trial Court while setting 16 aside the judgment to consider for framing of the charges under Chit Funds Act. Even if this kind of order is passed, it will go only against A3, who is before the Court, but not against the others. Hence, this Court is not considering to remand the matter back to the trial Court to consider for framing of charges under the Chit Funds Act.
30. In view of the above discussion, the sentence imposed by the trial Court vide judgment dated 10.01.2019 in C.C.No.4 of 2015 on the file of the Principal Sessions Judge, Khammam, against the appellant/A3 alone is set aside and the appellant/A3 is not found guilty for the offence under Section 5 of the Act.
Miscellaneous applications, if any, shall stand closed.
_____________________ DR. D.NAGARJUN, J Date: 01.11.2022 ES