Holding

The Prize Chits and Money Circulation Schemes (Banning) Act, 1978 is a valid exercise of Parliament’s power and a reasonable restriction on trade in the public interest.

Summary

The Supreme Court examined the constitutionality of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, which imposes a total ban on prize chit schemes. Petitioners argued that the ban violated the fundamental right to trade under Art.19(1)(g), was discriminatory under Art.14, and exceeded Parliament's legislative competence under List III Entry 7. The Court held that the ban is a reasonable restriction under Art.19(6) aimed at protecting the public from the exploitative nature of prize chits, that the classification of exempted schemes under Section 11 is a valid differentiation, and that Parliament is competent to legislate because the subject matter is not a lottery but a special contract with gambling elements. Consequently, the writ petitions were dismissed and the Act upheld.

Issues considered

The ban under the Prize Chits Act violates Art.19(1)(g) – freedom to trade.
The classification of prize chits versus conventional chits infringes Art.14 – equality.
The Act exceeds Parliament's legislative competence under List III Entry 7.
The validity of exemptions provided in Section 11 of the Act.

Legislation cited

Subjects

Prize chitMoney circulation schemeFundamental rightsArticle 19Article 14Legislative competenceList IIIPublic interestBanSocial legislation

Judgment

801

A

SRINIVASA ENTERPRISES & ORS.

v. B
UNION OF INDIA ETC.
24th September 1980.

[V. R. KRISHNA IYER, R. S. PATHAK AND 0. CHINNAPPA REDDY, JJ]
c
Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (43 of
1978) & Constitution of India 1950, Arts. 14, 19(1) (g) and List lll Entry 7-
Parliament whether competent to enact legislation-Act whether constitutionally
.m/id.
Constituiion of India 1950, Art. 32-Petition under-Court's function not
to give advisory opinion.
D
Prize Chits are ·one type of saving schemes. In Prize Chits the organiser
collects subscription in one lump sum or by monthly instalments spread over
a specified period from the subscribers to the schemes. Periodically, the num-
bers allotted to the members holding the tickets or units are put to a draw
and the member 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 E
and his name is deleted from further draws. In case members do not get
any prize, the schemes usually provide for the return of subscription paid by
the members with or without an additional sum by way of bonus or premium
at the end of the stipulated period.

l As the flood of funds flowing through these 'prize chits benefited only
the organisers of such schemes, and the total number of people victimi~ed
by these projects were considerable and injury to the community substantial,
the Central Government set up a Study Group which went into the operation
F

of these schemes. The Report of the Study Group demonstrated the many
sinister effects and also exposed the anti-social impact upon the community
by the operation of such schemes, and recommended to the State to intervene
and interdict.
The Central Government thereupon undertook legislation for curbing the G
effect of the operation of these schemes by enacting the Prize Chits and Money
Circulation Schemes (Banning) Act, 1978.
The petitioners in their writ petitions under Article 32 of the Constitution
assailed the aforesaid statute : (1) contending that a package of proper safe-
guards would adequately protect the community, a total ban. being recklessly
excessive, unintelligently over-broad and, therefore, unconstitutional, under Arti- H
cle 19(1)(g), (2) conventional chits and prize chit~ are substantially similar and,
therefore, permission to continue 'conventional chits' and prohibition of prize
chits was discriminatory under Article 14, (3) there is a discriminatory exemp-
802 SUPREME COURT REPORTS [1981] 1 S.C.R.

A tion from the operation of the prohibition in regard to those categories of
prize chits which fall within section 11, and (4) the legislation being aimed at
prize chits and intended to ban lotteries, would fall within the State List,
Entry 34 List II and Parliament cannot enact such a law under Entry 7 of
List III.

Dismissing the writ petitions,
B
HELD : (1) (i) There is a sufficient justification for undertaking legislation
restricting the freedom to fleece through prize chits. [8 IOE].
(ii) The legislation cannot be struck down on the score of Art. 19(1)(g}
of the Con~titution. [8 I IF]
(iii) The requirements of Art. 19(6) are, the reasonableness of the restric-
c tion upon the fundamental right to trade, the measure of reasonableness being:
the compelling need to promote the interest of the general public. [SIOH]

2. Conventional chits and prize chits are different categories with different
financial features and different damaging effects. There is, therefore, no force·
in the plea of violation of Article 14. [812A]

D 3. A bare reading of section 11 makes it clear that the exempted cate-·
gories do not possess the vices of private prize chits. What .are exempted
are prize chits and money circulation schemes promoted by or controlled by
the State Governments, the Central Government, or the State Bank of India
or the Reserve Bank. Even Rural Banks and Cooperatives covered by s. 11,.
are subject to public control. Charitable and educational institutions are·
exempted only if they are notified by the State Government in consultation·
E with the Reserve Bank. There is, therefore, sufficient justification to justify the
different classification of these items and their exemption cannot be called in
question on the ground of violation of Art. 14. [812G-H; 813A]
4. In pith and substance the present legislation is not one against lotteries.
It deals with a special species of contracts with sinister features, although cne·

F
such feature is the award of prizes to subscribers. While motives cannot vali-
date or invalidate a legislation the core, of the subject matter must govern
competency. [813C-D]
j
5. In matters of economics, sociology and other specialised subjects, courts
should not embark upon views of half-lit infallibility and reject what economists
or social scientists have, after detailed studies, commanded as the correct course
of action. The final word is with the Court in constitutional matters but judges
hesitate to 'rush in' where even specialists 'fear to tread'. If experts fall out,
G court, perforce, must guide itself and pronounce upon the matter from the·
constitutional angle, since the final verdict, where constitutional contraventions
are complained of, belongs to the judicial arm. [8 l!B-C]
I
6. When a general evil is sought to be suppressed some martyrs may have
to suffer for the legislature cannot easily make meticulous exceptions and has
to proceed on broad categorisations, not singular individualisations. [811G]
H 7. Judicial validatidn of a social legislation only keeps the path clear for
enforcement. Spraying legislative socio-moral pesticides cannot serve any
purpose unless the target area is relentlessly hit. This legisfation enacted irr
SRINIVASA ENTERPI~.ISES v. UNION (Krishna lyer, !.) 803·

response to expert recommendation and popular clamour is to be implemented A
by dynamic State Action. [813E-F]
8. The possible hardship that bona fide prize chit promoters may suffer on
account of the total prohibition clamped down ·by this legislation can be
relieved against by the Central Government acting under Section 12. [813F]
9. Under Article 32 the Court's function is not to give advisory opinion
but to pronounce upon transgression of fundamental rights by State action. B·
[8!3H-814A] .

ORIGINAL JURISDICTION : Writ Petition Nos. 711, 138, 1152 &
1546 of 1979.
(Under Article 32 of the Constitution)
c
K. K. Venugopal and A. Subha Rao for the Petitioners in WP
'lr· Nos. 138, 711 of 79.
M. M. Abdul Khader, M. A. Feroze, M.R.K., Pillai and K. R.
Rajasekharan Pillai for the Petitioner in WP No. 1152/79.

B. Kanta Rao, P. Ram Reddy and G. Narayana Rao for the
Petitioner in WP No. 1546/79.

K. Parasaran, Solicitor-Genl and Miss A. Subhashini for the
Respondent (Union of India).

P. Ram Reddy and G. N. Rao for the Respondents in WP E.
No. 1546/79.
K. R. Nambiar for Respondent No. 3 in WP No. 1152/79.
P. H. Parekh, C. B. Singh & Rajian Kar:anjawala for the
Intervener in WP No. 711/79.
The Judgment of the Court was delivered by

KRISHNA IYER, J.--Section 2(e) of the Prize Chits and Money
Circulation Schemes (Banning) Act. 1978 (Act 43 of 1978) (for
short, the Act) defines a 'Prize chit' inclusively : -
2. In this Act, unless the context otherwise requires,- G

*** *** ***
( e) "prize chit" includes any transaction or arrange-
ment by whatever name called under which a person
collects whether as a promoter, foreman, agent or in any H
other capacity, monies in one lump sum or in instalments
by way of contributions· or subscriptions or by sale of
804 SUPREME COURT REPORTS [1981] 1 S.C.R.

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
benefit, thrift, or any other scheme or arrangement by
whatever name called, and utilises the monies so collected
or any part thereof or the income accruing from investment
B or other use of such monies 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
c in cash or in kind whether or not th<i 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 subscdbers or such of them
as have no1l won any prize or gift, the whole or part
of the subscriptions, contributions or other monies
D collected, with or without 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;
E
The quintessential aspects of a prize chit are that the organizer
collects moneys in lump sum or instalments, pursuant to a scheme
or arrangement, and he u;tilises 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
F
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 I.he words which describe the scheme.
Small sums are collected from vast numbers of persons, ordinarily
G of slender means, in urban and rural areas. They are reduced to
believe by the blare of glittering publicity and the dangling of astro-
n~mical 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 urbanites, pressured by dire
poverty and doped by the hazy hope of a lucky draw, subscribe to
H 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
SRINIVASA ENTERPRISES v. UNION (Krishna Iyer, !.) 805

a few years over peril of losing what has been paid and, at the end A
of it, the fragile prospects of their getting prizes are next to nil
and even the hard-earned money which they have invested hardly
carries any interest. They are eligible to get back the money they
have paid in driblets, virtually without interest, the expression
'bonus' in s. 2(a) being an euphemism for a nominal sum. 1 What
is more, the repayable amount being smat.l and the subscribers being B
scattered all over the country, they find it difficult even to recover
the money by expensive, dilatory litigative process.

Since there are a large number of prize chits all over the country
which have almost become a pan-Indian epidemic and since the total
number of people victimised by these projects are considerable the c
injury to the community is substantial, so that a welfare state
dedicated to the Directive Principles of Part N has to awake and
protect the vulnerable sector. Another weighty factor which has
alerted the State into action is that the flood of funds flowing
through prize chits benefit the organisers of such schemes who have
D
no social responsibility for national productivity and in their hands
is easy money with little developmental benefits or attractive returns
for the poor investors.

The noxious net cast by the prize chit promoters was large and
the State moved to stop this menace. Many a little makes a mickle,
E
and those small sums collected from a substantial number of
subscribers accumulated into huge resources which otherwise would
ordinarily have been available for national development. The grim
picture of the luckless many who were losing their money, appetized
by gambling prospects, and the sterilization of people's resources
which were siphoned off by private adventurists through prize chits F
to the detriment of national development ignited the impugned
legislation.

Such is the case of the State as justification for enacting what
is contended for as unconstitutional for three reasons which we will
presently examine. The Union of India has furnished socio-economic G
data to help the court appreciate how expert opinion had been
collected before launching on the prohibitory legislation. A study
group .headed by Dr. J. S. Raj made a report to the Central
Government wherein pointed reference was made to prize chits· and
allied schemes. The report devoted a whole chapter to prize chits,
savings schemes, and others of their ilk and exposed the modus H
operandi of such schemes and their anti-social impact upon the
community .and recommended to the State to intervene and interdict.
806 SUPREME COURT REPORTS [1981] 1 S.C.R.

A We may qutite briefly to bring home tersely the trauma inflicted by
lucky draw schemes on the host of luckless illiterates succumbing
(perhaps astrologically) to the prize mania : ( 1 )
.... l,t was observed that several companies conducting
prize chits, benefits or savings schemes or lucky draws claimed
themselves to be either mutual benefit financial companies (by
B
enrolling subscribers as 'associate' members under the directions
as they stood prior fo January 1, 1973) or as chit fund
companies and thus contended that the subscriptions collected
by them were not 'deposits' as defined in the directions and
hence not subject to any ceiling restrictions ....
c Modus Operandi of Prize Chits/Benefit or Savings Schemes or
I

Lucky Draws
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
D brisk business in several parts of the country, especially in big
cities like Ahmedabad, Bangalore, Bombay, Calcutta and
Delhi. They have 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 :
E
The company acts as the foreman or promoter and
collects subscriptions in oni lump sum or by monthly
instalments spread over a specified period from the subs-
cribers to the schemes. Periodically, the numb en: allotted
to members holding the tickets or units are put to a
F draw and the member 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
G 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 interest earned on
loans given to the subscribers against the security of the
subscriptron!> paid 6r on an unsecured basis as also loans
H
(1) Report of the Study Group on Non-Banking Companies, Reserve Bank
of India, Bombay, 1975 pp. 80-81.
SRINIVASA ENTERPRISES v. UNION (Krishna Iyer, !.) 807

to other parties, service charges and membership fees A
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 "Ind remuneration and other perquisites to the
directors. ' B

The financial fall-outs of these schemes were also examined by
the Study Group to demonstrate how ,the promoter-companies were
gargantuan and were swallowing up huge surpluses ,from the public
who lost interest on their subscriptions, and, sometimes, even the
principal amounts paid : (1) c
.... Even if the company offers some amount by way
of bonus or premium to the subscribers at the time of refund
of their subscriptions and allowing for reasonable expenditure
on publicity, commission to agents, etc., a sizeable balance
will still be left with the company. This is exclusive of the D
amounts which the company might be collecting by way
of membership fees and service charges from the subscribers
and also of the amounts which it might be appropriating in
respect of the subscriptions on forfeited tickets on which there
will be no future liability for refund to the members at the
end of the scheme. It will thus be obvious from the foregoing E
that such schemes confer moneitary benefit only on a few
members and on the promoter companies.
There is reference in the Study Group report to other studies
conducted by the Reserve Bank which also demonstrated the many
sinister effects upon the community on account of proliferous prize
F
chits-benefits schemes.(2)
(a) the companies had advanced sizeable amounts to the
directors or their relatives or firms in which they were interested
as partners, directors or ·as commission agents and there were
,practically no repayments of the loans;
G
(b) the books of account had not been maintained
satisfactorily;
( c) close relatives of the directors had been employed in
the companies as members of the staff or as agents on high
salaries;
H
(1) Report of ihe Study Group, p. 82.
(2) Report of the Study Group, pp. 82-83, 84-85.
808 SUPREME COURT REPORTS [1981] 1 S.C.R.

A ( d) In one case, it was observed that a scheme announced
by a company in which collections had been made was withdrawn
subsequently without notice to the subscribers and no refunds of
the subscriptvons already received had been made to the
subscribers. Prize moneys had not been paid to all the
subscribers who had won ~he prizes; and
B
( e) subscriptiow were shown to have been refunded i11
the books of account of a company but doubts have been
expreS'sed by the Inspecting Officer about the genuineness of the
payments in view of certain attendant circumstances. There
have a:lso been allegations that some comparues had resorted
c to certain malpractices in drawing the names of prize winners.
** ** **
........ in the absence of any authoritative judicial pronounce-
ment on the subject, we are not sure whether the activities of
companies conducting price chits, etc., are clearly prohibited by
D the existing legislations.

6.10. It has been reported that resources of prize chits
are used for wasteful spending and hoarding commodities and
that these schemes "enable certain persons to convert tax-
evadeCi income into accounted money. The persons concerned
E pay a premium to the promoters in return for the facility." It has
also been stated that "there are a number of agents who go about
contacting persons who are likely to face the problem of saving
their income from the tax authorities. The prize chit pass books
issued to them under different names become their passports
for travelling from black money territory to the white money
F area--the easiest and surest way of using ill gotten wealth.
Besides, by their misleading names and companies the prize
chit companies divert private savings into their personal drains,
thus disrupting the national economy.

G 6.11. 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 beien a public clamour for banning of such
H schemes; this stems largely from the malpractices indulged
in by the promoters and also the possible exploitation of such
'· schemes by unscrupuloll9 elements to their own advantage. We
SRINIVASA ENTERPRISES v. UNION (Krishna Iyer, 1.) 8-0~

are, therefore, of the view that ,the conduct of prize chits or
benefit scheme~ by whCJtever name called should be totally
banned in ·the larger interests of the public and that suitable
legislative measures should be taken for the purpose
1·' if the provisiorui of the existing enactmelll!s are considered
inadequate. Companie~ conducting prize chits, benefit schemes,
etc., may be allowed a period of three years which may be B
ex:tended by one more year to wind up their business in respect
of such schemes and/ or switch over to any other type of
business permissible under the law.
( empha.Sis added)
The learned Solicitor General drew our attention to cases c
where the notorious abuses by prize promoters had attracted judicial
notice. In particular, he cited a decision of the Gujarat High Court
in Navjivan Trading Financing Pvt. Ud. Thakkar, J. while dealing
with the social anguish at the exploitative spectacle, said : ( 1 )
The facts speak for themselves so eloquently that no D
further discussion is called for and it is unnecessary to
demonstrate any further that the company is in such a
precarious condition and the financial condition is so very ugly
,that there is no possibility whatsoever of the company ever
being in a position to pay its debts. It is not in a position
. to-day and, even in future, it is not likely to be in a position
. to discharge the debt burden. In fact, the deficit will go ·on
Increasing and for aught we know, more innocent persons would
be· trapped meanwhile. The contributors from whom collections
are, made are persons with extremely limited financial meanli
and are petty subscribers who cannot possibly afford to tak(l
n~course to legal. proceedings. It would be cheaper for them
to! abandon their claims than to .. make recourse to legal
.proceedings and incur expenses for court-fees and advocates'
.fees, apart from the inconvenience involved therein.
With special reference to malpractices of prize chits promoters
the learned Judge drove home the point;(2)
G
Where the company is ·not producing or manufacturing
any goods and is not rendering any service useful to the
society, where the whole purpose of its existence appears to be
to provide the directors with an opportunity to enrich themselves
at the cost of petty subscrib~rs who in the hope of getting
,some prize~ or rewards and better returns on their hard earned H
(l) (1978) 48 Comp. Cas 402 .at. 412.
(2)1bid. 416-17.
10-645 S. C. India/!JO
SlO SUPREME COURT REPORTS · ·, (1981] 1 S.C.R.

savings (sometimes I.hey may even resort to borrowing in the
lwpe of getting rich quickly) become contributories to various
schemes fioated by the. company, the matter stands on a
different. footing.· In a case like 11he present where the main
activity of the company consists in tempting and roping in
innocent persons in the scheme by publishing tantalizing
B advertisements, greater harm would ensue by refusing to pass
an order of winding up than by passing an order of winding
up. In fact, to wind up such company would be an act of
social service, for, thereby, several innocent persons would be
saved from being trapped by a company of this nature. Alas,
as discussed earlier, the time taken in affording reasonable
c opportunity to the company in obeisance to the principles of
natural justice has been utilised by . the company to collect
lakhs of rupees from the innocent subscribers merely in order
to enrich the directors in an unjust fashion. Under the
circumstances, there is no scope for hesitation or reluctance in
D winding up the company which the court ordinarily feels
when dealing with some manufacturing unit.

(emphasis added)

There is sufficient justification for undertaking legislation restrict-
ing the freedom to fleece through prize chits. Indeed, Shri Venugopal
E
did not· serious-ly contest this position. The thrust of his argument
was that his client was a well-behaved prize ~hit organizer, above
board in all respects, and so, a package of proper safeguards would
adequately protect the community and a total ban was recklessly
excessive, unintelligently over-broad and, therefore, unconstitutional. . ""
F Surely, Art. 19(6) permits reasonable restrictions in the interest
of the general public on the exercise of the right conferred by Art.
j
19 (1 )(g). It is a constitutional truism restrictions, in extreme
cases, may be pushed to the point of prohibition if any lesser
strategy will not achieve the purpose. Fundamental rights are
fundamental, and so, no ban can be glibly imposed unless effective
G alternatives are unavailable. Counsel on both sides cited rulings
for the two sides of the proposition but it is an act of supererogation
to load judgments with or profusion precedential erudition to make
out what is plain, profound. ·
The twin requirements of Art. 19(6) are (a) the reasonableness
H of the restriction upon the fundamental right to trade, and (b) the
measure of the reasonableness being the compelling need to promote
the interest of the general public. Public interest, of course, there is.
SRINIVASA ENTERPRISES v. UNION (Krishna Iyer, l.) 811

But the controversy rages round the compulsive necessity to A
extinguish the prize chit enterprises altogether as distinguished from
hand-cuffing them with severe conditions geared to protection of
public interest. We have already indicated that the Raj Report
does recommend a total ban on prize chits. In matters of economics,
sociology and other specialised subjects, courts s·hould not embark
upon views of halfl.it infallibility and reject what ~conomists or social B
:scientists have, after detailed studies, commended as the correct
<:ourse of action. True, the final word is . with the court in
ccmstitutional matters but judges hesitate to 'rush in' where even
·specialists· 'fear to tread'. If experts fall out, court, perforce, must
guide itself and pronounce upon the matter from the constitutional
angle, since the final verdict, where constitutional contraventions are c
·complained of, belongs to the judicial arm. The alternative proposals
to save the public from prize chit rackets attractively presented by Shri
Venugopal do not impress us. In many situations, the poor and
unwary have to be saved from the seducing processes resorted by
unscrupulous racketeers who glamourize and prey upon the gambling D
J
instinct to get rich quick through prizes. So Jong as there is the
resistless spell of a chance though small, of securing a prize, though
·on paper, people chase the prospect by subscribing to the speculative
:scheme only to lose what they had. Can you save moths from
the fire except by putting out the fatal glow ? Once this prize facet E
Gf the chit scheme is given up, it becomes subsantially a 'conven-
tional cMt' and the ban of the law ceases to operate. We are
unable to persuade ourselves that the State is wrong in its assertion,
based upon expert opinions that a comple(e ban of prize chits is
an over-ki1I or excessive blow. Therefore, we decline to strike down
the legislation on the score of Art. 19(1) (f) and (g) of the F
Constitution.
We may not be taken to mean that every prize chit promoter
is a blood-sucker. Indeed, Shri Venugopal persuasively presented
the case of his client to make us feel that responsible business was
being done by the petitioner. May be. But when a general evil
is sought to be suppressed some martyrs may have to suffer for G
the legislature cannot easily make meticulous exceptions and has to
proceed on broad categorisations, not singul.ar individualisations.
We give short shrift to the next contention based upon Art. 14.
Broadly presented, the argument is that conventional chits and prize
chits are substantially similar and, therefore, permission to continue H
'conventional chits' and prohibition of prize chits altogether may be
discriminatory. We do not agree. Not only do the definitions show
the differentiation between the two schemes, but the Raj Report
812 SUPREMJE COURT REPORTS [1981] 1 ·S.C.R.

A also brings out the fact that 'conventional chits' and 'prize chits' are-
different categories with different financial features and different
damaging effects. Wi: see no force in the plea of violation of Art. 14.
Equally untenable is the contention that there is a discriminatory
exemption from the operation of the prohibition in regard to those
B categories of prize chits which fall within s. 11. It runs thus :
11. Nothing contained in this Act shall apply to any prize-
chit or money circulation scheme promoted by -
(a) a State Government or any officer or authority on·
its behalf; or
c (b) a company wholly owned by a State Government.
which does not carry on any business other than the
conducting of a prize chit or money circulation scheme
whether it is in the nature of a conventional chit or
otherwise; or
(c) a bankjng company as defined in clause (c) of
D section 5 of th<~ Banking Regulation Act, 1949, or a
banking institution notified by the Central Government
under section 51 of that Act or the State Bank of Indi&
constituted unde1r section 3 of the State Bank of India Act,
1955, or a subsidiary bank constituted under section 3 of
the State Bank of India (Subsidiary Banks) Act, 1959.
E
or a corresponding new ·bank constituted under section l
of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970, or a Regional Rural Bank
established unde~r section 3 of the Regional Rural Banks.
:Act, 1976 or a co-operative bank as defined in clause (bii}
F of section 2 of the Reserve Bank of India Act, 1934; or
( d) any charitable or educational institution notified
in this behalf by the State Government, in consultation
with the Reserve Bank.

A bare reading of that provision makes it. clear that the exempted
G categories do not possess the vices of private prize chits. For one
thing, what are exempted are prize chits and money circulation
schemes promoted by or controlled by the State .Governments, the
Central Government:· or the State Bank of India or the Reserve
Bank. Even Rural Banks and Co-operatives covered by s. 11, are·
subject to public control. Likewise, charitable and educational
H institutions are exempted only if they are notified by the State
Government in consultation with the Reserve Bank. There aro
enough arguments to justify the different Classification of these items
SRINIVASA ENTERPRISES v. UNION (Krishna Iyer, 1.) 813

:and their exemption canno~ be called in question on the ground of A
--violation of Art. 14. Reasonable classification wins absolution
"'from the charge of discrimination if the differentia has a nexus with
-the statutory object.
-+-
The. final submission of Shri Venugopal was regarding legislative
·competency. He urged that legislation regarding lottery falls within B
_-the State List (Entry 34, List II) and Parliament cannot enact such
a law under Entry 7 of List III. Relying upon State of Bombay
-v. R.M.D. Chamarbugwala(l) counsel contended that the present
legislation was aimed at prize chits and intended to ban lotteries.
Such an anti-lottery law could not be sustained under Entry 7 of
the List III. We are not persuaded that in pith and substance the c
present legislation is one against lotteries. It deals with a special
species of contracts with sinister features, although one such feature
is the award of prizes to subscribers. While motives cannot validate
or invalidate a legislation the core of the subject matter must govern
·-competency. So viewed, it is easy to accept the submission of the
Union of India that Parliament wanted to restrict and prohibit certain D
-types of contracts because of the noxious element of gambling and
lottery implicit therein and apt to entice the credulous and uncautious.
We do not think it necessary to expand on the subject and the
incidental impact on lotteries does not affect the vires of the Act.
Judicial validation of a social legislation only keeps the path E
clear for enforcement. Spraying legislative socio-moral pesticides
·cannot serve any purpose unless the target area is relentlessly hit.
We hope that this legislation enacted in response to expert
recommendation and popular clamour will be implemented by dynamic
State action.
F
We wish to make it clear thait the possible hardship that bona fide
prize chit promoters may suffer on account of the total prohibition
-clamped down by this legislation can be relieved against by the
·Central Government acting under s. 12. The learned Solicitor
·General assured the court that the Union of India would take
. ameliorative measure to avoid unjust hardship, especially because it G
had power to do so under s. 12.

Mr. M. M. Abdul Khader appearing in Writ Petition No. 1152
of 1979 argued that in his case ornaments and vessels were given
as prizes and if striCtly construed, his client's scheme did not fall
within the scope of the Act. He wanted the court to declare so H
Tbut we decline to do so, since under Art. 32 this Court's function
(!) [1957) SCR 874.
814 SUPREME COURT REPORTS (1981] 1 S.C.R.

A is not to give advisory opinion to petitioners but to pronounce upon
transgression of fundamental rights by State action. While there is
no merit in his submission of procedural unreasonableness in the
provisions of the Act, it is perfectly open to the writ petitioner to
urge his plea that the Act does not apply to his scheme if he were
prosecuted. We leave the matter at that. Shri Parekh, as intervener,
B Shri Kanta Rao, appearing in Writ Peti\ion No. 1546/79, Shri Subba
Rao pressing Writ Petition No. 138/79 and Shri K.R.R. Pillai in
W.P. No. 1152/79 have adopted the leading arguments of. Shri Venu-
gopal which we have rejected. AU of them must share the same fate.
State lotteries escalating year after year and enticing proletarian
c sections of the people across the States are dubious in morality and
ruinous in impact. Moreover, a detailed study may disclose the
diminishing returns and increasing establishment expenses, menace
to peaceful life and a traffic and dubious consequences. So much
so, a second look at the propriety of these State-run schemes and
reversion to the old stance of the State setting an anti-lottery exam-
D ple, is' worthwhile from many angles.
For the reasons given above, we dismiss aU the Writ Petitions,
leaving the parties to bear their own costs.

E
N.V.K. Petitions dismissed.