judgement:
Civil Appeal No. 1988 of 1982.
From the Judgment and order dated 20.4.1982 of the High Court of Allahabad in Writ Petition No. 630 of 1982.
E Anil Dev Singh and Mrs. Shobha Dikshit for the Appellant.
L.M. Singhvi and C.L. Sahu for the Respondent.
The following Judgment of the Court 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 Court of Allahabad in writ petition No. 630 of 1982.
The said writ petition was filed by the respondent which is a partnership firm called as "M/s. Secured Investment Company" ("The Company").
The company mainly carries on business at Lucknow.
It has branch offices at Kanpur and Bareilly.
The nature of business of the company is termed as "a scheme for investment".
The question raised in this appeal is whether that scheme for investment falls within H 458 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 company 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 concerned banks not to have accounts in relation thereto.
Challenging the action of the Registrar, the company moved the High Court with a writ petition under Art; 226 of the Constitution.
The High Court allowed the writ petition and quashed the orders made by the Registrar.
In order to correctly 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 not merely on promoting or conducting any prize chit or money circulation scheme, but also on participation in such chit or schemes.
Section 4 makes a contravention of the provisions of Section 3 punishable with imprisonment which may extend to three years or with fine which may extend to Rs.5,000 or with both.
Section 5 provides penalty for other offences like printing or publishing any ticket, coupon 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 confers power on the police officers not 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 Company wholly owned by a State Government are exempted from the provisions of the Act. 'Conventional Chit ' has been defined under Section 2(a), and "Prize Chit" has been defined under Section 2(e) of the Act.
Conventional Chit stands excluded from the definition of prize chit, and so much so, the Conventional Chit remains untouched by provisions of the Act.
The definition of the conventional chit is as follows: "Section 2(a).
"Conventional Chit" means a transaction whether called chit, chit fund, kuri or by any other name or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a 459 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 common words but with regional variations.
Although there is no clear 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 Corporation by section 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 Cochin and Malabar areas it is popularly called 'kuri '.
In other parts of the country 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 synonymous, meaning thereby a written piece of paper.
These transactions were purely indigenous institution.
They originated in village life originated by a small group of people well know to each other.
They agreed to contribute 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 not earlier, it was very popular in central Travancore and Trichur areas probably among Church congregations.
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 considered 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 connects the borrowing class directly with the lending class.
The pooled saving is lent out to the same group of contributors.
A chit fund collects 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 460 ning chit gets the collection without any deductions.
He, however, continues 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 conventional chit.
It is operated without a professional promoter or manager and without any risk of loss of capital.
During the course 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 companies 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 contributions.
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.
vs Union of India etc.
, 1 at 804 as follows: "The quintessential aspects of a prize chit are that the organiser collects 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 collected on the termination of the scheme or otherwise.
The apparent tenor may not fully bring out the exploitative import lurking beneath the surface of the words which describe the scheme.
Small sums are collected 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 astronomical 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 461 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 not 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 section 2(a) being an euphemism for a nominal 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 constituted a Study Group headed by Dr. J.S. Raj to examine the adequacy of existing statutory provisions in regulating the conduct of business by non banking companies.
The Study Group was also asked to suggest remedial measures so as to ensure that the activities of such companies, 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 Non Banking Companies which were conducting prize chits, benefit/savings scheme or lucky draws etc.
Paragraph 6.3 of the report contains interesting informations and it reads as follows: "6.3 Companies conducting the above types of schemes are comparatively 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 country, especially in big cities like Ahemdabad, Bangalore, Bombay, Calcutta and Delhi.
They had also established branches in various States.
These companies float schemes for collecting money from the public and the modus operandi of such schemes is generally as described below: The company acts as the foreman or promoter and 462 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 not 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 not get any prize.
The principal items of income of these companies 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 collected 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 conclusions 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 not serve any social purpose.
On the contrary, 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 considered inadequate.
Companies 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 463 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 not 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 conduct 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 concerned was passed in the Parliament.
The Act provides for banning the promotion or conduct 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 contingency relative or applicable to the enrolment of members into the scheme, whether or not 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 collects 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 collected 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: (i) 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 464 whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement.
(ii) refunding to the subscribers or such of them as have not won any prize or gift, the whole or part of the subscription, contributions or other moneys collected, 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 not include a conventional chit.
" The scheme for investment with which the company has been carrying on its business is neither a conventional chit not a 'money circulation scheme '.
That is not 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 correct scope of the definition, we must first try to ascertain the purpose of the legislation.
The legal interpretation is not an activity sui generis.
Under the view, now 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 construction.
It must be construed with vision to ensure the achievement of the object of the Act.
The purpose of the Act could 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 section Raj, the then Chairman, Unit Trust of India, for examining in depth the provisions of Chapter III B of the , and the directions issued thereunder to non banking companies in order to assess their adequacy in the context of ensuring the efficacy of the monetary and credit policies of the country and affording a degree of protection to the interests of the depositors who place their savings with such companies.
In its report submitted to the Reserve Bank in July 1975, the Group ob 465 served that the prize chit/benefit/savings schemes benefit primarily the promoters and do not serve any social purpose.
On the contrary the Group have stated that they are prejudicial to the public interest and affect the afficacy of the fiscal and monetary policies of the country.
prize chits would cover any kind of arrangement under which moneys are collected by way of subscriptions, contributions 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 no commission collects regular subscriptions from the members.
once the member gets the prize, he is very often not required to pay further instalments and his name is dropped from further lots.
The institutions conducting prize chits are private limited companies with a very low capital base contributed by the promoters, directors or their close relatives.
Such schemes confer monetary benefit only on a few members and on the promoter companies.
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 conduct 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 conduct of prize chits and money circulation scheme and for matters connected 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 considered by this Court.
In Reserve Bank of India vs Peerless 466 General Insurance and Investment.
Co. Ltd., ; Chinnappa Reddy, J. speaking for this Court observed (p. 1041): "We do not think that by using the word "includes", in the definition in section 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 context shows, was intended not 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 no where 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 common 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 not think that in defining the expression 'Prize Chit ', the Parliament intended to depart from the meaning which the expression had come 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 (ii) are to be read disjunctively and that they should not be read as if they are joined by the conjunction 'and '.
We do not 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 context.
The context requires the definition to be read as if both clauses have to be satisfied.
There is nothing in the text which makes it imperative that it be read otherwise.
The learned counsel urges that the expression 467 ' '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 not agree with this submission.
Each of the clauses (i) and (ii) contains a number of alternatives and it is to those several alternatives that the expression "all or any of the following purposes" refer and not to (i) or (ii) which are not alternatives at all.
In fact, a prize chit, by whatever name it may be called, does not 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 not 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 not to two alternative attributes .
" In the light of these principles, we may now have a close look at the definition of prize chit ' under sec.
We may cull out the following attributes: There must be collection of moneys from persons.
The moneys may be collected in one lumpsum or in instalments.
The moneys may be collected by way of contributions, subscriptions or as membership fees, admission fees or service charges.
It may be collected by sale of units, certificates or other instruments.
The collection may be in respect of any savings, mutual benefits, thrift or any other scheme or arrangement, no matter by what name.
The Collection may be made by a promoter, foreman.
agent or in any other capacity.
The collection 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 collected as such need not 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 collection.
The refund may be made to all or such of them who have not won any prize or gift.
The refund may be made with or without any bonus, premium interest or other advantage.
468 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 collects 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 contributors agree to forego a portion of their contributions in the hope of getting any prize or gift should not 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 not 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. section Raj that all such prize chits or schemes are in the form of lottery and they do not serve any social purpose.
They are prejudicial to the public interest.
They affect the monetary policies of the country.
They benefit only the promoters.
So much is about the law.
Let us now have the fact of the case.
The terms and conditions of the scheme offered by the company are as follows: "1.
Secured Investment Company will be known as COMPANY.
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 3.
No interest will be given to the member, thus the maturity value of the Bank 's R.D.P. will be Rs.220.
After a member deposits Rs.220 he will get his Bank 's R.D.P. within 7 days.
For members from Lucknow, 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.
469 Therefore, the duration of the bank 's R.D.P. Receipt is also for 66 month.
Lucky draws for articles totalling Rs.15,000 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 19,999 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 consolidation prizes consisting of articles like transistor, sewing machine, cycle, pressure cooker, 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 not be given.
One Vijay Super Scooter Rs.8000 2.
One Kelvinator Fridge (10 Its.) or one T.V. Plus one Mixi Rs.3900 3.
One cycle Rs.400 4.
One table fan Rs.350 section One Sewing Machine Rs.325 6.
2 Nos.
Philips Transistors (Rs. 230 each) Rs.460 7.
3 Nos.
Pressure Cookers (Rs.175 each) Rs.525 8.
S Nos.
Steel thali sets (Rs. lOO each set) Rs.500 9.
6 Nos.
Alarm Clocks (Rs.90 each) Rs.540 TOTAL Rs. 15,000 9.
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 Bank 's R.D.P. directly the H 470 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 R.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 course, he will also not be entitled for the balance lucky draws.
11 The reason for deduction of interest is that the company gives these fantastic prizes through the interest thus gained, also this interest gained has to cover the company '.
overheads and profit.
However, a customer 's 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 consent from the Company.
Out station members can encash the R.D.P. by presenting it to any Bank.
The procedure is the same as one normally encashes an outstation cheque.
The Company reserves the right to accept or reject any membership without assigning any reasons.
In case, the total membership is not fully sub scribed to, members can still be scruited after the start of the draws.
However, the Company will at no stage 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 Lucknow, 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 19,999 subscribers in each scheme.
All of them do not get prizes and indeed they could not get, since there are only 60 draws with 2 1 prizes each.
The members are not told that the company 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.
471 In spite of all these glaring attributes of exploitive nature of the scheme, the High Court appears to have been carried away with the Reinvestment Deposit Plan Receipt for Rs.220.
The High Court was of the view that the scheme could not be considered as "prize chit".
The High Court 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 considered for the distribution of 'Lucky Prizes '.
But that is not enough 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 collected has not deposited it with the petitioners as "contributions ' ' or "subscription", it is difficult to hold that it is collected by the petitioners as his "contribution or subscription".
The High Court appears to have proceeded on the basis that the members of the scheme do not pay subscription to the company.
Nor do they pay the amount as contribution.
The High Court 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 not sufficient to attract the definition of prize chit.
In our view, the conclusion of the High Court is patently erroneous.
It is unsustainable both on facts and law.
The High Court has failed to consider that the company undisputedly takes away Rs.92 out of Rs.220 paid by each member.
The High Court has further failed to note that the company utilises the deducted amount of Rs.92 for the purpose of giving prizes to members.
Dr. L.M. Singhvi, learned counsel for the company, did not and indeed could not dispute that the company is deducting Rs.92 out of the payment of Rs.220.
The counsel however, urged that since the member gets the full amount of Rs.220 from the bank at the instance of the company, the scheme is an investment scheme and not 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 472 the transaction of the company.
The fact remains that the company collects 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 not be forgotten that the member does not get back Rs.92 deducted by the company.
Nor he gets any interest on this amount.
He foregoes his amount of Rs.92 with the hope of getting prizes offered by the company.
There is no guarantee 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 tenor of the scheme may not bring out the exploitative nature of the scheme.
But it is there if anybody wants to know it.
The company undisputedly collects Rs.92 from every subscriber and utilises a portion of it for giving prizes and to meet overhead charges.
The company in all collects an amount of Rs. 18,44,907.75 at the rate of Rs.92 per head from 19,999 subscribers.
The company distributes monthly prizes of the value of Rs. 15,000.
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 costs? and for whose benefit? We are, however, glad to note that Madhya Pradesh High Court while considering a similar scheme in Sahara India vs 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 no doubt that the scheme of the company with which we are concerned is primarily for the benefit of the promoter or the Company at the costs of the subscribers.
This is the kind of transactions or arrangements which Dr. J.S. Raj Study Group said that it should be banned altogether.
Section 2(e) was intended to cover all such arrangements or schemes.
The interpretation given by the Court should not 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 considered as prize chit falling within the inclusive definition under Section 2(e).
473 From the above discussion, and in the light of the principles to which we have called attention the scheme of the company is nothing but prize chit as defined under Section 2(e) of the Act and the action of the Registrar of firms deserves to be upheld.
In the result, we allow the appeal with costs and set aside the L judgment and order of the High Court.
Before parting with the case we may, however, observe that the Registrar of the Firms while taking action against the persons or firms under the Act will take care to see that the members of the scheme are not denied of their contributions or prizes which they are legitimately entitled to, if the prize chit is allowed to run for the full term .
S.L. Appeal allowed.

summary:
% The respondent, a partnership firm, carried on business termed as a "Scheme for Investment".
The Registrar of Firms, Societies and Chits, the appellant, holding the view that the investment scheme of the respondent company fell within the prohibited category of prize chits as defined in section 2(e) of the Prize Chits and Money Circulation Scheme (Banking) Act, 1978, seized all the documents of the company and directed the concerned banks not to have accounts in relation thereto.
The respondent challenged the action of the appellant by a writ petition in the High Court.
The High Court allowed the Writ Petition, quashing the orders of the appellant.
The appellant appealed to this Court by special leave.
Allowing the appeal, the Court, ^ HELD: The prize chit, by a simple definition, includes a scheme by which a person in whatever name collects moneys from individuals for the purpose of giving prizes and refunding the balance with or without premium after the expiry of a specified period.
The reach and range of the definition of 'Prize Chit ' is sweeping.
The participation of any person in such chit or scheme has been prohibited, the object being that people should not be attracted to invest their moneys in the hope of getting prizes or gifts.
[468A B, Cl There is no doubt that the scheme of the company is primarily for the benefit of the promoter or the company at the cost of the subscribers.
Section 2(e) of the Act was intended to cover all such arrangements or schemes.
It is emphasized that the Act was intended to ban all kinds of prize chits where people part with their money and risk the chance of 457 getting prizes and gifts, and to protect the people from exploitation.
A Any scheme or arrangement in which a person agrees to lose or is make to part with a portion of his payment against the chance of getting any prize or gift, should be considered as prize chit: falling within the inclusive definition under Section 2(e).
The scheme of the company is nothing but prize Chit as defined under Section 2(e) of the Act.
The conclusion of the High Court is patently erroneous and is unsustainable both on facts and law.
The action of the Registrar, appellant, upheld.
[473E H;; 473A B] OBSERVATION: The Registrar of the firms will, while taking action against the persons or firms under the Act, take care to see that the members of the scheme are not denied, their contributions or prises which they are legitimately entitled to, if the prize chit is allowed to be run for the full term.
[473B C] Srinivasa Enterprises and others vs Union of India etc.; , at 804 and Reserve Bank of India vs Peerless General Insurance and investment Co. Ltd., A.I.R. referred to.


judgement:
icable to the members of the Subordinate Judicial Service and the question of confirmation of judi 494 cial officer was completely within the domain of control of the HighCourt under Article 235 of the Constitution the findings of the High Court that the officers should not be confirmed cannot be accepted.
[499E F] The judgment and orders of the Division Bench set aside.
Appellants reinstated in service with the arrears of pay since the date of termination.
The orders of the Full Bench quashing the impugned order of termination of respondent in C.A. No. 2860 of 1985 affirmed, but not the reasons for such quashing.
[499G H] & CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
59 & 60 of 1982 etc.
From the Judgment and Order dated 9.4.1981 of the Madhya Pradesh High Court in Misc.
Petition Nos.
61 and 120 of 1980.
Dr. Y.S. Chitale, G.L. Sanghi, Mrs. A.K. Verma, Miss F. Desai, section Sukumaran, D.N. Mishra, Vivek Gambhir and S.K. Gambhir for the Appellants.
R.P. Bhatt, T.C. Sharma, Shri Narain and Sandeep Narain for the Respondents.
The Judgment of the Court was delivered by DUTT, J.
The only question that arises for consideration in these appeals by special leave is whether Rule 3 A of M.P. Government Service (Temporary & Quasi Permanent Service) Rules, 1960, hereinafter referred to as 'the Rules ', is applicable to the members of the Subordinate Judicial Service of the Madhya Pradesh Government.
In Civil Appeals Nos.
59 & 60 of 1982, both the appellants were appointed Civil judges on temporary and officiating basis for a period of six months for training and thereafter for a period of two years on probation.
It is not necessary to state in detail the facts, and suffice it to say that both the appellants were not ultimately confirmed by the High Court after the expiry of the period of probation or the extended period of probation.
The High Court recommended the termination of services of the appellants to the State Government and pursuant to such recommendation, the State Government terminated the services of the appellants under Rule 12 of the Rules.
Being aggrieved by the orders of termination of their services, the appellants filed writ petitions 495 before the Madhya Pradesh High Court.
It was contended by them A that in view of Rule 3 A of the Rules, they should be deemed to be in guasi permanent service.
Rule 3 A provides as follows: "R. 3 A. Government servant in respect of whom a declaration under clause (ii) of Rule 3 has not been issued but has been in temporary service continuously for five years in a service or post in respect of which such declaration could be made shall be deemed to be in quasi permanent service unless for reasons to be recorded in writing the appointing authority otherwise order.
" As a declaration under clause (ii) of Rule 3 had not been issued and as the appellants were in temporary service continuously for five years in the post of Civil Judges in respect of which such declaration could be made, it was contended they should be deemed to be in quasi permanent service, and that, accordingly, the orders of termination of their services were illegal and invalid.
It was, however, contended on behalf of the respondents that the question of confirmation came within the purview of Article 235 of the Constitution of India vesting in the High Court control over subordinate courts and, consequently, the provision of Rule 3 A had no application to the members of Subordinate Judicial Service.
The Division Bench of the High Court took the view that if in Rule 3 A in place of the words "appointing authority", the words "competent authority" be read, it would be consistent with Article 235 of the Constitution.
The Division Bench overruled the contention of the appellants that although the High Court considered them unfit for confirmation, yet Rule 3 A would apply as it did not record any reason why they should not be deemed to be in quasi permanent service, as provided in Rule 3 A.
The Division Bench observed as follows: "It was also argued by the learned counsel for the Petitioners that the case of the petitioners was considered by the High Court only for their confirmation and not suitability for employment in a quasi permanent capacity, when a resolution was passed declaring them to be unfit for confirmation.
On this basis, it was argued that the High Court 's resolution could not, therefore, be construed as 'otherwise order ' contemplated by the latter part of Rule 3 A. There is no merit in this contention.
The resolution passed in the Court meeting adjudging them not fit for confirmation 496 satisfies the requirement, as continuance in quasi permanent capacity is included within the ambit or confirmation against the post held by the petitioners.
" Accordingly, the Division Bench dismissed the writ petitions filed by the appellants.
In Civil Appeal No. 2860 of 1985, the High Court of Madhya Pradesh has assailed the judgment and order of its Full Bench.
The respondent, in that appeal also, was appointed a Civil Judge on a temporary and officiating basis for a period of six months for training and thereafter for a period of two years on probation.
In his case also, the High Court did not confirm him after the expiry of the probationary period and he continued without an order of confirmation or discharge.
In a Full Court Meeting held on February 27, 1981, it was decided not to confirm the respondent, presumable in view of certain adverse remarks against him which were directed to be communicated to him.
Ultimately, his services were terminated under Rule 12 of the Rules.
Aggrieved by the order of termination, the respondent filed a writ petition in the High Court of Madhya Pradesh.
The learned Single Judge referred the petition to the Full Bench for answering the following question: "Whether the resolution of the Court Meeting dated 27.2.
1981 satisfies the requirement of an otherwise order of the appointing authority by recording reasons in writing as contemplated under Rule 3 A of the Madhya Pradesh Government Servants (Temporary and Quasi Permanent Ser vice) Rules, 1960?" The Full bench approved of the view expressed by the Division Bench in its judgment which is under appeal in the above Civil Appeals Nos.
59 & 60 of 1982 to the extent that in Rule 3 A in place of the words "appointing authority", the words "competent authority" should be read so as to make the rule workable and consistent with Article 235 of the Constitution.
The Full Bench, however, did not agree with the Division Bench that the finding of the High Court in its resolution that the respondent was not fit for confirmation, could not be regarded as 'reasons ' within the meaning of Rule 3 A, but was the 'conclusion ' of the High Court.
The full Bench also made a distinction between 'reason ' and 'conclusion ' and took the view that as no reason was given by the High Court as to why the respondent should not be deemed to be in quasi permanent service, the impugned order of 497 termination of the service of the respondent was illegal and invalid.
In that view of the matter, the Full Bench quashed the impugned order of termination of the respondent and allowed the writ petition, although the learned Single Judge referred the writ petition to the Full Bench for answering the question as mentioned above.
Dr. Chitale, learned Counsel appearing on behalf of the High Court, submits that both the Division Bench and the Full Bench proceeded on an erroneous view that Rule 3 A would apply to the members of the Subordinate Judicial Service.
He has drawn our attention to the Madhya Pradesh Judicial Service (Classification, Requirement & Conditions of Service) Rules, 1955, hereinafter referred to as 'M.P. Judicial Service Rules ', framed under the proviso to Article 309 of the Constitution.
There can be no doubt the M.P. Judicial Service Rules are special rules applying to the members of the Subordinate Judicial Service of the State of Madhya Pradesh.
Rule 16 provides as follows: "R. 16.
( 1) Every person appointed to the cadre by direct recruitment shall be required to undergo training for a period of one year at the end of which he shall be placed on probation for a period of one year.
(2) The training shall be such as may be prescribed by the High Court.
(3) Every such person shall be required to pass the departmental examinations prescribed for Civil Judges.
(4) The probationers may, at the end of the period of their probation, be confirmed subject to their fitness for confirmation and to having passed the departmental examinations by the higher standard.
(5) The High Court may in any case recommend the extension of the period of probation by a period not exceeding one year.
If the person concerned is not considered fit for confirmation at the end of such period, or fails to pass the prescribed departmental examinations, his services shall be dispensed with." Rule 16(5) provides, inter alia, that if the person concerned is not considered for confirmation at the end of the probationary period, his services.
shall be dispensed with.
Whether a member of Subordinate 498 Judicial Service should be confirmed or not is absolutely the concern of the High Court.
The question of confirmation falls squarely within Article 235 of the Constitution and no rule framed by the State Government can interfere with the control vested in the High Court under Article 235.
In B.S. Yadav vs State of Haryana, ; a Constitution Bench of this Court held that the question whether a particular judicial officer has successfully completed his probation or not is a matter which is exclusively within the domain of the High Court to decide.
In an earlier decision of this Court in High Court of Punjab & Haryana vs State of Haryana, ; it was held that the confirmation of persons appointed to be or promoted to be District Judges was clearly within the control of the High Court under Article 235 of the Constitution.
In view of the above decisions of this Court, it must be held that both the Full Bench and the Division Bench were wrong in placing reliance upon Rule 3 A of the Rules.
As the High Court did not confirm the appellants in Civil Appeals Nos.
59 & 60 of 1982 and the respondent in Civil Appeal No. 2860 of 1985, the question of their being deemed to be in quasi permanent service does not arise.
Further, as the question of confirmation was completely within the domain of the control of the High Court under Article 235 of the Constitution, there was no necessity to read the words "competent authority" in place of the words "appointing authority", for Rule 3 A was inapplicable to the members of the Subordinate Judicial Service.
Moreover, as already noticed, there is a specific provision for termination of service of a judicial officer who is found by the High Court to be unfit for confirmation as provided in Rule 16(5) of the M.P. Judicial Service Rules.
Dr. Chitale, learned Counsel for the High Court, has produced before us the confidential service records of all these judicial officers.
We have carefully gone through the yearly reports of the appellants in Civil Appeal Nos.
59 & 60 of 1982.
Whatever might be the adverse remarks against the appellant No. 1, the report of the learned District & Sessions Judge dated March 31, 1978, is quite favourable except that it has been pointed out in the report that she should be careful to see that all her judgments are properly paragraphed and findings are noted against all issues.
Further, it has been observed that there is need for improvement in the quality of her work.
In view of the said report of the District & Sessions Judge, we do not think that the High 499 Court was justified in not confirming the appellant.
So far as appellant No. 2 in Civil Appeal Nos.
59 & 60 of 1982 is concerned, the report for the period from 1 4 1977 to 31 3 1978 contains the remark "very good".
It was also recorded under the general remarks "He is very industrious.
During the year under report he disposed of 68 old civil suits; ' In the report for the period ending September 30, 1978 it has been observed "His reputation is bad at present.
He has been asked to improve his image." This observation is somewhat vague.
The report for the period ending March 31, 1979 is, however, completely in favour of the appellant.
The performances of the appellant have been found to be highly satisfactory.
As regards the respondent in Civil Appeal No. 2860 of 1985, although he succeeded before the Full Bench on a technical plea based on Rule 3 A of the Rules which is not applicable, we are of the view that the High Court had justification for not confirming the respondent.
It, however, appears from the records that the respondent has improved much and, indeed, the report for the period from 24 10 1985 to 31 3 1986 shows that his performances for the said period were satisfactory.
The subsequent report for the period from 1 4 1986 to 31 3 1987 also shows that on the whole his performances were satisfactory.
Accordingly, we are not inclined to interfere with the order of the Full Bench.
In the circumstances, although we accept the contention made on behalf of the High Court that Rule 3 A of the Rules was not applicable to the members of the Subordinate Judicial Service, and that the question of confirmation of judicial officer was completely within the domain of control of the High Court under Article 235 of the Constitution, we are unable to accept the finding of the High Court that the appellants in Civil Appeals Nos.
59 & 60 of 1982 and the respondent in Civil Appeal No. 2860 of 1985 should not be confirmed as Civil Judges.
In view of the discussion made above, we set aside the judgment and order of the Division Bench in Civil Appeals Nos.
59 & 60 of 1982 and also the impugned orders terminating the services of the appellants.
The appellants are reinstated in service with arrears of pay, since the date of termination, to be paid within three months from date.
So far as Civil Appeal No. 2860 of 1985 is concerned, we affirm the order of the Full Bench quashing the impugned order of termination of services of the respondent, but not the reasons for such quash 500 ing and direct that for a period of three years the respondent shall be The appeals are disposed of as above.
There will, however, be no order as to costs in any of them.
N.P.V. Appeals disposed of.

dataset_name: IN-Abs

summary:
% The appellants in C.A. Nos. 59 and 60 of 1982, who were appointed as Civil Judges on temporary and officiating basis on probation, were not confirmed after the expiry of the period of probation or the extended period of probation, and their services were terminated by the State Government under Rule 12 of the Madhya Pradesh Government Services (Temporary and Quasi Permanent Service) Rules, 1960.
They filed writ petitions before the High Court, challenging the orders of termination of service as illegal and invalid, contending that in view of Rule 3 A, providing that a Government servant in respect of whom a declaration under cl.
(ii) of Rule 3 had not been issued, but had been in temporary service continuously for five years in a service or post in respect of which such declaration could be made, shall be deemed to be in quasi permanent service unless for reasons to be recorded in writing they should be deemed to be in Quasi Permanent Service, since no declaration under cl.
(ii) of Rule 3 had been issued and they had been in service continuously for five years.
On behalf of the respondents it was contended that the question of confirmation came within the purview of Article 235 of the Constitution vesting in the High Court control over subordinate courts and, consequently, the provision of Rule 3 A had no application to the members of the Subordinate Judicial Service.
Division Bench of the High Court took the view that if in Rule 3 A in place of the words "appointing authority" the words "competent authority" be read it would be consistent with Article 235 of the 493 Constitution, and dismissed the writ petitions holding that the resolution passed in the Court meeting, adjudicating the appellants unfit for confirmation, satisfied the requirement of Rule 3 A as continuance in Quasi Permanent capacity was included within the ambit of confirmation.
The services of the respondent in .A.
No. 2860 of 1985 were also terminated under Rule 12 of the Rules.
In the writ petition filed by him, the Full Bench of the High Court, while approving the aforesaid view expressed by the Division Bench, held that the findings of the High Court in its resolution, considering the respondent unfit for confirmation, could not be regarded as reasons within the meaning of Rule 3 A, and quashed the impugned termination order.
Disposing of the appeals, ^ HELD: Whether a member of Subordinate Judicial Service should be confirmed or not is absolutely the concern of the High Court.
The question of confirmation falls squarely within Article 235 of the Constitution and no rule framed by the State Government can interfere with the control vested in the High Court under Rule 235.
[498A B ] B.S. Yadav vs State of Haryana, ; and High Court of Punjab & Haryana vs State of Haryana, ; relied on.
Both the Full Bench and the Division Bench were wrong in placing reliance upon Rule 3 A of the M.P. Government Service (Temporary and Quasi Permanent) Rules, 1960.
As the High Court did not confirm the omcials, the question of their being deemed to be in Quasi Permanent Service does not arise.
Further, as the question of confirmation was completely within the domain of the control of the High Court under Article 235 of the Constitution, there is no necessity to read the words "competent authority" in place of "appointing authority", for Rule 3 A was inapplicable to the members of the Subordinate Judicial Service.
Moreover, there is a specific provision in the termination of service of a Judicial officer who is found by the High Court to be unfit for confirmation as provided in Rule 16(5) of the Madhya Pradesh Judicial Service (Classification, Requirement


judgement:
Civil Appeal Nos. 2049 and 3 128 of 1979.
From the Judgment and order dated 2.3.1979 of the High Court f Patna in C.W.J.C. NO.1820 of 1977.
Dr. Y.S. Chitale, S.S. Javali, Narendra Prasad and Ranjit Kumar for the Appellants.
412 S.N. Kacker, and L.N. Sinha D. Goburdhan, M.L. Verma and A Dalip Tandon for the Respondents.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
These two appeals are by special leave.
They are directed against the same judgment of the Patna High Court in an application under Article 226 of the Constitution filed by respondents 6 to 51 of Civil Appeal No. 2049 of 1979.
In the Writ Petition the aforesaid respondents impleaded the State of Bihar and certain public officers as also all others who were included in the gradation list for purposes of seniority in the combined cadre of engineers in the Department of Agriculture.
The other appeal is by the State of Bihar and its public officers and both the appeals challenge the correctness of the decision of the Division Bench of the High Court.
Both the appeals are disposed of by this judgment.
There were three different wings of engineers in the Department of Agriculture being Irrigation, Minor Irrigation and River Valley Projects.
On 9th January, 1969, the State Government amalgamated the cadre of engineers and other employees of the Irrigation and the River Valley departments.
Engineers and other employees of the Minor Irrigation wing were, however, not amalgamated.
On 17th November, 1969 the Directorate of Minor Irrigation was made permanent and the State Government created a distinct and permanent cadre of overseers who came to be known as Junior Engineers.
191 permanent posts of overseers were sanctioned.
Discussions were held and committees were appointed for the purpose of merging the Minor Irrigation wing with the other two wings which had already been amalgamated in 1969.
On 17th May, 1976, the Government ultimately approved the Minor Irrigation wing to amalgamate.
On 29th August, 1977, the Engineer in Chief cum Special Secretary, Irrigation Department, circulated a combined final gradation list said to have been prepared, taking into consideration the status of the overseers as obtaining on 9th January, 1969.
On 30th June, 1978, an amended combined gradation list was published which was further changed on 18th July, 1978.
Respondents 6 to S 1 had already filed their writ application before the Patna High Court being C.W.J. Case No. 1820 of 1977 which the High Court by the impugned judgment dated 2nd March, 1979 allowed.
The High Court quashed the orders contained in Annexures 11, 11/1, 12, 13, 13/1, 15 and 16 and called upon the State Government and its officers to prepare a fresh combined gradation list in accordance with the principles laid down in the judgment.
413 The High Court referred to all the materials that were placed before it by the different parties and in para 17 of the judgment came to the conclusion: "From the discussion of the facts of the case before us, it is clear that the petitioners got their substantive appointments earlier than the respondents concerned and if seniority would have ranked on that consideration, then the petitioners would have ranked senior in the integrated cadre.
This was also the recommendation of both the High Powered Committees which suggested that two seniority lists, one for the permanent incumbents and the other for the temporary incumbents, be framed.
No specific rule was brought to our notice by either side which could govern the case of the petitioners and the respondents.
On the other hand, learned counsel for the petitioners has referred to the instructions issued by the Personnel Department of the State Government to all Principal Secretaries and Heads of Departments etc.
in its memo No 3/RI 106/72 F 15784 dated the 26th August, 1972.
Clause 3(vii) thereof provides that in the event of amalgamation of cadres seniority is determined with reference to the date of appointment in the particular grade on substantive or continuous officiating basis, whichever is earlier, without.
however, disturbing the inter se seniority of incumbents in any group of posts as amongst themselves in that process.
No other rule was brought to our notice on behalf of either the learned counsel appearing for the State or the contesting respondents.
An attempt had been made before the High Court to rely upon the executive instructions issued in a Government resolution (Annexure 9).
The High Court found that the circular had got no application to the case before it and it related to secretariat assistants.
The High Court was not prepared to act upon it because it was not laying down any general principles.
According to the High Court: "Substantive appointment in a service gives the incumbent a right and if that cannot be taken away by a temporary incumbent of the same department, we do not see why that right should be allowed to be taken away if a question of integration or merger comes in by such incum 414 bents who were similarly temporary and thereby junior to the permanent employees.
In our opinion.
therefore, the gradation list in this case (Annexure 12) is violative of the principles contained in Articles 14 and 16 of the Constitu tion and impinges upon the civil rights of the petitioners, making them several hundreds places junior in the integrated or combined cadre on a basis which cannot, in any view of the matter, be said to be reasonable in the light of the principles discussed in the aforesaid authorities.
" It is not in dispute that the three wings, though under the administrative control of the Agricultural Department, were separate before amalgamation.
As already pointed out, permanent posts had been sanctioned in the Minor irrigation wing to which the petitioners before the High Court belonged and they were appointed on permanent basis.
The High Powered Committees had taken all aspects into consideration and had recommended relevant aspects to be kept in view to regulate seniority in the merged cadre.
When integration takes place and officers in different cadres are merged into one, there is bound to be some difficulty in the matter of adjustment.
That obviously has occurred here.
The High Court has found that the petitioners before it had held, on the basis of confirmation, permanent posts and on that basis directed that the combined seniority list should be prepared taking dates of substantive appointments as the basis for fixing inter se seniority.
That indeed might create problems because depending upon availability of opportunities in the different wings, confirmation may have been granted while in the absence of the same, though officers in the other wings may be senior they may not have been confirmed.
The approach of the High Court has been, as extracted above by us, that if within the cadre earlier confirmation gives seniority why should that basis be not extended to the combined gradation list.
This may not be applicable in every situation particularly when there is a merger of cadres and the combined gradation list is proposed.
It is a well settled position in law that seniority would ordinarily depend upon length of service subject, of course, to rules holding the field.
That view has been taken by this Court in several cases and it is unnecessary to refer to all of them.
In A. Janardhana vs Union of India & Ors., ; the situation was somewhat the same as here.
The Court found that the method adopted for fixing seniority overlooked the character of appointments and pushed down persons validly appointed below others who had no justification to be given higher place.
At page 960 of the Reports, the Court observed: 415 "It is an equally well recognised canon of service jurisprudence that in the absence of any other valid rule for determining inter se seniority of members belonging to the same service, the rule of continuous officiation or the length of service or the date of entering in service and continuous uninterrupted service thereafter would be valid and would satisfy the tests of Article 16.
" We may also refer to a very recent decision of this Court in K.S. Vora & ors.
vs State of Gujarat & Ors., [1987] 4 Judgment Today 179.
The High Court recorded a finding that there is no applicable rule in the matter of fixing inter se seniority in a situation of this type.
In the absence of rules, the more equitable way of preparing the combined gradation list would be to take the total length of service in the common grade as the basis for determining inter se seniority.
We would like to add that in regard to the Supervisors (now called Junior Engineers) serving in the three wings there is no dispute of the grade being the same.
While we do not agree with the High Court that confirmation should be the basis and would substitute it by the length of service test, we would uphold the direction that in fixing the combined gradation list the inter se seniority of the incumbents in their respective departments would not be disturbed.
Even if this be the test, the gradation list as published by Government has to be modified.
We would accordingly confirm the conclusion of the High Court that Annexures 1 1, 11/1, 12, 13, 13/1, 15 and 16 should be quashed and a fresh combined gradation list has to be published.
We have altered the lest for fixing the seniority inter se generally but we have approved the direction of inter se seniority in their own departments to be respected.
The respondent State and its officers are directed to prepare and pubIish the fresh combined gradation list keeping the aforesaid directions in view.
Both the appeals are allowed to the extent indicated above.
Parties shall bear their own costs throughout.
S.L. Appeals allowed.

summary:
% Civil Appeal Nos. 2049 and 3129 of 1979 were filed in this Court by special leave against the judgment of the High Court in a Writ Petition filed by respondents 6 to 51 of Civil Appeal No. 2049 of 1979.
One appeal was.
by the employees and the other, by the State of Bihar, etc., against the judgment of the High Court above said.
There were three different wings of Engineers in the Department of Agriculture, viz., Irrigation, minor Irrigation and River Valley Projects.
On January 9, 1969, the State Government amalgamated the cadres of engineers and other employees of the Irrigation and the River Valley departments.
Engineers and other employees of the minor Irrigation wing were not amalgamated.
Later, the Directorate of minor Irrigation was made permanent and a distinct and permanent cadre of overseers termed as Junior Engineers, was created.
191 permanent posts of overseers were sanctioned.
Thereafter, the minor Irrigation wing was also amalgamated with the other two wings, and a combined final gradation list prepared on the basis of the status of the overseers as obtaining on.
January 9, 1969, was issued.
On the Writ Petition of the respondents 6 to 51 above mentioned, the High Court quashed the orders contained in the various annexures viz 11.11/1, 12, 13, 13/1, 15 and 16 directed the State Government to prepare a fresh combined gradation list in accordance with the principles laid down by the High Court.
Allowing the appeals in part, the Court, ^ HELD: The three wings though under the administrative control of the Agricultural Department, were separate before amalgamation.
Permanent posts had been sanctioned in the minor Irrigation wing to 411 which the petitioners before the High Court belonged and they were appointed on permanent basis.
When integration takes place and officers in different cadres are merged into one, there is bound to be some difficulty in the matter of adjustment.
That has occurred in this case.
The approach of the High Court has been that if within the cadre earlier confirmation gives seniority why should that basis be not extended to the combined gradation list.
That may not be applicable in every situation particularly when there is a merger of cadres and the combined gradation list is proposed.
[414C D,FJ] Seniority would ordinarily depend upon the length of service, subject, of course, to the rules holding the field.
This view has been taken by this Court in several cases.
The High Court recorded a finding that there is no applicable rule in the matter of fixing inter se seniority in a situation of this type.
In the absence of rules, the more equitable way of preparing the combined gradation list would be to take the total length of service in the common cadre as the basis for determining the inter se seniority The Court does not agree with the High Court that confirmation should be the basis and would substitute it by the length of service test, but the Court upholds the direction that in fixing the combined gradation list the inter se seniority of incumbents in their respective departments would not be disturbed.
The gradation list as published by the Government has to be modified.
The conclusion of the High Court that Annexures 11, 11/1, 12,13, 1311, 15 and 16 should be quashed and a fresh combined gradation list has to be published, is confirmed.
The test for fixing the seniority inter se generally, is altered, but the direction of inter se seniority in their own departments to be respected is approved.
The respondent State directed to prepare and publish the fresh combined gradation list keeping these directions in view.
[4t4G; 4t5C F] A. Janardhana vs Union of India and Ors., ; and K.S. Vora and Ors.
vs State of Gujarat and Ors.
, ; , referred to.