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Writ Petition No. 1467 of 1957, decided on 10th June 1958, under Article 170 of the Constitution.
(a) Undesirable Companies Act (X of 1958)‑Within legislative competence of Parliament‑Interpretation of Statutes‑Enactment relating apparently to subjects within competence of two legislatures ‑Pith and substance of impugned legislation to be looked to, to determine which legislature is competent to legislate on those subjects ‑Constitution of Pakistan, Fifth Sched. item 8 of Federal List, and item 52 of Provincial List.
Held, that the Undesirable Companies Act (X of 1958) was within legislative competence of Parliament.
When an enactment apparently relates to subjects which are within the competence of two Legislatures, then, in order to determine the question of the validity of the legislation it is the pith and substance of the impugned legislation that is to be looked to.
In the present case there was a simple method by which the 'competence of Parliament to enact this piece of legisla tion could be determined. The question to be put was : if it was considered proper that companies running Imdad Schemes should be wound up and in future no company with such objects should be allowed to be registered, which Legis lature was competent to legislate on the subject The obvious answer is : the Parliament (in respect of companies with objects not confined to one Province). The Provincial Legislature has no authority whatsoever to legislate as to the registration or the winding up of such companies.
Incorporation, etc., of such companies fell under item 8 of the Federal List and not under item 52 of the Provincial List, Fifth Schedule, Constitution of Pakistan.
(b) Constitution of Pakistan, Art. 10‑Right to form "com pany" covered by Article‑rohibiting formation of "Imadadi Scheme" companies‑Prohibition held to be in interest of morality and reasonable in so far as such companies engender spirit of gambling amongst public‑Undesirable Companies Act (X of 1958).
Having regard to the ordinary meaning of the word associa tion' and to the meaning which is generally assigned to it in legal literature, Art. 10 of the Constitution of Pakistan includes the formation of companies. In Wharton's Law Lexicon company' is described as a body of persons associated for the purpose of business. Every company has got its Articles of Association. The Memorandum is called in the Companies Act the Memorandum of Association. The method of forming a company is stated in section 5 to be : "any seven persons associated for any lawful purpose may, by subscribing their names to a memorandum of association, form an incorporated company." By section 26, the Act provides that an association capable of being formed as a limited company may be registered in a particular manner if it is formed for the purpose of promoting commerce, arts or science, etc. Persons can associate for political, social or business purposes. In the absence of any limitation or qualification there is no reason why any particular kind of asso ciation be excepted from the connotation of the word association' as used in Article 10.
Parliament, by passing the Undesirable Companies Act (X of 1958), prohibited the registration of the so‑called "Imdadi Scheme" companies whose purpose was to make payments of large sums of money to subscribers by drawing lots every month in return for a small monthly contribution by each such sub scriber, the scheme, being carried on till all the subscribers were paid and the period for which the scheme was to run was exhausted.
Held, that the prohibition did not violate Art. 10 of the Constitution, and, that, it was in the interest of morality, and, reasonable, in so far as the prohibition curbed the spirit of gambling amongst the public which these companies engendered, and, further, because, in effect, the Undesirable Companies Act (X of 1958) prevented promoters' of such companies from creating and robbing and misappropriating public money.
Basu's Commentary on the Indian Constitution 1956 Edition, p. 211 ; Y. G. Row v. State of Madras A I R 1951 Mad. 147 and The State of Madras v. V G. Row A I R 1952 S C 196 ref.
(c) Constitution of Pakistan, Art. 10‑Restriction unobjec tionable if it in effect operates in interest of morality although that may not be the object in view of the legislature.
In order to be able to hold that a restriction placed by an Act is in the interest of morality it is not essential that the Legislature has this object in view at the time when it legislates. It is sufficient that as a matter of fact a piece of legislation does secure the interest of morality.
(d) Undesirable Companies Act (X of 1958), S. 7‑Powers of Registrar not "unguided" in so far as High Court can go into question whether a company is "undesirable" or not.
(e) Undesirable Companies Act (X of 1958), S. 3‑Mere existence of "specified purpose" not enough‑Company must be doing business of a "specified purpose" for profit.
Mere existence of a "specified purpose" is not sufficient to make a company an 'undersirable company." Section 3 requires that the company should be doing business for a "specified purpose." This means that the company should be running the scheme with a view to get a benefit out of it. Business means activity carried on for profit . . . . . . In all cases where the definition of "specified purpose" applies to a scheme, the question will still be whether the company is running the scheme as a business...' The answer to this question will depend on the .particular circumstances of each case.
(f) Constitution of Pakistan, Art. 5‑Equality before law Explained‑Parliament enacting law within its own legislative sphere‑Enactment not discriminatory‑Objection that enactment is inapplicable in so far as Provincial Legislative sphere is con cerned untenable‑Undesirable Companies Act (X of 195 8) does not violate Art. 5.
According to Article 5, all persons are equal before like law and are entitled to the equal protection of law Equal protection of law has been interpreted as meaning that then, shall be no arbitrary discrimination, that classification shall be reasonable and that to similar circumstances the same law will apply. This appears to be the accepted meaning of this phrase which means that two sets of circumstances shall not have different legal effects unless the difference of circumstance between the two sets is sufficient, in reason, to justify the difference in effect, or that if a law applies to one set of circumstances and does not apply to another, the difference between the two sets should be material enough to support the discrimination. All law implies classification for when it applies to a set of circumstances, it creates thereby a class, and equal protection means that this classification should be reasonable.
The Undesirable Companies Act (X of 1958), passed by Parliament, applied within the legislative sphere of Parliament, that is to say, to undesirable companies with objects not confined to a Province. It was objected that the Act being discriminatory violated Art. 5‑of the Constitution.
Held, that no law could be held invalid under Article 5 on the ground that two persons similarly situated the same law was not applicable if it be not within the competence of the legis lature enacting that law to legislate in respect of all those persons. It was true that there was no reason why companies with objects not confined to one Province should be treated differently from those with objects confined to one Province; but Parliament having no authority to legislate in respect of the second class of companies, there was no violation of Article 5.
Nor was the Act invalid for having been applied to associa tions and not to individuals so far as its application within the Federal Capital was concerned, for that may be a very good basis of classification. The legislature is not bound to go farther than would be sufficient for attaining its object. The legislature may have found that it is on account of the association of persons that the evil has prospered and if persons are not allowed to associate for the running of Imdadi Schemes the evil will disappear. If, on the other hand, the object of the legislation be to penalise not ‑the association but the act of running the scheme, there would be no good ground for a discrimination between individuals and associations.
It cannot be accepted as a general proposition that the mere fact that an event of a particular class is not proved to have occurred when the law was enacted prevents the Court from taking it into consideration at all in deciding whether a law is discrimi natory.
Keokee Consolidated Coke Company v. J. P. Kelly 234 U S 224 distinguished:
(g) Constitution of Pakistan, Art. 12‑Whether legislature can make a business as such unlawful.
‑A competent legislature can declare any profession, occupation, trade or business to be unlawful and on that being done the profession occupation trade or business, as the case may be, will cease to be one mentioned in Article 12 of the Constitution Act.
‑A fundamental right is a limitation on the power of the legislature and is a guarantee to a person, citizen, that such rights shall not be taken away by legislation. To say that the legislature can pronounce a business to be unlawful would mean that there is no fundamental right in Pakistan with respect to business, trade, etc.
Art. 12 of the Constitution debars the legislature from making a business as such unlawful the individual act involved in which is not unlawful.
Article 12 guarantees to the citizen the right to carry on any business, occupation, trade, or profession (subject to a licensing system and a monopoly of the State) with this limitation only that the citizen is not entitled by virtue of the Article to do an act which, when done otherwise than as part of a business, etc., was unlawful. There is no other limitation of this fundamental right.
(h) Penal Code (XLV of 1860), S. 294‑A‑Lottery‑.‑:Physical drawing not necessary‑Section applies to all methods dependant upon chance‑"Imdadi Scheme" companies, not entitled to protection of Art. 12, Constitution of Pakistan‑Undesirable Companies Act (X of 1958).
Section 294‑A applies to all methods dependant solely on chance whether there be a physical drawing or not.
Emperor v. Mukandi Lal A I R 1917 Lah. 93 ; Emperor v. Gurbakhsh Singh A I R 1934 Lah. 840 and Public Prosecutor v. K. B. Kalkura A I R 1942 Mad. 404 considered.
As "Imdadi Scheme" Companies, run their business for a "specified purpose" as defined in Undesirable Companies Act (X of 1958) which is within the mischief of S. 294‑A, P. P. C., such companies are not entitled to the protection of Art. 12 of the Constitution.
(i) Constitution of Pakistan, Art. 12‑Applies. to "citizens" and not to companies.
Article 12 applies only to citizens. "Citizen" as provided in Article 218 of the Constitution means a citizen according to the law relating to citizenship. The relevant law is the Citizen ship Act of 1951. As to who are to be citizens of Pakistan is explained in sections 6, 7 and 9 of that' Act; and it is clear that only a natural person can be a citizen. A company cannot be a citizen at all. A corporation is in law an entity distinct from its shareholders. If the company is not a citizen it is not entitled to the protection of‑ Article 12.
(j) Constitution of Pakistan, Art. 12‑Right to pursue lawful profession, etc.-Explained.
Every Act which in fact interferes with the carrying of a business or profession is not an interference with the right to carry on a business or profession. When a person is imprisoned, or his property is taken in execution of an order relating to payment of fine, or in execution of a Civil Court's decree, he is in fact prevented from carrying on a business or profession but the laws which provide for these punishments and for the execution of decree, are not in conflict with the fundamental right guaranteed by Article 12. A law will be a restraint on a fundamental right only if it attaches to the exercise of that right a liability, or a consequence detrimental to the person who exercises it. The mere fact that the law produces effects which in fact interfere with such exercise is insufficient to make it a restraint on the exercise of the right. If a law said no person shall purchase a lamp the law would not be a restraint on the profession of a dentist even though it did hinder him in his profession, but if the law said a dentist could not purchase a lamp, there would be restraint on the right to carry on a profession and Article 12 would be violated. If a law provided that no person could purchase a house in Lahore, the law would not be restraint on the exercise of the profession of a lawyer even though it would in fact interfere with such exercise, but it would be such restraint if it provided that no lawyer could purchase a house in Lahore. In the first case no liability is attached to the carrying on of a profession while in the second case it is so attached.
Nemo for Petitioner (Progress of Pak. Co. Ltd. Karachi).
Faiyaz Ali, Attorney General and M. Anwar, Assistant Advocate General for Respondents (Registrar, Joint Stock Co. Karachi etc.)
Dates of hearing : 15‑1‑58, 16‑1‑58, 17‑1‑58, 18‑1‑58, 11‑2‑58, 12‑2‑58, 13‑2‑58, 14‑2‑58, 25‑2‑58, 26‑2‑58 and 27‑2‑58.
‑This judgment will dispose of fifteen writ petitions filed by companies who have been proceeded against under the Undesirable Companies Ordinance XIV of 1957, super seded now by the Undesirable Companies Act (No. X of 1958), challenging the validity of the Act.
2. A large number of companies have for the last few years been running what are called Imdadi Schemes. The general features‑ of these schemes are that the company constitutes groups of persons who contribute a sum of money monthly, and every month a prize out of the sum collected is paid to a member of the, group whose name is determined by lot, and this goes on till all the members are paid, and till the period for which the scheme is to run is exhausted. To take a typical case, the number of members of a group is 500. Each member contributes Rs. 5 every month and the period of the scheme is 100 months. The amount of the prize to be paid to a member is Rs. 500. Every month, by means of process which will be explained later and the basis of which is chance, the name of tine of the members who is to receive a prize of Rs. 500 in that particular month is discovered. That member is paid Rs. 500 and then he ceases to be a member of the group and is not any more subject to any liability. This process is repeated till 100 months expire. For about 70 or 80 months, only one member is paid every month. In the remaining months as all the 500 members have to be paid and the number of months is only 100 payments are made to a larger number of members so that when 100 months expire every member has been paid. Even the amount of the prize is enhanced in the months near the end of the period of the scheme. Rs. 600, Rs. 700, Rs, 800 and even Rs. 1,000 are some time paid as a prize. The promoters of these schemes claim that all the members receive more than what they have paid. These schemes lured the public and lakhs of persons, generally from the poorer classes, became involved in them. After some time there were complaints in the press and otherwise that the public was being robbed. The Central Government instituted inquiries, and found that the schemes were wholly unworkable, that they were conceived in fraud and that the intention of the pro moters was only to rob the people. The President of the Islamic Republic of Pakistan promulgated the Companies Ordinance, the object of which was to put an end to such companies. It is not necessary to refer to the provisions of that Ordinance, because it has been superseded by the Undesirable Companies Act (X of 1958) passed by the Parliament. I reproduce below the relevant provisions of this Act .
"Section 2
In this Act, unless there is anything repugnant in the subject or context‑
(a) specified purpose' means for promotion or the carrying on of any scheme or business except the business authorised and carried on under the provisions of the Insurance Act, 1938, by whatever name called, whereby, in return for a deposit or contribution, whether periodically or otherwise, of a sum of money in cash or by means of coupons, certificates, tickets or other documents, payments, at future date or dates of money or grand of property, right or benefit, directly or indirectly, and whether with or without any other right or benefit, determined by chance or lottery or any other like manner, is assured or promised ;
(b) undesirable company' means a company which with objects and business not confined to one Province, is registered under the Companies Act, 1913, and carries on business for a specified purpose or for purposes which, among, others, Include a specified purpose and includes a company, association or other body of individuals which, with objects and business confined to the Federal Capital, carries on business for a specified purpose or for purposes which, among others, includes a specified purpose ; and
(c) all other words and expressions have the same meanings as assigned to them under the Companies Act, 1913.
Section 3 (1):
Notwithstanding anything in the Companies Act,. 1913, or in any other law for the time being in force, no association or other body of individuals which, with objects and business not confined to one Province, carries or intends to carry on business for a specified purpose or purposes which among others, include a specified purpose, shall on and after the commencement of this Act, be registered under the Companies Act, 1913.
(2) Registration in contravention of subsection (1) shall be void.
(3) Notwithstanding anything contained in any other law for the time being in force, no company, association or other body of individuals, with objects and business confined to the Federal Capital, shall carry on, or shall be formed to carry on, business for a specified purpose or for purposes which, among others, include a specified purpose.
(4) Any person who forms, or associates himself in the formation of, a company, association or other body of individuals in contravention of sub‑section (3) and every officer or agent of a company, association or other body of individuals which carries on business in contraven tion of the said subsection shall be punishable with im prisonment for a term which may extend to three years or with fine or with both.
Section 4:
(1) Every undesirable company existing immediately before the commencement of this Act, shall, on such commencement, cease to function and, notwithstanding anything in the Companies Act, 1913, or in any other law for the time being in force, shall be wound up and dissolved in the manner provided in this Act.
(2) Any transaction with an undesirable company or with any officer or agent acting for or on behalf of such company shall be void.
(3) Any officer or agent acting for or on behalf of any such company who, on or after the commencement 'of this Act, carries on, or attempts to' carry on the business of the com pany shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
Section 5:
(1) Any officer or agent acting for or on behalf of an undesirable company who has in his possession or under his control any cash belonging to the company shall, immediately after the commencement of this Act, deposit or cause to be deposited such cash with the company's bankers.
(2) Until such time as the official liquidator appointed under section 7 takes into his custody or under his control all the books, documents and assets of the company, including actionable claims to which the company is or appears to be entitled, every officer and agent acting for or on behalf of the company shall preserve all such books, documents, assets, property, effects and claims and shall be jointly and severally liable for any loss or damage.
(3) Any person who, with intent to evade the provisions of this Act, conceals, destroys, mutilates or defaces any books, documents, assets, property, effects or claims or know ingly allows such concealment, destruction, mutilation or defacement to be caused, shall, without prejudice to any liability to which he may be subject under sub‑section (2), be punishable with imprisonment for a term which may extend to three years or with fine or with both.
Section 6:
(1) Within three days of the commencement of this Act, or within such period as the Registrar may allow, the manager of an undesirable company shall submit to the Registrar a statement showing the assets and liabilities of the company.
(2) Anyone who contravenes the provisions of subsection (1) shall be punishable with imprisonment for a term which may extend to one ‑year or with fine or with both.
Section 7 :‑
(1) As soon as may be after receipt of the statement sub mitted under sub‑section (1) of section 6, the Registrar shall make a petition to the Court for winding up the company, and thereupon the Court shall make an order for the winding up of the company and shall appoint the official liquidator for such winding up.
(2) After the official liquidator has been appointed under this section, the provisions of the Companies Act, 1913, relating to the winding up by Court of a registered company shall mutatis mutandis apply in relation to the winding up of the company in respect of which the petition has been made under subsection (1).
Section 8:
When the affairs of an undesirable company have been com pletely wound up, the company shall be deemed to have been dissolved under sub‑section (1) of section 194 of the Companies Act, 1913.
Section 9:
(1) Where the Registrar has reason to believe that‑ a company is an undersirable company or that an undesirable company is carrying on business in contravention of section 4, he or any gazetted officer authorized by him in this behalf, may,‑
(a) Direct any person to give such information in his pos session with respect to any business carried on by that company as he. may demand;
(b) inspect or cause to be inspected any book or other document belonging to or under the control of the company or any officer thereof
(c) enter and search any premises and seize or authorize any person to seize any book or other document belonging to or under the control of the company or any officer thereof.
(2) If the Registrar is satisfied that a company is an undesir able company or that an undesirable company is carrying on business in contravention of section 4, he shall, by order in writing, direct the manager of the company to hand over the management of the company to a person to be appointed by the Registrar for the purpose, and the manager shall forthwith hand over the management of the company to such person.
(3) The person to whom management is handed over in pursuance of subsection (2) shall be deemed to be the manager of the company, and the other provisions of this Act shall apply accordingly.
(4) Whoever fails to comply with any direction given under subsection (1) or subsection (2) shall be punishable with im prisonment for a term which may extend to six months or with fine or with both.
The Act applies to companies whose objects are not confined to one Province because it is only with respect to such companies that the Parliament can legislate by virtue of, Entry No. 8 in the Federal List. The Act also applies to unregistered companies in the Federal Capital. This is within the competence of the Parliament because of Article 211 of the Constitution which grants powers to the Parliament to legislate as regards Federal Capital even in respect of matters within the competence of the Provincial Legislature.
3. The substance of this Act is that it prohibits the regis tration of such companies as intend to carry on business for the "specified purpose" defined in section 2, and also seeks to put an end to such existing companies as are carrying on business for a "specified purpose," or as the Act calls them, "undesirable companies." It grants powers to the Registrar to get informa tion as to whether a company is an "undesirable company" and to take charge of such a company if in his opinion it is an undesirable company,' bringing its business to a close. The Registrar is under an obligation to move the Liquida tion Court and on his application an order has to be made for the winding up of the company and for the appointment of an official Liquidator.:
4. The attacks on this Act are :‑
(1) The Act is not within the competence of the Parliament as the subject‑matter of the Act properly falls not under Item 8 of the Federal List, but under Item 52 of the Provincial List, that is, "Lotteries ";
(2) it contravenes Article 10 of the Constitution inasmuch as it places a restriction on the right of association ;
(3) it contravenes Article 5 of the Constitution inas much as it does not apply equally to all persons and penalises only certain companies and unregistered associa tions ; and
(4) it contravenes Article 12 of the Constitution inasmuch as it places a restriction on the right to carry on business.
5. Before proceeding to consider the validity of these objections, it will be proper to go into the facts in more detail, in order to determine whether these companies are really unworkable, whether they are conceived in fraud and whether their intention is to rob the people because such matters are relevant to the objections raised.
6. That these companies are generally unworkable, it will be very difficult for any person to deny. Let us take the typical case, which I have already mentioned, that is, a group of 500 persons, a subscription per month of Rs. 5, and a period of 100 months. The amount of the prize paid to a member is Rs. 500 except that in the months near the end of the period, the amount is increased to Rs. 600, 700 and 800. Let us assume that the payment over and above Rs. 500 does not cost the Company any more than Rs. 5000 in all. Calculated arithmetically, it will be found that the total payment, which the company would make to the members of this group would be Rs. 2,55,000 and the total amount which it will receive would be Rs. 2,25,250. There is thus a deficit of Rs. 30,000. We have next to take into account the extent of expense required for the running of these companies.
According to the respondent it would not be less than Rs. 1,000 per month, but I would not accept that figure because each company is running a number of groups so that the expenses have to be spread over all the groups it is running. Calculating, however, at the rate of Rs. 500 per month the total expenses for 100 months would be Rs. 50,000. I have kept out of consideration the commission which is paid to those who collect subscription and which is quite a substantial sum. Let me assume that even the commission is included in the expenses, mentioned above. There will be a total deficit of about Rs. 80,000. Now if by the investment of all the money that is received from the subscribers, this amount of Rs. 80,000 could be earned during the period of 100 months, then the company would not at least be running at a loss. But even if the whole of the money which is received from the members were to be invested every month at six per cent per annum it will be found on a calculation that the amount of interest earned does not exceed Rs. 50,000. I am assuming that the company is able to invest at once the whole amount which it receives in a particular month. The rate of interest which I have made the basis of calculation is not low. In practice it will be difficult to invest money so as to make a clear profit of six per cent per annum. Yet with all these con cessions the company will run only at a loss.
The loss is of Rs. 30,000 so that even if I were to reduce the expenditure by one half, there would still be a loss of Rs. 5,000.
7. What I have said above is corroborated by a statement filed by the Imdad Limited', one of the petitioners, giving details of its receipts, payments and profits. In accordance with this statement the profit of the company at the end of 100 months with respect to one group would be Rs. 14,272. In the assessment of this profit interest has been calculated at 12 per cent per annum and no expense is taken into account at all. Even then the profit is shown to be only Rs. 14,272. If we are to take into account the expenditure and to calculate interest on a reasonable rate the result is obvious. The company must run at a loss.
8. That these companies are in fact suffering heavy losses is clear from the‑accounts filed by the companies themselves. The account of the Imdad Limited shows that it has suffered a loss of Rs. 4,59,271. The Pakistan Shahkar Limited has shown Rs. 19,13, 205 in a suspense account. This suspense account has not been shown to be anything except a loss though Mr. Bhatti who appears for this company now states that Rs. 9,00,000 out of the suspense account is lying in‑the banks which should reduce the loss only to Rs. 10,00,000. Pak Kehkashan Limited showed a deficit of Rs. 1,64,000. Pakistan Tanzim showed a deficit of Rs. 1,60,000. Faiz‑i‑Am Pakistan Limited showed similarly deficit of Rs. 5,17,000. The Carvan Corporation Limited has a deficit of Rs. 48,000. The Awami Aid Society Limited has deficit of Rs. 30,000. Tire others had not yet filed their accounts when the written statements put in, lout nothing has been said before us to show that they too are not running at a loss.
9. Those who are running these companies are presumably persons well‑versed in these imdadi Schemes and they would be fully cognizant of the fact that the schemes they are running are financially unsound and must ultimately burst. They are actually incurring loss and an examination of their accounts shows that they are not able to invest money so as to make these schemes solvent. They cannot, therefore, be running the schemes bona fide in the belief that they are workable and the intention would in ordinary cases be to appropriate the public money. This inference is supported when we look to the conduct of the promoters of these companies. The amount of authorised capital is put at a high figure to attract the public and to inspire confidence but the amount of the subscribed and paid up capital is very small so that there is no security at all for the money paid by the public under the lmdadi Schemes. I will just quote a few instances: The authorised capital of lmdad Limited is one crore while its subscribed capital is Rs. 3,000 and the same is its paid‑up,capital. The authorised capital of Gulnar Company Limited is Rs. 1,00,000. Its subscribed capital is Rs. 1,600 and paid‑up is only Rs. 500. The authorised capital Carvan Limited is Rs. 1,00,000 and its subscribed capital is Rs. 30,000, but paid‑up is only Rs. 3,000. The authorised capital of Peoples Limited, Faiz‑i‑Am Pakistan Limited, and Pakistan Tanzim Limited is Rs. 1,00,000 each, whereas the subscribed capital is Rs. 12,270, Rs: 9,000 and Rs. 200, respectively and the paid‑up capital is Rs. 3,062, Rs. 2,250, and Rs. 200 respectively. I have already stated the heavy losses that these companies have incurred while losses run into lakhs the amount of paid‑up, capital in no case reaches Rs. 10,000 and generally is only nominal:, ‑ In the case of lmdad Limited there will be found an advertisement that the production of its factory is of the value of two croress annually. We have inquired from the representative of this company as to how this could possibly be true for the total subscribed capital is Rs. 3,000. He alleges now that his factory has now begun to work and it will be able to produce goods worth Rs. 15,000 a year. We are not accepting his statement but that is the utmost which he does allege and it is clear that the advertisment is fraudulent. In the statement of accounts of Faiz‑i‑Am Limited we find that Rs. 1,29,255 are with the Managing Director, Ishrat Husain Zahidi. Presumably this is an unsecured loan and shows how the hard‑earned money of the poor classes that sub 'scribe to the scheme is being appropriated.
10. It is to be noted that generally neither in the Memor andum nor in the Articles of Association of these companies is there any mention of the Imdadi Schemes.
11. On a consideration of all the circumstances one easily reaches the conclusion that the object of these schemes is not to do any business but to rob the public. Generally, the money that is taken from the public is given on loan to other concerns in which the promoters of the schemes are themselves interested. In the natural course the scheme would burst at some stage and the company would become insolvent. No suit will be filed for the recovery of the loans given to other concerns because the persons who are subscribers are generally from the poor classes who cannot be expected to take proceedings against the directors and managers for misappropriation and even if a member be not poor the amount paid by one member is not so large that he would bear the expenses of litigation. The schemes are really a fine method of securing loans from the public which are not intended to be re‑paid and for the recovery of which there is little chance of any proceedings being taken.
12. What I have stated above is true generally of these companies. There are, however, some companies which are run on different. lines. The intention of the promoters of these companies is that they should go on and should not burst. They are satisfied with getting their own salaries out of the scheme and getting other smaller benefits. Such companies it is possible may not burst because they realize money from the public by various methods so that they need not run at a loss. They charge late fees and tawan. They get bonds executed by members in respect of the amount due which they have failed to pay and these bonds carry interest. Some members fall out because they are unable to continue paying and the payment they have already made is forfeited to the company.
13. Very few of these companies say that they are investing money in business of their own. Particularly those that do not want to burst deny investment in any industry etc. Their sole business is to lend money to their own members. These loans are advanced against the security of the amount to which the member would be ultimately entitled. Actually after the expiry of one year, in the case of some companies, no further payments are made by the members. The companies go on charging a late fee and a penalty for non‑payment of the instalments. The penalty is one anna per five rupees per month. If the default is continued for a year the member executes a bond on account of the unpaid instalments plus the penalty. On this bond he is charged interest. So ultimately whatever amount he has paid is devoured by the penalty and the interest. While the schemes purport to be for the help of the poor their effect is only to peprive the poor classes of their hard‑earned money.
14. That these schemes could not possibly be of any benefit is apparent from the fact that these companies have no investment of their own and, therefore, earn no profit. At the most they will return to the members their own money less what the keep for salaries and expenses.
15. So there can be no doubt that there was a situation created by the running of Imdadi Schemes which did require some legislation: The only point to consider is whether the legislation is by the competent Legislature and whether it does not violate any fundamental right.
16. There is one company, which needs special mention and that is the Baviqar Limited of Karachi. The difference in the' scheme of that company is that the liability of a member to pay does not cease when he gets a prize and continues till the 100th month. Whether this company is even a greater fraud than others' and there is just a pretence that further amount is to be realized from the person who gets a prize is a matter into which it will not be necessary to go, though I must say that there can be little prospect of realization of the money paid to a prize winner. I would also mention that out of Rs. 90,000 subscription that this company colleted it paid a commission of Rs. 17,000. Why it should bear these expenses of Rs. 17,000 just to collect the subscription is a matter which has not been explained.
17. I begin now with a consideration of the first objection taken on behalf of the petitioners, namely, that the Undesirable Companies Act is not within the legislative competence of Parliament at all being covered by the item Lotteries' in entry No. 52 of the Provincial List. Item No. 8 of the Federal List on which reliance is placed on behalf of the respondent for the competence of the Parliament runs :‑
"Item No. 8:‑ Insurance and corporations, that is to say, incorporation, regulation and winding‑up of corporations, whether trading or not (but not including co‑operative societies or universities, or municipal and local bodies) with objects and business not confined to one Province.
Learned counsel for the petitioners have cited the following authorities on this point, K. G. G. Narayan Deo v. State of Orissa (A I R 1953 S. C. 375), Slate of Bihar v. Kameshwar Singh (A I R 1952 S. C. 252), Union Colliery Company of British Columbia Limited and others v. Bryden (1899 A. C. 580). A. G. of Alberta v. A. G. of Canada (A I R 1939 P. C. 53), In re The Insurance Act of Canada (1932 A. C. 41), A. G. of Saskatchewar v. A. G. of Canada (A I R 1949 P. C. 190), Attorney‑General for Ontario v. Principal Insurers (1924 A. C. 328), Child Labor Tax Case (259 U. S. 817). United States v. Butler (297 U. S. 477) and The Secretary to the Chief Commissioner Income Tax Madras v. Doraiswami Aiyengar (74 Indian Appeals 22). It is not necessary to go into the facts of all these cases. Some of them are clearly attempts by one Legislature in the guise of legislation relating to a subject within its competence really to legislate upon a matter within the competence of another Legislature. Such attempts obviously cannot be allowed to be successful being a fraud on legislation. In other cases the same doctrine of pith and substance so many times laid down by their Lordships of the Privy Council has been enunciated. It is beyond question that when an enactment apparently relates to subjects which are within the competence of two Legislatures then, in order to determine the question of the validity of the legislation it is the pith and substance of the impugned legislation that is tube looked to. It is clear too that in order to determine the pith and substance we first consider the whole scheme of the distribution of powers as between the Centre and the Provinces, and we then look to the object of the legislation as well as its effect. The facts of the cases cited do not bear any particular resemblance to the case before us and apart from enunciating the principles which are well settled the cases are not of any assistance in the decision of the present case.
18. On the other hand there is in the present case a simple method by which the competence of the Parliament to enact this piece of legislation can be determined. The question to be put is : if it was considered proper that companies which are running Imdadi Schemes should be wound up and in future no company with such objects should be allowed to be registered c which Legislature is competent to Legislate on the subject The obvious answer is : the Parliament (of course I am referring to the companies with objects not confined to one Province). The Provincial Legislature has no authority whatsoever to legislate as to the registration or the winding up of such companies. The objection of learned counsel for the petitioner is that the real object of this Act is to prevent lotteries and winding up and refusal to register has been resorted to in order to achieve that object. But why cannot the object be only that companies or associations that are running such schemes should be terminated Why should we assume that the object is to prevent a lottery and the winding up and prohibition of registration are only a means to that end Such schemes are at present being run generally by companies. Even though for individuals there be no impediment in the way of the running of such schemes, the extermination of the companies that promote such schemes may fully remedy the evil. It is to be remembered that it is a part of the technique of those who are robbing the public to float a company with a limited liability. If an individual promotes such a scheme and receives money from people he would remain personally liable to repay the amount, but in the case of a comp any his liabilities are limited to the amount of his share. It is urged by learned counsel for the petitioners that the subject of lotteries being within the competence of the Provincial Legis lature, if the Provincial Legislature be not willing to prevent the schemes on account of their being lotteries it should not be within the competence of the Parliament to invalidate that which the Provincial Legislature regards valid. Let me assume for a moment that the Provincial Legislature, within whose competence lies lottery, is not willing at all to prevent such Imdadi Schemes, but if the Parliament be of the opinion that the companies which run such Imdadi Schemes should not be allowed to function, could it be said that it would have no power to legislate on that subject just because the schemes are lotteries In what circumstances winding up is to take place is to be provided by the Parliament.
19. There is another simple way of looking at the matter. Is the impugned Act within the competence of the Provincial Legislature It is not even possible for the learned counsel for the petitioners to say that the Provincial Legislature could enact this Act. It cannot legislate with respect to winding up of companies with objects not confined to a Province.
20. I hold that the impugned Act is within the competence of the Parliament (apart from the infringement of fundamental. rights.) I will consider next the objection based on Article 10 the Constitution. Article 10 guarantees the right to form associations subject only to reasonable restrictions in the interest of morality or public order. The contention is that the impugned Act inasmuch as it prevents the forming of companies who want to run Imdadi Schemes and directs the winding up of such companies, interferes with the right of forming companies and the right of forming companies is included in the right of forming association granted by Article 10. The question as to whether the right to form a company is one within Article 10 has not been the subject of discussion in any reported case. Mr. Muhammad Akram, who appeared for the Eastern Aid Society, relies on an opinion expressed by Basu in his commentary on the Indian Constitution, 1956, Edition, page 211, where it is stated that the right to form company is included within Article 19 (c) of the Indian Constitution which Article is the one corresponding to Article 10 of our Constitution. Learned counsel also relies on V. G. Row v. State of Madras (A I R 1951 mad. 147) where this point was not dis cussed but it was assumed that the right to form a company fell within Article 19 (c). This judgment had been affirmed on appeal in The State of Madras v. V. G. Row (A I R 1952 S C 196) I have no doubt, having regard to the ordinary meaning of the word association' and to the meaning which is generally assigned to it in legal literature, that it does include the formation of the companies. In Wharton's Law Lexicon company' is described as a body of persons associated for the purpose of business. Every company has got its Articles of Association. The Memorandum is called in the Companies Act the Memorandum of Association. The method of forming a company is stated in section 5 to be that "any seven persons associated for any lawful purpose may, n by subscribing their names to a memorandum of association, form an incorporated company". By section 26, the Act provides that an association capable of being formed as a limited company may be registered in a particular manner if it is formed for the purpose of promoting commerce, arts or science etc. Persons can associate for political, social or business purposes. In the absence of any limitation or qualification there is no reason why any particular kind of association be excepted from the con notation of the word association' as used in Article 10. I may state that the learned Attorney‑General has not addressed any argument on the point that company is not an association within Article 10.
21. That the right to form an association has been restricted by the impugned Act is apparent, and the only question is whether the restrictions placed are in the interest of morality or public order and are reasonable. The plea on behalf of the respondents is that restrictions have been placed in the interest of morality. On behalf of the petitioners it is contended that the plea that the restriction is in the interest of morality finds no place in the written statement. It is also urged that the method by which the restriction has been imposed is unreasonable.
22. The case of the respondent in the written statement is that the public was being robbed by promotion of these com panies and the intention of the impugned Act is to protect the public. Can it be said that under the circumstances this is in the interest of morality If the legislation is intended to prevent people from being robbed, it cannot for that reason alone be said to be in the interest of morality. An Act would be said to be enacted in the interest of morality if the object of the Act was to prevent people from behaving in an immoral manner. Of course if the intention was to improve the morals of those who are cheating the public this condition will certainly be satisfied, but it could hardly be urged that the intention was to disprove the morals of those who are running these schemes. Plainly the object of the legislation is to prevent financial loss o the public. However, there are two reasons why the impugned Act can be justified as a restriction in the interest of morality. The first is that these Imdadi Schemes engender a spirit of gamble line amongst the public. ,They create a lure for the poor wage learner who thinks he may be able to get a big prize by, paying a small sum. In so far as the Act prevents the developing, of gambling propensities it is in the interest of morality. In order to be able to hold that a restriction placed by an Act is in the interest of morality I do not 'consider, it essential that the Legis lature' has this object the view at the time when it legislates. It is sufficient that as a matter of fact a piece of legislation does secure the. interest of morality. The second reason is that although the object of the Act was to prevent the public being robbed and the intention was not to improve the morals of those who are cheating the public the effect is that the promoters of these schemes will be prevented from cheating, robbing, and mis appropriating the public money. An Act which prevents all this should be regarded as in the interest of morality.
23. It is next to be considered whether the restriction is (reasonable. That the restriction is in its substance reasonable. .there can be little doubt for the only way to prevent the creation of a spirit of gambling amongst the public is to stop these companies altogether. There is one objection, however, which need. attention and that is the manner in which the restriction ha,, j been imposed. A perusal of the provisions of the Act will show that the Registrar has been given authority for determining whether a company is an undesirable company. If he is satisfied that it is such a company he is entitled to appoint a manager for it. The business of the company then comes to a standstill. The manager‑ so appointed has in accordance with section 6 to furnish the accounts of the company to him. On receipt of these accounts the Registrar has, under section 7, to put in a petition for the winding up of the company and on this petition an order for ‑finding up as well as an order for the appointment of an official liquidator have to follow. It will be seen that once the Registrar makes up his mind that the company is an undesirable one all the results which I have stated above follow automatically. The Registrar is not bound to issue any notice to the company before deciding whether it is an undesirable company or not. There is no such notice provided under the Act nor is there any provision for the taking of evidence or for other procedure that might have, to‑be observed if there is to be a proper inquiry. No appeal, too lies., against the order of the Registrar. Considering the serious results that follow the determination of the Registrar it has been urged that it would not at all be proper to grant the Registrar such powers without any control by any Court.
24. If I were to reach the conclusion that the Registrar is uncontrolled in his acts I would be inclined to hold that the manner in which this restriction has been imposed is not reason able. But I do not accept that the Court, before which the application of the Registrar under section 7 is filed, may not at all go into the question whether the company is an undesirable company. In spite of the wording of this section, which say, the Registrar shall put in a petition and the Court shall make order for the winding up of the company as well as for the appointment of the official liquidator, it will be open to the Court to go into the question as to whether the application made by the Registrar lies at all because the company is not in fact an undesirable company. I would say that in its inherent juris diction the Court would be entitled to go into this matter even though the Act makes no provision for it and even though the Act purports to give all authority in the matter to the Regis trar. And once the Court decides that the company is not an undesirable company, the Registrar cannot keep his control over the company and will have to release its assets and to return its control to its manager. At the same time the High Court can always prevent the Registrar from acting illegally, in the exercise of its writ jurisdiction so that there is not much appre hension of any serious harm to any person. It is true that ordinarily the stopping of the business of a company and the appointment of an official liquidator should be left to the Liqui dation Court. But the situation was serious and the legislature 'considered that immediate action may in certain cases be needed and, therefore, it was proper to arm the Registrar with powers to take speedy action. I cannot say that in doing so the legis lature exercised its jurisdiction unreasonably. Considering that ultimate control is still with the High Court acting in the exercise of its writ jurisdiction it cannot be said that the manner in which tile restriction is placed is unreasonable.
25. Learned counsel for the petitioners urges, and obviously with force, that we are concerned while determining whether the impugned Act is a reasonable restriction on the right to form associations with the definition of an undesirable com pany and not with the conditions prevailing in the companies that are before us. If the definition, it is urged, will include com panies that may be doing nothing that is objectionable, the impugned legislation would be invalid. Some of these companies may be conceived in fraud but that should not affect the question that is to be decided. The definition, he says, will cover unobjec tionable activity which should not be prohibited.
26. We are, therefore, to consider what kind of companies will be covered by the definition. An undesirable company is one that carries on business for a "specified purpose". In order to satisfy the definition of "specified purpose", all that is needed is that there should be payment of money which is on account of a deposit or contribution and is dependant on chance. It is urged on behalf of the petitioners that the definition would cover a case where members of a group of an Imdadi Scheme pay Rs. 5 per mensem for 100 months and every month one of them gets a loan of Rs. 500 which loan is to be repaid so that a member receives only Rs. 500 and pays Rs. 500 but gets the benefit of the use of the money and the scheme is worked in such a manner that the company takes no benefit out of it. The money is invested in Government Securities and the interest is divided only among the members. It is contended that to such a case no objection on any moral ground can be taken and that if the companies who carry on such activities become "undesirable companies", the Act would be contravening Article 10 inasmuch as there would be restrictions on right to form a company, which restrictions cannot be said to be in the interest of morality.
27. I am of the opinion that such a case would not be with in the definition of "Undesirable company" even if the definition of "specified purpose" be applicable to the schemes. I say so because the mere existence of a "specified purpose" is not sufficient to make a company an "undesirable company". Section 3 require at the same time that the company should be doing business for a 'specified purpose". This means that the company should be running the scheme with a view to get a benefit out of it. Business means activity carried on for profit. In the example cited the company is not taking any benefit out of the scheme f and it cannot be said that the company is carrying on business for a "specified purpose". In all cases where the definition of "specified purpose" applies to a scheme, the question will still be whether the company is running the scheme as a business. Of course the answer to this question will depend on the particular circumstances of each case.
28. Learned counsel for the petitioners next contends that there is nothing morally wrong even in the Imdadi Schemes run by' the companies that are before us. The mere fact, he says, that the schemes are in the hands of persons who abuse them and make them the means of robbing the public does not show that the schemes themselves are open to any objection. In any good scheme, it is urged, the promoters may misappropriate my and may defraud the public, but that would not mean that one the running of that scheme Should be prohibited. Learned counsel urges that an Imdadi Scheme may very well be a workable one. That would depend on the terms of the scheme. At the same time it is contended that these schemes are really a method of raising loans from the public, that in a properly‑run scheme all the members of the scheme would get their money back and that the country would have' the benefit of capital for running its industries and business. The impugned Act, it is said, would be a stumbling block in the way of business.
29. It may be possible that some schemes, if worked honest ly, are such that they can last, but one thing is patent. The best of these scheme's is open to the objection that it creates a gambl ing spirit and it is only the gambling element in the schemes that attracts the, people. Let the promoters of these schemes ask for small loans from the public on a good rate of interest. Very little response they will get from the public: It is not correct too that the schemes are a method of raising loans for assisting industry. There are a few cases where the money received from the members of the Imdadi Scheme Groups is given on loan to a concern which purports to run an industry but that is only a method of misappropriating the money. I have already stated that there are two classes of companies before us. In the first class are companies that are not intended to last and the intention of whose promotion is only to misappropriate ,public money and then to finish. In the second class are companies whose pro moters want to get their salaries and other benefits but intend to go on. They too are putting the public money in their pocket and are not investing it in any industry. I have asked them how they invest their money and they say they invest only in loans to members themselves against the security of the amount already paid by them. The plan of these companies is to make money from the public by late fees, penalties, lapses of membership and interest on loans. It is obvious that such companies can be doing no good to the public. Whatever goes into the pockets of the promoters comes out of the pocket of the public.
30. The objection on the ground of Article 5 of the Consti tution is that the impugned Act only penalises the companies with objects not confined to one Province leaving all other com panies, firms, associations and individuals (except unregistered associations in the Federal Capital) free to run Imdadi Schemes and, therefore, the law is discriminatory.
31. According to Article 5, all persons are equal before the law and are entitled to the equal protection of the law. Equal protection of the law has been interpreted in judgments on corres ponding provisions of other Constitutions as meaning that there shall be no arbitrary discrimination, that classification shall be reasonable and that to similar circumstances the same law will apply. This appears to be the accepted meaning of this phrase. If I were to put it in precise words, I would say the phrase means that two sets of circumstances shall not have different legal effects unless the difference of circumstance between the two sets is sufficient, in reason, to justify the difference in effect, or that if 1 a law applies to one set of circumstances and does not apply to another, the difference between the two sets should be material enough to support the discrimination. All law implies classifica tion for when it applies to a set of circumstances, it creates thereby a class, and equal protection means that this classification should be reasonable.
32. There are two parts of the objection based on Article 5. The first relates to legislation outside the Federal Capital and here the objection is that only companies with objects not confined to a Province are within the law. The second part relates to the distinction between individuals and associations in the Federal Capital. As regards the first part of the objection, the reply of the learned Attorney‑General is that the Parliament had power to make laws only in respect of companies with objects not confined to one Province and, therefore, the failure to apply the law to other companies does not amount to a violation of Article 5.
33. On a proper interpretation Article 5 can only mean (in so far as it relates to the validity of laws themselves as distinguish ed from inequality in the administration of laws) that a legislature, while enacting a law, should treat all persons equally. There being more than one legislature in the country, the Article cannot possibly mean that all laws must be uniform throughout Pakistan. If this contention were to be accepted, a law enacted by the legislature of one Province would be invalid unless simultaneously the legislature of the other Province also passed a law in the same words. Even if there was a difference of a day in the time at which the two enactments came into force, both the laws would be void. The first would be invalid as the second had not yet come into force when it was enacted and the second would be void because the first was void in its inception. No law can be held invalid under Article 5 on the ground that two persons similarly situated the same law is not applicable if it be not within the competence of the legislature enacting that law to legislate in respect of all those persons. It is true that there is no reason why companies with objects not confined to one Province should be treated differently, from those with objects confined to one Province, but the Parliament having no authority to legislate in respect of the second class of companies, there is no violation of Article 5.
34. The second objection on the ground of Article 5 is more serious. That objection is that as regards the Federal Capital the Act applies to unregistered associations only in addition to com panies with objects confined to one Province and this makes an invidious distinction between unregistered associations on the one hand and individuals on the other. In the Federal Capital the Act allows individuals to carry on business for a "specified purpose" while it prevents an unregistered association from doing so.
35. The reply of the learned Attorney‑General is that at the time when the impugned Act was enacted there was no case of an individual carrying on business of the Imdadi Schemes, and, therefore, it was not necessary for the legislature to legislate with respect to such cases. He contends that the legislature is entitled to legislate in respect of the circumstances that exist and it is not bound to legislate in respect of all possible cases that may arise. In determining whether a law is discriminatory, only such circumstances can, according to him, be taken into account as had already occurred and the fact that in a possible case the law would become discriminatory, does net amount to a violation of Article 5. When questioned as to what will happen if that possible case in fact occurs, the learned Attorney‑General replies that the law would in that case become void from the time that the possible case occurs.
36. I am not prepared to accept that a classification which is invidious will not invalidate a law till it is shown that the facts which would illustrate the invidiousness of the distinction had in fact occurred when the law was enacted. If the law made dacoity punishable only in case of a person under 40 years of age, I would pronounce the law to be invalid without an inquiry into whether a person over 40 years of age had committed dacoity at the time when the law was enacted, nor would I agree that if valid at inception it would become invalid the moment a person over 40 committed a dacoity. Whether a law is discriminatory depends on the classification introduced by it. Although it is permissible while deciding the reasonableness of the classification to consider the facts that had occurred, it is not correct to lay down that events which had not yet occurred are to be kept out of consideration. Of course the frequency with which an event occurred in a particular class may sometimes be a good basis for classification. We award higher punishments for a particular offence when committed in a particular district because the offence is rife in that district. As to how far the frequency of occurrence is a good basis of classification will have td be deter mined in the circumstances of a particular case, but I do not accept it as a general proposition that the mere fact that an event of a particular class is not proved to have occurred when the law was enacted prevents the Court from taking it consideration at all in deciding whether a lacy is discriminatory. The learned Attorney‑General has relied upon Keokee Consolidated Coke Com pany v. J. P. Kelly (234 U S 224) where Holmes, J. in dealing with an argu ment based on the 14th Amendment to the Constitution of the United States said : "It is more pressed that the Act discriminates unconstitutionally against certain classes. But while there are differences of opinion as to the degree and kind of discrimination permitted by the 14th Amendment, it is established by repeated decisions that a statute aimed at what is deemed an evil, and hitting it presumably where experience shows it to be most felt, is not to be upset by thinking up and enumerating other instances to which it might have been applied equally well, so far as the Court can see. That is for the legislature to judge unless the case is very clear". I would say that the case of an individual is not one of thinking up indiscriminately but it is quite a clear case.
37. Although, if the law, prevents unregistered associations from running Imdadi Schemes and does not prevent the indivi duals from running such schemes, the discrimination cannot be justified on the ground that as yet no individual is proved to have run such a scheme, it could be justified on the ground that the object of the legislation is to stop only the associations of persons for the purpose of carrying on schemes. It is open to the legislature to say that at this stage they intend to penalise not the running of the Imdadi Schemes but the associations of persons for the purpose of running Imdadi Schemes. That may be a very good basis of classification, for the legislature is, not bound to go farther than would be sufficient for attaining its object. The legislature may have found that it is on account of the association of person's that this evil has prospered and if persons are not allowed to associate for the running of Imdadi Schemes the evil will disappear. If, on the other hand, the object of the) legislation be to penalise not the association but the act of running the scheme, there would be no good ground for a discrimination' between individuals and associations. In determining the validity, however, of an enactment, we should assume the existence of all those facts which would validate it till they are rebutted. I will assume that the intention of the impugned provision was to prevent the association of persons for the purpose of running the schemes for there is nothing to show that that is not so. I would hold, therefore, that even the provision as to unregistered associations does not contravene Article 5.
38. The next point to consider is the objection based on Article 12 of our Constitution which runs :‑
"Every citizen, possessing such qualifications, if any, as may be prescribed by law in relation to his profession or occupation, shall have the right to enter upon any lawful profession or occupation, and to conduct any lawful trade or business:
Provided that nothing in this Article shall prevent-----
(a) the regulation of any trade or profession by a licensing system, or
(b) the carrying on, by the Federal or a Provincial Govern ment or by a corporation controlled by any such Government, of, any trade, business, industry or service, to the exclusion, complete or partial, of other persons".
It is contended on behalf of the petitioners that the impugned Act contravenes this Article, because (1) it prohibits the running of Imdadi Schemes which is a business ; and (2) it prevents com panies that are running Imdadi Schemes from carrying on other business.
39. The first point to determine is the effect of the word "lawful" in this Article. What is intended by saying that a citizen can carry on any business, trade, or profession, unless it be unlawful What is the extent of the guarantee conferred on a citizen by the article Two suggestions were made during argu ments. The first was that a business could be carried on only as long as it was not declared unlawful by the legislature, and that the only protection granted by this Article was that if a business or profession had not been declared unlawful the citizen was entitled to carry it on. On this interpretation no person in Pakistan has any fundamental right to carry on a business, trade, etc., for the legislature has just to pass a law to declare any business unlawful. I have not the slightest hesitation in rejecting the suggestion that the legislature can declare the carrying on of any business or profession unlawful. A fundamental right is a limitation on the power of the legislature and is a guarantee to a person or citizen, that such rights shall not be taken away by legislation. To say that the legislature can pronounce a business to be unlawful would mean that there is no fundamental right in Pakistan with respect to business, trade etc. Then why enact Article 12 at all The alleged protection of the Article that if a business is not pronounced by the legislature to be unlawful, the citizens cannot be prevented from carrying it on is no protection for such a. right exists apart from this Article. At the same time if the legislature can prohibit the carrying on of any profession where was the need of saying that it can do so by a licensing system If there be no fundamental right of business etc:, the reference to a licensing system will be wholly out of place.
40. The other suggestion was that the word "lawful" has reference to the dote on which the Constitution came into force, Whatever business etc. was lawful on that date is guaranteed and cannot be interfered with. If this interpretation means that the individual act involved in a business cannot be pronounced unlawful if it was lawful on the day Constitution came into force I have no hesitation in disagreeing for this would mean that no act which was not prohibited before the Constitution can be pro hibited if some person wants to perform it as a part of his busi ness etc. If, on the other hand, this interpretation means that a business as such could not be prohibited after the Constitution Day, I disagree with it because it validates a law which prohibited a profession as such before the Constitution. I see no good reason for this discrimination about laws already in force and those coming into force after the Constitution Day. If the inten tion was to validate existing laws relating to business etc., the wording of Article 12 would have been different. It would have said that all existing restrictions would be valid, but that henceforth no restriction would be placed. I have in this para graph used the expressions "individual act" and "profession as such". If there be any difficulty in understanding their import I hope the next paragraph will resolve that difficulty.
41. For my part, I have never had any doubt as regards the effect of the word "lawful" in Article 12 and the extent of the guarantee granted by this Article. The Article entitles the citizens of Pakistan to carry on any business, trade, or profession with this condition only that the individual acts involved in it are not unlawful. If an act involved in a business, trade, profession, or occupation, is such that if performed otherwise than as a part of a business, trade, profession or occupation, it is unlawful, then it cannot become lawful just because it is performed as a part of a business, trade or profession, that is, as a part of activity indulged in for the purpose of profit or income. That is the only limitation placed on the right to carry on a business etc. The object of the Article was to grant the citizen the fullest right to carry on any business etc., but the word "lawful" had to be put in because if it did not exist the citizen may have claimed to make a business of an act that is an offence or is prohibited. Theft is unlawful and, therefore, no person can make a business of it. Blackmail is an offence and no citizen can claim that as it is his occupation, he is entitled to blackmail people. It is on account of the word "lawful" in this Article that the thief the black mailer and others whose business involves unlawful acts are pre vented from putting forward an argument which may have been open to them if this word did not occur in Article 12. But the Article debars the legislature from making a business as such unlawful the individual act involved in which is not unlawful. It1 can make any act involved in a business unlawful and the citizen would be debarred from doing that act but the legislature cannot say that while the act involved in a profession will be lawful if not performed as a part of business etc., the doing of the same act as a part of a business will be unlawful. There is no bar to the legislature providing that sale of tobacco shall be an offence. But it cannot say that while the sale of tobacco will not be an offence, no person shall carry a business of sale of tobacco. As I have already stated it is not possible interpretation of this Article that the legislature can prohibit any business etc, If an act when done not for the purpose of business, trade, or pro fession, is not unlawful, the legislature is debarred from saying that when done as a part of business, trade it profession, it shall be lawful. That is the meaning of saying that the citizens can carry on any lawful business etc. It is lawful if the activity involved in it, is not, apart from its being carried on as a profes sion, unlawful.
42. If the intention of the Constituent Assembly was abso lutely to guarantee to the citizens of Pakistan the right to carry on any business, trade, whatsoever and not to subject the right even to reasonable restrictions as is provided with respect to some other fundamental rights, the only qualification of its exercise being that it could be subject to a licensing system and to an exception of monopoly in favour of the State, what would be the wording of the Article The wording would be exactly as Article 12 now stands. The word "lawful" would have to be put in because if it did not exist, the citizen could claim, as already observed, that he had the right to commit. theft, dacoity, blackmail or any other offence, because he had adopted it as a means of income. This plea would be open to him because, as will be abundantly clear from commentaries on the Income Tax Act, the view that even an unlawful business is a business has been taken in a number of cases. The absence of the word "lawful" in the corresponding Article 19 (g) of the Indian Constitution had created a difficulty. It had been argued that a business, trade, etc., included even an unlawful trade. Indian Courts had been forced to hold that business etc., in Article 19 (g) could only refer to lawful business for otherwise even offences when committed as part of business could be subjected to only reasonable restrictions in the public interest. This was a forced construction, for on being pronounced unlawful a business does not cease to be business, and Article 12 has recognised this. The absence in this Article of the words "subject to reasonable restriction" as it exists in some other Articles relating to fundamental rights is by itself proof of the fact that the intention was to give a right of business unhampered in any way by legislation.
43. I would hold that Article 12 guarantees to the citizen the right to carry on any business, occupation, trade, or profession (subject to a licensing system and a monopoly of the State) with this limitation only that the citizen is not entitled by virtue of the Article to do an act which, when done otherwise than as part of a business etc., was unlawful. There is no other limitation of this fundamental right.
44. The next question to be considered is whether the Imdadi Schemes are within the connotation of "business". The answer is not very difficult. Under section 3 of the impugned Act it is only if a company is running a business for a specified purpose that it becomes an undesirable company and it cannot, therefore, be contended on behalf of the respondent that the petitioners are not running a business even though the petitioners have no business other than the schemes. Some petitioners, and may be most of them, are only running the Imdadi Schemes. If they were not running a business, they would not fall within the defi nition of "undesirable companies" and the respondent is forced to allege that they are running a business in the sense in which that word is used in the impugned Act. No argument has been advanced on behalf of the respondent to the effect that the mean ing of this word as used in the impugned Act is different from its meaning in Article 12 Business means activity carried on and persisted in for the purpose of realization of profit. That is the ordinary meaning of the word and presumably it is used in the same sense in the Constitution. Even if this word be not used with this very meaning in the impugned Act, there can be little doubt that Imdadi Schemes can be run for the purpose of profit and are business in the sense in which this word is used in the Constitution. Take the case of a company which charges Rs. 6‑8‑0 per month and 0‑8‑0 being for expenses and pays a monthly prize of Rs. 400 only. It will be getting late fees and tawans and there may be many lapses. The money, the company has can be invested in loans on a high rate of interest to the members of the groups. The schemes can make profit. I t has, therefore, to be conceded that the impugned Act does restrict the right to
carry on business.
45. If a business is stopped, will not Article 12 be violated It must be unless it be held that the business is unlawful. It has been argued on behalf of the respondent that a "specified purpose" is only a lottery and, therefore, doing business for a specified purpose is the running of a lottery and prohibited by section 294‑A of the Pakistan Penal Code. If one can hold that specified pur pose must in all cases be covered by section 294‑A, there can be no objection to the impugned Act on the score of Article 12. Section 224 A runs ----
"Whoever keeps any office or place for the purpose of draw ing any lottery not being a State lottery or a lottery authorised by the Provincial Government shall be punished with imprison ment of either description for a term which may extend to six months, or with fine, or with both". And whoever publishes any proposal to pay any sum, or to deliver any goods, or to do or forbear doing anything for the benefit of any person, on any event or contingency relative or applicable to the drawing of any ticket, lot, number or figure, in any such lottery shall be punished with fine which may extend to one thousand rupees."
The first part of this section prohibits the keeping of an office for the running of a lottery and the second part prohibits the publication of any proposal for a lottery.
46. On behalf of the petitioners it has been urged that the Imdadi Schemes cannot be within section 294‑A because that section is applicable only to the "drawing of a lot" which phrase has reference to the physical act of drawing and that it cannot be held to apply to a case where the person who is to be paid a prize is determined by an arithmetical calculation. The method adopted by the petitioners is this all members have their serial numbers ; in a meeting of the members of a group the members are asked by the president of the meeting to name any digit numbers ; some members name digit numbers ; the total of those digits is multiplied by the number of members who named the digit numbers ; the result is divided by 501 and the balance is the number of the member who is to get the prize.
47. Now there is no physical act here by which the member who is to get the prize is being discovered, though the award of the prize depends on chance. Can it be said that this method is the drawing of a lot
48. Learned counsel for the petitioners have relied upon Emperor v. Mukandi Lal (A I R 1917 Lah. 93), Emperor v. Gurbakhsh Singh (A I R 1934 Lah. 840) and Public Prosecutor v. K. B. Kalkura (A I R 1942 Mad. 404), in support of the proposi tion that section 294‑A applies only to a case of physical drawing. In Emperor v. Mukandi Lal the method employed will appear from the following headnote :‑
" The accused ran two lotteries in the following manner
(i) Tickets numbered 1 to 100 were put into a pitcher and the public purchased other tickets and chose a number consisting of either one or two digits which at the time of the sale was written upon their tickets. In the evening three tickets were drawn from the pitcher, their sum was taken and the last two figures of their sum became the winning numbers. Those persons were then adjudged to be winners whose tickets bore either one or both of the last two digits of the total so obtained ; (ii) Instead of drawing three tickets from a pitcher the average price at which the various sales of opium had taken place that month in Calcutta was calculated and prizes were awarded to those persons who had predicted the last or the last two figures of that price : "
It was held by the learned Judges that in both the cases there was a lottery within the meaning of section 294‑A. It was held, however, that section 294‑A required not merely a lottery but a "drawing and that while in the first case there was a drawing in the second case there was no drawing within the meaning of section 294‑A. The learned Judges explained thus the reasons for their view. "Though there is ample authority for holding that a lottery does not cease to be a lottery because the winners are determined by a method other than the actual drawing of the winning number, still we have no doubt that in the offence provided for in section 294‑A of the Code the actual drawing of lots is an essential ingredient. The word "drawing", we think, is used in the section in its physical sense and when the section was enacted in 1870, it seems probable that the only form of lottery envisaged by the Legislature was a lottery run on the usual lines in which the winning numbers are actually drawn out of an urn, box or other receptacle. If this our view of the meaning of the section be correct, then the second form of lottery which is before us, i.e., the lottery on the opium sales, was not a lottery which was drawn in the place kept by the respondent. Consequently, although we hold that his transactions on the average price of opium amounted to the running of a lottery, those transactions do not render him liable to conviction under section 294‑A, Indian Penal Code."
49. In Emperor v. Gurbakhsh Singh, there was only a report by a Sessions Judge in respect of a similar method that it was not a drawing and did not constitute an offence under section 294‑A in accordance with Emperor v. Mukandi Lal and this report was accepted by Addison, J., without any discussion of his own.
50. In Public Prosecutor v. K. B. Kalkura, these two cases were followed by Horwill, J., who said, after referring to these cases‑
" There is thus a substantial consensus of opinion in two High Courts and a Chief Court that the word drawing' in section 294‑A, cannot be ignored and must be given its natural meaning. The learned Public Prosecutor has sought to draw some distinction between the first part of section 294‑A and the second part ; and points out that most of the decisions turned on the construction of the second part of section 294‑A, in which it is rather more clear than in the first part that the Legislature contemplated an actual drawing from some receptacle ; for it speaks of the drawing of any ticket, lot, number or figure, while the first part refers to drawing any lottery'. Drawing any lottery' is not a common expression ; but there is no reason to suppose that the Legislature were having regard in the second part of that section to an actual drawing from a receptacle and not in the first part. If drawing' had a different meaning in the first part to what it had in the second, then it would mean, as I have pointed out, merely conducting' ; and there is no reason to think that the Legislature intended to give the word drawing' any such comprehensive and unusual meaning."
This interpretation obviously leads to absurd results. If the determination of the person who is to get a sum‑ of money depends on the "taking out" (for that is the meaning attached to "drawing") of something that indicates the person to be awarded the prize the lottery is within section 294‑A but if any other method is adopted, section 294‑A does not apply. All that a person who runs a lottery has to do in order to escape punishment is to employ a method which does not involve the physical act of "taking out". Suppose instead of "taking out" a child is asked to throw a ball in a wooden box containing round or rectangular holes bearing numbers and the prize goes to the holder of the ticket bearing the same number as the hole in which the ball falls. This lottery would, according to this interpretation be outside section 294‑A, because it is a case not of "taking out" but of "putting in".
51. If an interpretation leads to absurd results it is to be accepted only if the words or the law be such that no other interpretation is possible. The words used in the first part of section 294‑A are "drawing a lottery", and in the second part "drawing of any ticket, lot, number or figure". Cannot the words "drawing a lottery" or "draw a lot" apply to all methods employed for determination by chance
52, In the Oxford Dictionary one of the meanings of the word lot' is thus stated---
" In the abstract sense : The casting or drawing of lots or the use of any equivalent process to obtain a decision."
There is a note underneath citing sentences from books .wherein the wor6 lot' has been used in this sense.
53. That the word lot' is used also as meaning an "equivalent process" is thus clear. The only question is whether in the phrase draw a lot ' it can be used in this sense. On a reference to the meaning of the word " draw " I find the following :‑
" to obtain or select by lot "
These words mean that it is a selection by lot, that is, a method dependant on chance. The note below these words which illustrates the use of the word in this sense includes the following sentences :‑
"John was once drawn to serve in Militia. The jury is drawn very fairly. Neither of them had drawn the thousand pound."
In these sentences the word "draw" is not used in the sense of any physical drawing.
54. Having regard to the meanings of these words stated above, I do not regard it incorrect to interpret the words "draw a lot" as meaning a determination by a method dependant on chance. Also having regard to the meaning of the word "draw" stated above, I do not see why the phrase "draw a number" cannot be applied to the discovery of a number of figure by a method dependant on chance. This meaning of the word "draw" as stated in the Oxford Dictionary was not considered in any of the judgments relied upon by the petitioners. If this be a possible meaning it ought to be adopted and it is surely a possible meaning, It will be observed that in Public Prosecutor v. K. B. Kalkura the second part of section 294‑A was regarded as less capable of such interpretation than the first part which speaks of the drawing of lottery which means that "drawing of lottery" was not regarded an utterly incapable of bearing the interpretation suggested by the respondent. But there is no reason to think that the two parts of the section were intended to apply to different kinds of methods and if the first part could apply to a case where there is no physical drawing, the second part too should apply.
55. I would hold that section 294‑A applies to all methods dependant solely on chance whether there be a physical drawing t or not, and that all cases of "specified purpose" would be within section 294‑A. Section 294‑A does require, in addition to a lottery, the running of an office or the publishing of a proposal, s but the first part will always apply to a case where a company is running business for a specified purpose.
56. What I have said above would prevent Article 12 from being violated by the stopping of a "specified purpose" whether' the party concerned was a company or an unregistered association. But as regards companies there is another reason which excludes the application of Article 12. There was no argument before us with respect to this aspect of the matter but the point does seem clear to me and I think I should mention it. Article 12 applies only to citizens. " Citizen " as provided in Article 218 of the Constitution means a citizen according to the law relating to citizenship. The relevant law is the Citizenship Act of 1951. As to who are to be citizens of Pakistan is explained in sections 6, 7 and 9 of that Act, and it is clear that only a natural person R can be a citizen. A company cannot be a citizen at all. A corporation is in law an entity distinct from its shareholders. If the company is not a citizen it is not entitled to the protection of Article 12. This appears to be a rather technical way of looking at things for, although a company exists apart from its shareholders, substantially it is the share‑holders who constitute it, and it may be argued that it is they who carry on the business which a company carries on. But in the first place I do not see how we can get over it even, if it be a technicality for Article 12 does not in terms apply. In fact the words "profession and occupation " occurring in 'that Article cannot be used with reference to a company at all. But it is not correct too that this objection is merely technical; for there are difficulties in the application of this Article to companies even if we be prepared to regard a company as identical, with its shareholders. If a company is to be entitled to the protection of Article 12, this will be only on the ground that its shareholders are citizens. But what will happen if some of them are shareholders and others are not. If we accept that even if part of the shareholders are citizens, Article 12 will be attracted; the result would be that even if one of the shareholders is a citizen, Article 12 would apply and that looks like giving the right of business etc., to non‑citizens. If we hold that all shareholders should be citizens, then even the existence of non‑citizen will deprive the company of the benefit of Article 12 and that too will not be a happy result. So it is better to stick, in this context, to the technical concept that a company is an entity distinct from its shareholders.
57. In connection with Article 12 there is one argument that still remains to be considered, viz., that the impugned Act contravenes Article 12 in so far it puts a stop to business other than "specified purpose". As will appear from sections 2 and 4 of the Act, a company is an undesirable company even though "specified purpose" is only a part of its business and if it be an undesirable company, it must be wound up and its other business does come to a stop. Will this winding up constitute an interference with the right to carry on a business Quite apart from the objection that a company as such has no right under Article 12 it appears to me that the stopping of other business of a company on account of its winding is not hit by the Article. The stopping of the other business is simply the result of the winding up. Interference with business implies that there is some person who wants to carry on a business. If the person who is to carry on a business is put an end to that is not an interference with the right to carry on a business. The argument is similar to the one which could be advanced with respect to the hanging of a natural person. Can it be argued that the Penal Code in so far as it provides for the sentence of death interferes with the right to carry on a business because by death the business comes to a stop The winding up of a company is like the death penalty of a natural person and just as section 302 of the Penal Code does not contravene Article 12 provisions relating to winding up too do not violate it. If the argument of learned counsel for the petitioners was accepted, no company could ever be wound up because its business would be stopped. Let it be understood that every Act which in fact interferes with the carrying of a business or profession is not an interference with the right to carry on a business or profession. When a person is imprisoned, or his property is taken in execution of an order relating to payment of fine, or in execution of a Civil Court's decree, he is in fact prevented from carrying on a business or profession but the laws which provide for these punishments and for the execution, of decree, are not in conflict with the funda mental right guaranteed by Article 12. A law will be a restraint on a fundamental right only if it attaches to the exercise of that right a liability, or a consequence detrimental to the person who exercises it. The mere fact that the law produces effects which in fact interfere with, such exercise is insufficient to make it a restraint on the exercise of the right. If a law said no person shall purchase a lamp the law would not be restrained on the profession of a dentist even though it dial hinder him in his profession, but if the law said a dentist could not purchase a lamp, there would be restraint on the right to carry on a profession and Article 12 would be violated. If a law provided that no person could purchase a house in Lahore; the law would not be restraint on the exercise of the profession of a law even though it would in fact interfere with such exercise, but it would be such restraint if it provided that no lawyer could purchase a house in Lahore. In the first case no1iability is attached to the carrying on of a profession while in the second case it is so attached.
58. It may be said that in the present ease too liability is attached to the carrying on of a business, trade, but the liability is attached to the carrying of a "specified purpose" 'and not to the carrying on of other business. The law is a restraint, therefore, only on the carrying on of a "specified purpose", which involves an unlawful act, and can be, and in fact is already, prohibited.
59. This finishes the attacks on the validity of the Act. There remains the question 'raised by the Bawaqar Ltd., that even if the Act be valid, the action taken against it, is incom petent because it is not an " undesirable company ". The distinctive feature of this company is that, according to the rules that govern its Imdadi Scheme, the person who gets a prize remains liable for the subsequent instalments. The contention on behalf of the Bawaqar Ltd. is that such a scheme is not a "specified purpose". There is little force in this argument. If payment depends on chance and is made on account of a deposit or contribution a "specified purpose" does exist and both these conditions are satisfied even in respect of the scheme of this company. . As I have already explained a company that runs such a scheme may not be an undesirable company, not because such a scheme is not a "specified purpose", but because the scheme may not be run as a business, that being an essential condition for an "undesirable company". There is no contention before us that this company is not running its Imdadi Scheme for deriving benefit from it.. That it is running it for a benefit is apparent even from the fact that the company paid Rs. 17,000 as commission merely for collection of Rs. 90,000. Let me add that I am not accepting that the rule of this company that the person who gets the prize remains liable for the succeeding instalments is a bona fide rule. But even if it be bona fide the company still remains an undesirable company.
60. All these petitions fail and are dismissed with costs.
‑I agree with my learned brother that all the petitions should be dismissed with costs.
I would however, add that I am not to be understood to be accepting the interpretation which my learned brother has placed on the word "lawful" occurring in Article 12 of the Constitution Act. I am of the view that a competent legislature can declare any profession, occupation, trade or business to be unlawful and on that being done the profession, occupation, trade or business, as the case may be, will cease to be one mentioned in Article 12 M of the Constitution Act. I have not entered into an elaboratel discussion of the point because the business carried on by the petitioners having been declared unlawful by an Act of the National Assembly the result will be the same whether my learned brother's interpretation of the word " lawful " is accepted or mine is.
A.H. Petitions dismissed.
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