IN THE HIGH COURT OF JUDICATURE AT MADRAS
7.1.2005/W.P.No:22674
OF 2004 AND W.P.M.P.No:27411 OF 2004
A.K.Rajan, J.
I M/s.
Apple FMCG Marketing (Pvt) Limited, rep. by its Chief
Executive Oficer Mr. R.Eric
No:172,
Versus
I.
The Union of
II.
2.The
State of
III.
3. The Director General of Police, Kamarajar Salai, Mylaport, Chennai-600 004 … Respondents.
Petition
filed under Article 226 of the Constitution of India praying for a writ of
declaration that selling products through the Network Marketing System is legal
and not in contravention of the provisions of the Prize Chits and Money
Circulation Schemes (Banning) Act, 1978 or any other law and consequently
forbearing the respondents or their subordinates or agents or their men from in
any manner interfering with the lawful business activities of the petitioner
company by either freezing their bank accounts or interfering in the conduct of
the seminars and promotional meetings held for the distributors and prospective
distributors and pass such further orders.
Prize Chits and Money Circulation
Schemes (Banning) Act
(1978), Sections 2 ©, 7, Constitution of India, Articles 19(1) (a) (2), (g),
226 – Writ Petition for declaration that selling products through the Network
Marketing System is legal and not in contravention of the Act- Prayer further
to forbear respondents (authorities of the Government) from interfering with
the lawful business activities of petitioner- company, or freezing accounts,
etc.- Mere
fact that no complaints were received does not make an act legal, if it be
otherwise illegal (Para 15).
Contention of the petitioner
that there is no chain of customers appears not acceptable- Scheme creates
chain of customers and only when the chain progresses without any break in any
of the links, the ‘principal distributor’ gets more commission- If, for any reason, the chain is
broken, at any stage, then the principal distributor’s commission would get
reduced proportionally to the extent- Therefore, it is not correct to say that
there is no chain of customers in the process (Para 16).
Definition in S. 2© makes it clear
that any scheme by whatever name it is called whereby on a promise that one
would receive or
would make quick or easy money be
enrolment as members into the scheme is ‘money circulation scheme’ – Such
members earlier get commission without doing any work; getting such a commission is nothing but
getting quick or easy money- Therefore,
such schemes/ the so called ‘Multilevel Marketing’, definitely falls within the
definition of ‘money circulation scheme’. (
It is suffice to say that it is
not for Union of India or any Member of Parliament to interpret the provisions
of any legislation- Statement given by the Union of India or its Officers that
Multi-level Marketing does not attract the provisions of the Act cannot legalise an illegal act. (
Grievance of the petitioners is
that the petitioners are conducting conferences and lectures in order to
propagate the scheme and they are under surveillance by the police, and this
would amount to violation of the petitioner’s fundamental rights under Article
19(1) (a) and 19(1) (g)- This argument is not acceptable- It is true that they
have the right to freedom of speech and expression and also to the freedom to
carry on business- But, both the rights are subject to reasonable restrictions
as contemplated under Articles 19(2) and 19(g)- The right to freedom of speech
is subject to reasonable restriction on the ground of ‘public order’ and the
right to freedom to carry on business is subject to reasonable restriction in
the interest of ‘general pubic’. (
Argument of the learned counsel for
the petitioners that there is no promise of quick or easy money is not correct
for the reasons stated above- Thus,
the so-called Multi-level Marketing, though called by a very attractive name,
squarely falls within the definition of ‘Money Circulation Scheme’ under the
Act- Hence, it is prohibited by the Act- It is for the law enforcing
authorities to take appropriate action- Writ Petition dismissed.
Constitution of
The Writ petition was filed praying
for a writ of declaration that selling products through the Network Marketing
System is legal and not in contravention of the provisions of the Prize Chits
and Money Circulation Schemes (Banning ) Act, 1978 or any other law and
consequently forbearing the respondents or their subordinates or agents or
their men from in any manner interfering with the lawful business activities of
the petitioner company by either freezing their banks accounts or interfering
in the conduct of the seminars and promotional meetings held for the
distributors and prospective distributors and pass such further orders. The main
contentions of the petitioner are as follows:-
(1)So far no complaints have been
received against them from
any distributor. Therefore, this Multi-level Marketing has not
caused any loss to any of the distributors.
(2)There is no ‘service fee’ for registration as distributor.
(3)Every distributor gets commission on the basis of the volume of
business that is generated by him.
(4)No chain of customers in the process.
(5)The distributors and the purchasers pay the value of the product
that is purchased, therefore, they are not paying any
excess amount.
(7)They collect only nominal service
charge for the service rendered.
(8) The surveillance by the respondents
violates the petitioners’ fundamental right provided under Articles 19(1) (a)
and 19(1) (g) of the Constitution of India.
(9) Further the Union of India has also
clarified that the “Multi-level Marketing” does not infringe the Prize Chits
and Money-Circulation Schemes (Banning) Act. 1989 (Hereinafter referred to as
‘The Act’). Paras 1.14.
The learned counsel for the petitioner
submitted that Union of India has made a clarification in an answer to a
question in Parliament that Multi-level Marketing does not violate or offend
the provisions of the Prize Chits and Money Circulation Schemes (Banning ) Act Para 21
Held:
It is true that several companies including Multinational
Companies carry on the
business of the “Multilevel Marketing” and it is also true that the Executive
and the law enforcing authorities keep a blind eye on such activities. This also
does not make an illegal act legal. It is always a fact that the law enforcing
authority would try to close the stable only after the horse had escaped.”
In this part of
According to the Prize Chits and Money
Circulation Schemes (Banning ) Act, “Money Circulation
Scheme” means-
.. any
scheme, by whatever name called:-
(i)
(i) for making quick or easy money; or
(ii)
for the receipt of any money or valuable thing as the
consideration ( or a promise to pay money), on any event or contingency
relative to the enrolment of members into the scheme.
Thus
the definition covers two aspects : -
(i) A scheme
for making quick or easy money :
(ii) for
receipt or any money or a promise to pay money: on an event relative to the
enrolment in the scheme.
It is
applicable to both- the sponserer and the participants
or subscribers.
The
event is enrolment of new members: the commission received is relative to such
enrolment of new members into the scheme. Therefore, the argument of the
learned counsel for the petitioners that there is no promise of quick or easy
money is not correct for the reasons stated above. Thus, the so-called Multi-level Marketing,
though called by a very attractive name, squarely falls within the definition
of ‘Money Circulation Scheme” under the Act. Hence, it is prohibited by the
Act. It is for the law enforcing authorities to take appropriate action. In the
result, the writ petition is dismissed
Reserve
Bank of
State of
Writ
petition dismissed.
For
petitioners:: Mr. P.V.S.Giridhar
For
respondents:: Mr. R.Kanniappan
G.A.
ORDER
1.
The first petitioner is a company
registered under the Companies Act. It is marketing various products including shampoo, tea,
coffee power, after-shave lotion etc. under the brand –name ‘joy Eternal’
through “network marketing”. This method of marketing differs from the
conventional sale through a distributor and the retail network: any person
could take up the marketing and sale, and make an earning: it is done by
several reputed companies like.
(i) No complaints have been received from any consumer about
the quality of the goods sold. Under the scheme of network marketing the
company sells products to the customers and the consumers in turn can sell the
products to their peers and earn commission out of the sale. In fact it avoids
many middlemen and cost of advertisement, etc. The marketing process is carried
out directly by recruiting the customers themselves as distributors of the
products and services; the company regularly organises business development
meetings and seminars, distributors meetings, etc. The participants of the meetings are encouraged to take
up the distributorship of the products and are suitably registered if they so
desire. There is no service fee for registration as distributor. Any person who
is interested is given a product for the price fixed. The distributors are
encouraged to en-roll more distributors. The commissions are given only as per
the volume of sales made by the individual distributor and his team. This
system ensures that intermediate distributors are not like a chain leading to
the customer and the company.
(ii)There are only two stages, viz.
stockist and distributor. The distributor can introduce another person as a
distributor and he will also get commission. The distributor has to put in his
effort in selling the products and then only he will get the commission. The
company also takes care of the risks involved in the trading activities; there
is no deposit of money by the consumers and the products are given to the
person who pays the money for the same. The distributors are paying the price
for the products they purchase. Thus, the possibility of the principal company
or its Directors making use of any funds of others is avoided. Except service
charges, no charges or deposits are levied to enroll
as a distributor. There is no risk of non- recovery of the
funds due to the consumer since the products are given out only on
receipt of payment. Thus, the process of network marketing is a foolproof and
beneficial mechanism for the conduct of trade and commerce. The pricing of the
products is always a contentious issue. The product is not exornitantly
priced. But, some others, who are inimical towards the company, are trying to
overturn the trading activity of the company by resorting to various crooked
means and methods. They maligned the name of the company by publishing reports
in a magazine and consequently the company is faced with roving enquiries by
the police Stockists and distributors of the company have also faced similar
harassment. It is an infringement of the fundamental right conferred under
Article 19(1) (a) of the Constitution. No complaint has been registered against
the company in any of the police stations. The Union of India has also examined
the issue of the network marketing and has come to the conclusion that there is
no illegality in the said system. The Union of India has also stated that the
system of network marketing will not come under the purview of the Prize Chits
and Money Circulation Schemes (Banning) Act, 1978. The labour of a person in
selling goods is rewarded by payment of commission. Several companies have
launched similar network marketing system. Therefore, it is quite annoying when
the police go around the meeting venues and seek statements from them and ask
several questions. Such invasive process causes considerable delays and
difficulties and results in violation of the rights conferred under Art. 19 (1) (g) of the Constitution. The company understands that
similar companies have been targeted in similar way and their accounts have
been frozen by the respondents and the company apprehends that the respondents
will take steps to freeze the accounts of the company and disrupt the business
activities. There is no promise of easy or quick money held out to the
distributors. The distribution of commission for selling is different from the
prize chits. The system only results in advancing the socialist vision of the
farmers of the Constitution and the wealth is evenly distributed without being
concentrated in a group of persons. The people at large are given more
opportunity to earn money depending on their skill and labour. The officials of
the third respondent are harassing the petitioner and its distributors and it
resulted in decline of the trade activities. Hence the writ
petition.
2. The first respondent has not chosen to file
any counter in spite of the time granted repeatedly for enabling them to file a
counter.
3.
The second respondent has filed a counter stating that the second respondent
has been impleaded unnecessarily in the writ
petition. It is also stated that the third respondent would take action in
accordance with the provisions of the Act, if the petitioner commits any
illegal act.
4.
The third respondent in his counter has stated that the petitioner has
explained how the marketing of certain goods through their network is carried
on; the petitioner has also stated that there is no FIR pending against their
company and hence no investigation is taken up by the police. When that be so,
the other facts that the seminars and meetings are all being
disturbed by the police is absolutely false. Police would not interfere
with any business conducted by any person in accordance with law. If specific
complaints are received by the police against the petitioner firm, it is thee duty of the
police to take up investigation; such investigation can not be prevented. The
facts and figures given by the petitioner are illusory and imaginary. The
apprehension that their accounts would be freezed
would come to the mind only if the business carried on by them is not legal.
Under those circumstances, the writ petition tiled only on apprehension and
fear of intervention and hence it is to be dismissed.
5.
After seeing the counter affidavit, the petitioner wanted to withdraw the
petition. But in view of the importance of the issues raised in this writ
petition, this Court refused to grant permission to withdraw the writ petition.
6.
The learned counsel Mr.Giridhar appearing for the
petitioner submitted that this system of network marketing practiced by the
petitioner company does not fall within the provision of Prize Chits and Money
Circulation Scheme (Banning) 2978 Act. He submitted that he has filed documents which shows how the net work marketing is carried
on. He has filed the pamphlets issued in that regard.
7
(i) According to the system, when a person purchases
any product from the company, he has to make an application (form filed in the
typed set) which contains the column for three user names (name of person who
registers with the company). It also contains a column to fill up the sponsors’
name and his placement. He has to sign a declaration that he has entered into this agreement as an
independent distributor. In addition to the agreement, they are bound by the
conditions contained the brochures (not filed in the typed set) and it is valid
for one year from the date of joining.
(ii)
The type set also contains Product price list of “Rs.550 plan” (also there are
“Rs.1000 plan” and others). It contains six products namely Nutrimalt,
Coffee, tea, Soap, Shampoo and Pickles. The maximum retail price (MRP) and the
distributor’s price (DP) also are given. The sum of maximum retail price of all
these six products comes to rs.497/-. The total amount for which it is sold to
the distributors is Rs.372/-.
(iii)
Admittedly, for these products, the so called distributor pays a sum of
Rs.550/-, whereas the distributor’s price is only Rs. 372/-. Therefore, Rs.178
is charged extra from the distributors. This amount, the distributor pays to
the company because he is made to believe that when he sells these goods to
others and enroll others in the scheme, he gets
commission from the petitioner company. Such Commission depends upon the total
volume of business that he generates by enrolling new distributors, it
progresses like a
chain; the amount of commission depends on the subsequent “distributors” who is
made to join by the petitioner or a purchaser through him. The
promise of the possible commission is the reason for one’s enrolment. The form
requires to be filled up with three “distributors” names through whom the new
entrant get into the scheme and their placement.
(iv)
One has, to purchase one or more starter kit by paying the money as stated
above; the starter kit are valued at Rs.550/-, Rs.1000/- and so on; he must
sell the product to two other persons and get their application form filled up
and sent to the company; those two persons in turn have to purchase starter
kits from the company and in turn they must sell and enroll
two other persons each. Each new entrant shall purchase the starter kit from
the company and in turn sell enroll two other
persons. Like this, every new purchaser from whom the new entrant purchases
shall enter the three names of his predecessors in the chain. Like this, the
chain progresses. The three names filled up by each and every new distributor
depending upon the rank of placement and volume of the business, everyone in
the chain gets the commission. If a person gets started with
five starter kits, he will sell it to ten persons and that ten will become
twenty at the next stage and twenty will become forty and so on. When it goes
up to ten stages in this manner, the person who sold first will get a
commission.
8.
As seen already, a starter kit which is sold at Rs.550/- for the goods which
may be sold at Rs. 372. Therefore, in one kit, an excess amount of Rs.178/- is collected.
This amount is shared by the company and the so called distributors. When a
person first purchases the starter kit, he pays Rs. 178/-- more as above.
Thereafter, he sells the same at the lesser price (distributor’s price) and he
may sell it others and earn the profit. That is,
each time a person purchases a starter kit, the petitioner gets a sum of Rs.
178/- in excess.
9.
The learned counsel for the petitioner further submitted that earlier 45% of
the sale amount was distributed as commission but presently it is increased to
65% of the sale price. That means the goods which are worth only Rs.35/- are
sold at rs.100/- and this rs.35/- covers not only the price of the goods, but
also expenditure involves for the administration of the company. Of course, the
Court can not interfere with the fixation of the price. Anybody is free to fix
any price and it is for the customers to accept or not. But,
it is not an ordinary sale of goods. The persons are lured to become a
distributor only on the hope or expectation that he may get more money by way
of commission if he sells the products similarly to others. Of course, many
persons are earning lot of commission in this manner. This chain is likely to
progress for some time. At one point of time the progress of the chain will
stop. On that day persons who buy the product may not find any further
distributor to purchase from them. By the time, the company would have earned
enormous profit. But a very large number of persons would be left cheated.
10
(i) To be a distributor of
such product, it requires registration under the TNGST Act, in case the value
of turn over exceeds a particular limit. It is possible that a few of the
distributors may exceeds that limit. But, those
persons are not registered under the TNGST Act and also would not be pay to the
Government the sales tax.
(ii)
That apart, this system is not an ordinary business transaction, it exploits
the personal influence an individual has in the society. The distributors’ are
found to influence their subordinates or friends. Many of such distributors gets included because of such undue influence by their
superiors. Many unwilling purchasers would be forced to purchase only to obey
their superiors or satisfy their friends or at times under threat or coercion
or inducement and so on. Therefore, the deemed agreement became void under the
Indian Contract Act. Therefore, it is duty of the law enforcing authorities to
prevent such undue influence being exercised.
11.
As rightly submitted by the learned counsel for the respondents only under
promise or expectation of getting huge commission (easy or quick money), the
public are lured to invest more money in such of the schemes. It is only an
imaginary profit. Every one cannot sell all the products (as stated already) to
some others. If a person is unable to get purchasers or distributors at one
point of time, very
large number (may be in lakhs) of
people would be left at that stage, unable to find a purchaser or distributor.
At that stage, all such persons would be cheated.
12.
From the averments, made in the counter affidavit, it is seen that the law
enforcing authorities are keeping the surveillance against such meetings and
record statement from the persons who attend the meetings. By that, the law
enforcing authorities are doing their duty cast on them. It
is indeed appreciable that at least now the law enforcing authorities are
vigilant that people should not get cheated and ultimately come to them for
redress.
13.
But there is also a prayer for declaration that the activities are not illegal
and does not amount to violation of any of the laws. Therefore, this Court has
to decide the aspect as to whether this multilevel marketing is legal or not.
14.
The main contentions of the petitioner are as follows:-
(1)
So far no complaints have been received against them from any distributor.
Therefore, this Multi-level Marketing has not caused any loss to any of the
distributors.
(2)
There is no ‘service fee’ for registration as distributor.
(3)
Every distributor gets commission on the basis of the volume of business that
is generated by him.
(4)
No chain of customers in the process.
(5)
The distributors and the purchasers pay the value of the product that is purchased, therefore, they are not paying any excess amount.
(7)
They collect only nominal service charge for the service rendered.
(8)
The surveillance by the respondents violates the petitioners’ fundamental right
provided under Articles 19(1) (a) and 19(1) (g) of the Constitution of India.
(9)
Further the Union of India has also clarified that the “Multi-level Marketing”
does not infringe the Prize Chits and Money Circulation Schemes (Banning) act,
1978 (Hereinafter referred to as ‘The Act’).
15.
Mere fact no complaints were received does not make an act legal, if it be
otherwise illegal. It is true that no service fee is collected by
the petitioner for registration. It is also true that the commission that is
received by the distributor depends upon the volume of business generated by
him. From the scheme of Multi-level Marketing, as reflected in the brochure
issued by the petitioner, the commission is received only if the distributor
sells the product, which he purchases, to two others and those two persons sell
it to two other persons each and those four persons sell similarly to two
persons each. In this manner, if more number of
persons in the next stages come into this scheme, the person through whom those
persons got enrolled gets commission.
16.
The contention of the petitioner is that there is no chain of customers. This
contention appears not acceptable. The scheme, as stated above, creates chain
of customers and only when the chain progresses without any break in any of the
links, the ‘principal distributor’ gets more commission. If, for any reason,
the chain is broken, at any stage, then the principal distributor’s commission
would get reduced proportionally to that extent. Therefore, it is not correct
to say that there is no chain of customers in the process.
17.
The next contention is that the purchasers pay the value of the product as stated
above and they do not pay the excess amount. It is seen that a ‘starter kit’ is
purchased by the principal distributor for a sum of rs.550/- as per the plan
found in the brochure. The very same brochure contains the MRP of the kit as
Rs.497/-, which is rounded off to Rs.500/- and a service charge of Rs.50/- is
collected when a kit is sold. The contention that no service
charge is collected also does not appear to be correct in view of the fact that
every person who purchases a kit has to pay a service charge of rs.50/- for
each kit. Service charges are collected by governmental institutions like
Electricity Board and Telephones as they are authorized by the Statutory Rules
No individual can collect any charge has service charges. The collection of service
charge is therefore, not legal.
18.
As submitted by the learned counsel for the petitioners, the
petitioners-Company originally was giving 45% of sale price as commission and
now that is increased to 65%. From the very fact that 65% is earmarked for paying
as commission to the distributors, it is clear that the value of the product is
only 35 % of the sale price. That is, when the goods are sold at Rs. 550/-, the
actual value of the goods that are sold is only Rs.188/- calculated at 35 %).
For the value of goods worth Rs.188/-, the purchaser pays Rs.550/-. But ,selling the goods at higher price that is fixed by the
seller, does not offend any law. To get commission one has to purchase starter
kits. If the distributor wants to get more commission through a member of
‘sub-distributor’ under him, he shall purchase more number of such starter
kits. There is no authority to collect Rs.50/- as service charges for one kit. If
it is purely a sale of goods, no service charges are permissible under any law.
19.
The progress of the chain of customers, at some point of time, would get
saturated and the distributor, who purchases the goods, will not find any
purchaser/sub-distributor to sell or enroll afresh.
At that time, due to the progress of the chain, in the manner stated above,
such persons who would not fine new members may be in lakhs
or even millions. Therefore, lakhs or even millions
of people are bound to lose their entire money of Rs.550/0 (value of one
starter kit). At the same time, major portion of 65% of the amount would be a gain to the petitioners-company since there would be no one share
that money.
20.
Section 2© of the Prize Chits and Money Circulation Schemes(Banning)
Act, defines ‘Money Circulation Scheme’, as follows:
“Money circulation scheme” means any scheme, by
whatever name called, for the making of quick or easy money, or for the receipt
of any money or valuable thing as the consideration or a promise to pay money,
on any event or contingency relative or applicable to the enrolment of members
into the scheme, whether or not such money or thing is derived from the
entrance money of the members of such scheme or periodical sub-scriptions.”
The above definition makes it clear
that any scheme by whatever name it is called whereby on a promise that one
would receive or would make quick or easy money by enrolment as members into
the scheme is ‘money circulation scheme’. In this case, there is enrolment of
members into the scheme; there is also a promise made that on such enrolment of
large number of persons into the scheme, one would make quick money or easy
money. There cannot be any doubt that by enrolling new members and by
the process of selling the goods to new distributors this chain progresses; the
person who became such members earlier get commission without doing any work;
getting such a commission is nothing but getting quick or easy money.
Therefore, such schemes the so called ‘Multilevel Marketing’, definitely falls
within the definition of ‘money circulation scheme’.
21.
The learned counsel for the petitioner submitted that Union of India has made a
clarification in an answer to a question in Parliament that Multi-level
Marketing does not violate or offend the provisions of the Prize Chits and
Money Circulation Schemes (Banning) Act. It is suffice to say that it is not
for Union of India or any Member of Parliament to interpret the provisions of
any Member of Parliament. The act has been passed by the Parliament, but the
power to interpret the Act is only vested in judiciary and that power is not
given to the Executive. The statement given by the Union of India or its
Officers that Multi-level Marketing does not attract the provisions of the Act
cannot legalise an illegal act.
22.
It is true that several companies including Multinational Companies carry on
the business of the “Multilevel Marketing” and it is also true that the
executive and the law enforcing authorities keep a blind eye on such
activities. This also does not make an illegal act legal. It is always a fact
that the law enforcing authority would try to close the stable only after the
horse had escaped.” That is the law enforcing authority would realize that this
scheme would ultimately leave a large number of persons cheated. Thereafter,
after losing their money, they would approach the executive complaining that
they were cheated. Till such time, the law enforcing authorities do not act.
They do not take preventive action to enforce the provisions of the existing
law.
23.
The learned counsel for the petitioner placed reliance upon the judgment of the
Supreme Court in Reserve Bank of
24.
The learned counsel also referred to another judgment in State of
“To be a money circulation scheme, a
scheme must be for the making of quick or easy money on any event or
contingency relative or applicable to the enrolment of the members into the
scheme”.
In this case, the Supreme Court has
held that when a firm indulging in high risk investments. It was not illegal.
Further, payment of interest in excess of stipulated rate was not a scheme for
marking easy or quick money. The Supreme Court further held that a scheme has
necessarily to be judged as a whole, both from the viewpoint of the promoters
and also of the members. The Supreme Court in that case had considered only one
aspect namely, whether promise of giving more interest attracts money
circulation scheme? While deciding that issue, the Supreme Court held that if
such transactions are
made openly and not in violation of any law, it would amount to violations of the Act. In that
case, promise to give 48% of interest was not a promise of getting quick money
since the promise was given openly. In that case, the materials placed before
the Court went to show that though the rate of interest stipulated in the loan
certificate was 12 % the firm used to pay altogether interest at 36% to 48% in
all, which was held not a money circulation scheme. Further, the Supreme Court
held that the materials did not indicate that the payment of interest to the
depositors whether at the stipulated rate or at the enhanced rate is dependent
on any element of chance.
25.
Therefore, the two judgments relied upon by the learned counsel for the
petitioners, are not on the point whether the so-called Multi-level Marketing
would attract the provisions of the Prize Chits and Money Circulation (Banning)
Act. Therefore, the argument of the learned counsel for the petitioner that the
Prize Chits and Money Circulation Schemes (Banning) Act does not attract the
scheme, is not correct. There is no decision by the Supreme Court on this
issue.
26.
As stated above, this scheme called Multi-level Marketing creates a chain of
customers and the long and unbroken chain would ensure larger amount of quick
or easy money. The shorter and missed links in the chain would result in
earning lesser commission. Therefore, there should be unbroken chain or
customers. Secondly, the person does not get the value of the money he pays;
thirdly the companies are collecting service charges as stated above in a sale
of goods. No service charges can be collected while the goods are sold.
27.
For all these reasons the scheme of so called Multi-level Marketing cannot be
said not to violate the provisions of Sec. 2 © of the Act.
28.
Apart from that this Multi-level Marketing results in exploitation of the
personal influence of each and every distributor or his close relative. As
stated already, a superior Officer or his ward when he involves in this
Multi-level Marketing, the subordinates are forced to become members in the
chain. Though it may not amount to violation of this Act, it would attract some
other laws; it may result in undue influence, extraction, coercion, etc.
29.
For the reasons stated above, the petitioners are not entitled for the
declaration as prayed for. That apart, such a blanket and omnibus prayer that
the scheme is not in contravention of the provisions of the Prize Chits and
Money Circulation Schemes (Banning) Act, 1978 or any other law in force cannot
be granted by any Court.
30.
It is, indeed, appreciable that the Chief Secretary and the Director General of
Police have stated that though there are no complaints received against the
petitioners so far, if any complaints are received or if the activities of the
company amounts to violation of any of the act, they would definitely take
action against the petitioners. That shows that they are alive to the
situation.
31.
It is true that the petitioners are comparatively a small fish in the business of the so called
Multi-level Marketing. There are other comparatively bigger associations or
institutions or companies which adopt similar schemes. It is for the Director
General of Police and other law enforcing authorities to have a watchful eye on
all such activities and to take timely action as and when it is called for.
32.
The grievance of the petitioners is that the petitioners are conducting
conferences and lectures in order to propagate the scheme. But, they are under
surveillance by the police. This intimidate people who come to attend their
seminars and lectures; and this would amount to violation of the petitioner’s
fundamental rights under Articles 19(1) (a) and 19 (1) (g) of the Constitution
of India. This argument is not acceptable. It is true that they have the right
to freedom of speech and expression and also to the freedom to carry on
business. But, both the rights are subject to reasonable restrictions as
contemplated and Articles 19(2) and 19(g). The right to freedom of speech is
subject to reasonable restriction on the ground of public order and the right
to freedom to carry on business is subject to reasonable restriction in the
interest of ‘general public’. Therefore, when the police keeps watch over any
seminars or lectures. It is in the interest of maintenance of public order and
also it is with a view to protect the interest of general public. Therefore
such acts cannot be complained of by any person including the petitioners who
conduct any seminar or lecture for promoting their business.
33.
In this part of
34.
According to the Prize Chits and Money Circulation Schemes (Banning) Act,
“Money Circulation Scheme” means-
.. any scheme, by whatever name called-
( i ) for making quick or easy money ; or
(ii) for the
receipt of any money or valuable thing as the consideration (or a promise to
pay money) on any event or contingency relative to the enrolment of members
into the scheme.
Thus the definition covers two aspects-
(i) A scheme
for making quick or easy money;
(ii) For receipt or any money or a promise
to pay money: on an event relative to the enrolment in the scheme.
It is
applicable to both- the sponserer and the
participants or subscribers.
35.
In the present case, as seen from the materials placed-
(i) The petitioner company gets an extra
amount of Rs.3-/ by rounding off (Rs. 497 as Rs.500). It also gets Rs. 50/- as
service charge, while selling the product. Thus, the company (petitioner) gets
quick or easy money, as per the above definition.
(ii) It enables the receipt of money (by way
of commission) by the so-called distributor
also on his enrolling new members.
36.
The event is enrolment of new members; the commission received is relative to such
enrolment of new members into scheme. Therefore, the argument of the learned
counsel for the petitioners that there is no promise of quick or easy money is
not correct for the reasons stated above. Thus, the so-called Multi-level Marketing, though called by a very attractive name squarely
falls within the definition of ‘Money Circulation Scheme’ under the Act. Hence,
it is prohibited by the Act. It is for the law enforcing authorities to take
appropriate action.
37.
In the result, the writ petition is dismissed. No costs. Consequently.
WPMP No.2741 of 2004 is dismissed.
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