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1. Yashwanthapura P.S. Crime No. 199/ 05 under investigation.

2. Jeevan Bheemmanagar P.S. Cr. No. 179/05 - pending trial in CC No. 22109/06 in the 10th Addl. Chief Metropolitan Magistrate Court, Bangalore.

3. Koramangala P.S. Cr. No. 430/05 - under investigation.

4. Thilaknagar P.S. Cr. No. 190/05 - pending trial in CC No. 26737/05 before the IInd Addl. Chief Metropolitan Magistrate's Court, Bangalore.

After investigation of the above crimes, business in Karnataka, as per the case of the third respondent, seems to be closed for - ever. The modus operandi in Kerala State is by advertisement that LIS (Regd.) has a registered office at Bangalore and administrative office at Palackal Court, M.G. Road, Ernakulam. The investigation so far conducted reveals that there is no entity called. LIS (Regd,) and it is not having a registered office in Bangalore or administrative office at Ernakulam. Vide letter dated 17-5-2006 the District Registrar, Ernakulam has informed that eleven new charitable trusts in the name LIS Charitable Trust are registered in 2005 at Sub-Registrar's office, Ernakulam. It is also revealed that settler of the above trust deed is one P.V. Chacko. The activities of the above 11 trusts are under Investigation. According to the respondent the above facts would disclose offences under Section 2(e) and 2(c) of the Act and also Sections 3, 4 and 5 of the Act of 1978. Central Police Station, Ernakulam has registered a crime and pursuant to the directions issued by the Reserve Bank of India to the Director General of Police, Kerala, vide letter dated 21st July, 2005 and yet another letter dated 4th January, 2006 requiring the Kerala Police to examine and investigate whether the scheme run by LIS (Regd.) is in violation of the provisions of the Act of 1978. The crime was registered against Kuriachan Chacko, Achamma Chacko, Linu Joy, P.V. Chacko and M.V. Paylee. Vide order dated 10-5-2006 of the Commissioner of Police, Kochi City the case diary was handed over to the Assistant Commissioner of Police, Crime Detachment, Kochi City for further investigation. On 10-5-2006 a search was conducted in the office of LIS (Regd.) at Ernakulam. Six computer hard discs, 16 CDS and 9 DVDs were taken into possession vide mahazar and the same were sent to the Court of the Chief Judicial Magistrate, Ernakulam with a proper request to send the materials seized to C-DAC, Thiruvanthapuram for processing and analysis. They questioned all witnesses mentioned in the counter affidavit. It is further the case of the respondent that the investigation disclosed that LIS Deepasthamban project started in 2002 following a partnership deed executed on 12th November, 2002. The first three accused are partners of the deed. The deed is not seen registered. The first meeting of the members of the partnership deed was held on 1-11-2002. Mr Kuriachan Chacko introduced the new scheme Deepasthambam project proposing to run the project by collecting an advance amount of Rs. 625/- per unit and provide the units to the clients as mentioned above. In the beginning of the project a single unit was worth Rs. 625/- and double the amount was paid after 35 weeks of enrolment. from the money entrusted for one unit, i.e. Rs. 625/-, Rs. 350/- is said to be utilised for purchase of lottery for the depositor, i.e. Rs. 10/- per lottery per week and Rs. 275/-for purchase of the collash magazine called Trikalam' worth Rs. 10/-. The amount collected from the unit member is thus spent. The LIS (Regd.) states that if the lottery purchased in the name of each particular individual wins a prize the amount will be paid to the individual. After the completion of 35 weeks no lottery Is purchased for the individual, nor any magazine is issued. The unit member is said to be matured and he is repaid with an amount double the amount he had spent with LIS (Regd.), but no specific period is mentioned for maturity. From the investigation it further transpired that the accused would pay the double amount from the commission obtained from purchase of lottery tickets, i.e. out of 28% commission obtained from lottery purchase from State Government and 30% commission obtained from weekly. 25% each is taken from the lottery commission and magazine commission and the double amount is paid to the customer and thereafter he is said to be paid. The remaining 8% of the commission is said to be utilised for office expenses and other miscellaneous matters. The commission matter is stated to be arisen only after joining of fresh 14 members subsequent to the joining of the first member. The firm itself canvasses for the members using its wide range publicity through different types of medias including newspapers, T.V. channels, cinema houses, etc. When the accused in the brochure mentioned that the scheme was under instructions of the Reserve Bank of India, the said Bank advertised in Malayala Manorama dated 12-5-2006 and Hindu of even date calling for the attention of the general public that it has not issued any instructions for conducting such scheme nor has it approved the scheme. A copy of the Reserve Bank of India advertisement has been placed on record as Ext. R3(h). The respondent, then by referring to various offending Sections mentioned in the FIR states that the accused arrayed in the FIR have indeed committed said offences. In so far as the two judicial precedents of this Court are concerned, the case of the respondent is that in the said judgments there is no reference to Section 2(e) and further that the judgments were rendered in a different context. It is also the case of the respondent that State was a formal party in those cases and the judgment Ext. P2 was rendered in a case alleging violation Lotteries Regulation Act. Having regard to Section 2(c) the submission of the learned Counsel for the petitioner was heard without there being any pleadings and only during the arguments. The writ petition was dismissed in limine without notice to respondents 6 and 7. In the light of the facts that have emerged during investigation which were not considered by both the earlier Benches of this Court, the case of the respondent is that the scheme of the petitioners would fall under Section 2(c) of the Act of 1978. It is a scheme for quick or easy money (doubling within 35 weeks) as well as a scheme for receipt of money as a consideration to promise to pay double the money on less commission on a future date, which according to the advertisement release by the firm will depend on 14 new members in the scheme. The investigation further revealed that the accused enrolled the members to be subscribers of weekly magazine Trikalam' which is said to be an informative magazine. The revealing point is that one member usually purchases more than one unit with the intention of doubling his money spent with the firm loosing nothing, but leaving behind the question of who is the looser, i.e. if a person acquires two units or more he is eligible for more than one weekly per week and none will want to take more than one. In the case of many number of members a huge amount is pocketed by the accused with the knowledge and connivance of the different staff of LIS, thus cheating the members who are only concentrated on doubling the amount of their deposits in view of remittance for purchase of lottery. The advertisement itself states that the first member will be paid out on joining of 14 new members supported by their pamphlet LIS Deepasthambam Project Ext. R3(j). Later the unit amount was enhanced to Rs. 1250/-with a term for 70 weeks, due to non-availability of funds to give double the amount to those who exceeded 35 weeks as per Rs. 625/- unit scheme. It is revealed that so far only 51643 persons of Rs. 625/- units have been paid off. The investigation further revealed that from the materials collected so far the act of accepting crores and crores of rupees from the general public with false promise and without any sanction from any competent authority would constitute the offences under which the crime as has been registered. The firm is operating 121 banks. It is essential to ascertain the money misappropriated by way of Trikalam' weekly printing and publishing, advertising, fixed deposits, security deposits of franchise, etc. The accused as per the case set up by the third respondent are conducting the business of 'Money Chain' under cover of dealing with Government lottery tickets with clandestine intention to commit a huge financial scam involving hundreds or thousands of crores of rupees in future. The design to commit the crime is well planned with all paraphernalia of bogus documents, aggressive advertisements and fake schemes without any licence from any competent statutory authority, like Reserve Bank of India. It is then averred in the counter affidavit that the cLalm of the petitioners that they are achieving the unimaginable growth from dealing with lotteries, necessarily each one rupee invested by the petitioners in lottery must earn Rs. 3/- within the stipulated time of 35 weeks constantly and continuously so long as the business exists, is indigestible and never possible by whatever statistics applicable to the returns from lotteries are concerned as can be seen from the mere fact that only a meagre portion of the income from a particular draw of any lottery is being given as total prize money to individuals who participated in the draw.

12. An additional affidavit of the third respondent has been filed wherein it is mentioned that during the course of hearing the Court required respondents 2 and 4 to expLaln whether any enquiries had been made by them regarding the viability or otherwise of LIS (Regd.) scheme to satisfy themselves that the scheme was not workable and would result in major loss to the public before issuing Exts. P4, P5 and P6 notice to LIS (Regd.) to stop the business pending investigation of the case. It is averred in the affidavit aforesaid that for the last several months the media including leading newspapers and electronic media were advertising very heavily for the LIS (Regd.) to the effect that if an investment is made it will be doubled within a short span of time. The same type of advertisements used to appear during the period 1992-1995 in the name of investments in growth schemes like Teak plantations, Manjiyam plantations, Goat farms, etc., which were later found to be a same. The same method of aggressive advertisements as that of LIS (Regd.) was used by those firms as well. At that time the said schemes were verified and subsequently several fraudulent companies were detected. Due to timely intervention from the side of the State Police several hundred crores of rupees which could have otherwise been siphoned off from the public could have been saved. The aggressive advertisements by LIS (Regd.) prompted the police to keep an eye personally on their activities and verify the bona fides behind the advertisements. In the meantime the D.G.P. of Kerala and I.G.P., Crime, CB CID. Thiruvananthapuram in the month of July, 2005 and January 2006 received two Intimations dated 21 -7-2005 and 4-1-2006 from the Reserve Bank of India asking the State Police to have an investigation in respect of the activities of LIS (Regd.). Similarly, in April, 2006 a copy of the letter received from the office of the Deputy Commissioner, Commercial Taxes, Ernakulam addressed to the Commissioner, Commercial Taxes, Thiruvananthapuram casts suspicion of the activities of LIS (Regd.). Some of the CB CID officers of the State police who were conducting enquiry about the activities of LIS (Regd.) on the basis of the direction issued to them by the I.G. of Police, CB CID Thiruvanathapuram gave information that the enquiry revealed that the activities of LIS (Regd.) would come under various offences. During the investigation it was found that in an earlier matter registered against the petitioners further actions were dropped. Case study of the CD file revealed that the investigation was done by officers of the lower grade who could not understand anything about the technical, suppressive and clandestine nature of the crime and accordingly it happened to be referred under Section 173 of the Code of Criminal Procedure. It was further found that the lack of under-standing of the said officers and the confusion created by the management of LIS (Regd.) resulted in the reporting of 'further action dropped'. In the meanwhile a write up on LIS (Regd.) and its latest Deepasthambam Project was received from the Chairman of LIS (Regd.) furnishing the details of their business which was produced along with the counter affidavit. Finding it unsatisfactory and improbable the version made by him, an intensive personal study of the matter through various sources was conducted including expert opinion derived from Chartered Accountants. The pamphlet published by LIS (Regd.) made it very clear that the promise of doubling the deposits by the investors is a mathematical impossibility and as scheme progresses it will leave at least 11 times of the paid up investors losing their money. The activities mentioned in the scheme of LIS (Regd.) were given to some Chartered Accountants for their opinion. After analysing the project conducted by LIS (Regd.) they have submitted a report which clearly shows that it is nothing but a money chain activity which will have its natural collapse at any time due to stagnation in the required number of new enrolments to continue the chain and due to the siphoning out of the corpus in large scale for repayment, with the unavoidable result of loss of lakhs and lakhs to the investors. A copy of the report submitted by M/s. JVR & Associates, Chartered Accountants of Thiruvananthapuram dated 8-5-2006 has been placed on record as Ext. R3 (V).

A reading of the order would make it absolutely clear that while holding that the allegations contained in the complaint did not prima facie relate to any offence and the scheme would not come within the purview of Sections 3, 4 and 5 (c)(i) of the Act of 1978, it is the facts and circumstances of the case emanating from the complaint that were taken into consideration. It is significant to mention that there was no allegation made in the complaint that the firm of the accused was cLalming to return double the amount as taken from the unit holders or from the compLalnant by the commission earned by them either by way of purchase of Government lottery tickets or the sale of magazine called 'Trikalam' and that the amount collected by way of commission will never, be enough to pay the unit holders as cLalmed by the accused. There was no allegation in the complaint either that with a view to pay' double the amount to the unit holders or the compLalnant the scheme is dependent upon 11 more members to join the scheme. Still further there was no allegation that in due course of time it shall be well neigh impossible for the firm to make good the maturing unit holders to be paid double the amount. There was further no allegation that such a scheme is a mathematical impossibility and in the ultimate analysis unit holders will lose their investment made by way of purchasing units worth Rs. 625/-. Surely, if such allegations as have been made now in the FIR or the supporting documents were take into consideration the result of the case may not have been the same. No material with regard to the essential ingredients of Section 420 of the Indian Penal Code were also specified in the complaint Annexure A2. We repeat and reiterate that unless the scheme was shown to be dependent upon enrollment of more members the case would not be covered by the provisions of the Act of 1978, nor if there was any such allegation with regard to non-payment of double the amount to its members in the due course of time, the case would be covered under Section 420 of the Indian Penal Code.

22. Having observed that, prima facie, there does not appear to be applicability of Section 2(c) of the Act of 1978 and the provisions of the Reserve Bank of India Act mentioned in the FIR there will be no need to make any further comments with regard to that aspect of the case. However, with a view to demonstrate that applicability of Section 2(c) of the Act of 1978 is a highly debatable issue we would like to mention that it has been urged by the learned Counsel appearing for the petitioners that money circulation scheme is a scheme for 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 contingency relative or applicable to the enrolment of members into the scheme. Unless, the petitioners had promised the unit holders that they would be paid double their money dependent upon enrolment of other members, the case would not be covered under money circulation scheme as defined under Section 2(c) of the Act of 1978. Petitioners had made no promise to the unit holders that double the money would be paid to them for which enrolment of other members would be essential. There was no mutuality between the petitioners and the unit holders with regard to enrolment of more members into the scheme and thus the activity carried out by the petitioners would not be of money circulation scheme, contends the learned Counsel. With a view to appreciate this contention it will be useful to reproduce the definition of 'money circulation scheme' as given in Section 2 (c) of the Act of 1978 and the same reads as follows: