INDIAN SITUATION
Let us not legalise the American Scam
Based on the recommendations of the Deputy
Governor, Reserve Bank of
After
passing of this Act, the naked Money Circulation Schemes were checked, but in
1990s again such money circulation schemes started e.g. Sri Nidi
Enterprises, Green Glory Company etc.
At
local level many small companies involving lesser amount were started. Later on taking the cue from American born
Multilevel Marketing schemes also called the American Scam many companies
started their business in
The
breath taking success after the companies like Amway
The
following three classic cases in the state of Andhra Pradesh will explain the
Modus Operandi of these companies and Socio-Economic losses to the people.
a) Southern Wonder World
Resorts Limits
The
scheme was that each person who wants to become a member of the resort has to
pay Rs.2,500/- and then enroll 3 members and then
those 3 members will enroll 9 members and so on …. And on. Thus, they will be setting up a chain of
contributors and from each person the initial man and others will be receiving
commissions. Thus, this company in a
period of just 80 days cheated the public to the tune of 13 crores through a
chain link system. The promoted wanted
to collect Rs. 375 Crores but the timely intervention of Kadapa police the
cheating was stopped.
b)
In this scheme the purchaser has to purchase
a bed and then enroll 3 members and then those in turn 9 members and so
on. This company is having 20 branches
ad runs business in all states and in a span of 5 years it has done business of
over 1,000 Crores. Because of
timely action of Nalgonda police crores and crores of
rupees of public money was saved.
c) Mihira Magic New Working
This
company having its Head Office in
The Price Chit and Money Circulation (Banning) Act, 1978
bans, prize chits and money circulation schemes or enrolls as members or
participation therein and provides for punishment and fine.
Sec.2(C) of the Act defines the Money Circulation Scheme as :
“Any
scheme, by whatever the name called, for making of quick or easy money, or for
the receipt of any money, or valuable thing as the consideration for a promise
to pay money, on any event or contingency relative or applicable to the
enrollment of members into the scheme, whether or not such money or thing is
derived from the entrance money of the members of such scheme for periodical
subscriptions”. Thus any scheme
which involves enrollment and making of quick or easy money is nothing but
Money circulation schemes.
The MLM Companies are companies which involves
enrollment of members and are also schemes for making of quick and easy
money. Thus they should come under
purview of definition of Money circulation scheme under the Act.
It
is rightly opined by Legal Advisor, Reserve Bank of India in the year 2001
regarding Japan Life India Company that it is a Money Circulation scheme in the
light of the decision of the Hon’ble Supreme Court in the state of West Bengal
Vs Swapan Kumar Guha (1982)
and action can be taken under the act, but surprisingly the Reserve Bank
withdrawn the opinion in the year 2003 and said “we are not competent to give
our legal opinion. Please ignore the
legal opinion we tendered earlier”. (In
the words of Jayapal Reddy, M.P., “they are blessing
like a bride”.).
Ministry
of Consumer affairs, Food and Public distribution in 2003 issued directions to
the Chief Secretaries of all the States and Union Territories to instruct the
officials concerned to distinguish between the companies dealing with activities
coming strictly coming under the purview of the act and those such as direct /
Network / Multilevel Marketing dealing in the distribution of goods so as to
avoid harassment and commercial losses to bona fide investors. It also state “It is our considered view that
the provisions of Price Chits and Money Circulation Scheme (banning) Act 1978
not applicable to companies dealing with distribution of goods including
Multilevel / Networking companies. Interpretation of various judgements by
the Hon’ble Supreme Court (1. State of
The
logical conclusion of the combined reading of the act and the above stated
opinions is that there is no law or legal provision in
Sri
S. Jayapal Reddy, Member of Parliament raising the
issue of Japan Life India company in the Parliament said “In India these schemes have become a nation
wide menace, a nation wide financial pest” and suggested to the Government to come forth with a new act to
deal with the offences and also a regulatory authority to deal with these
matters. Responding to this the then
Finance Minister Sri Jaswanth Singh said that the
Govt. will examine whether a new act is necessary. [Parliamentary debates]
The
Indian Direct Selling Association prepared a draft bill regulating
Network/Direct/Multilevel Marketing and represented to the Government for
enactment of a separate legislation.
This law is a camouflage to carry on the business which is otherwise
illegal.
Mr.V. Srinivasa Prasad, Minister
of State in Union Ministry of Consumer affairs, Food and public distribution
answered a question in Lok-Sabha on Dec.20th,
2002 on Networking Marketing or MLM. Admitting that the Government has received proposals from the
Network Marketing industry requesting the enactment of separate legislation to
cover Direct Selling / Networking Marketing / Multilevel Marketing. The Minister said the main contention of
the representation was that members of the Industry were being targeted due to
the vagueness of the Prize Chits and Money Circulation (banning) Act, 1978 in
distinguishing between prize chits funds and genuine
agencies involved in direct marketing.
He went on to clarify the position by stating that the matter had been
examined in detail in consultation with the ministries concerned. “The need for a separate legislation was not
felt in view of the fact that there are adequate provisions available in the
Sale of Goods Act, 1930 (for regulating the sale of goods); and the Consumer
Protection Act 1986 (to promote and protect the rights of consumers),” he
said. “The provisions of the Prize Chits
and Money Circulation Scheme (Banning) Act, 1978 seek to ban the promotion or
conduct of prize chits and Money circulation schemes. The provisions of the Act had come up for
scrutiny before the Supreme Court of India which ruled that the ‘Network
Marketing Plan’ and direct sale of goods and services by the direct selling
companies do not fall within the mischief of the ‘Prize Chits and Money
Circulation Scheme (Banning), 1978 Act” the Minister added. (www.greenindiaonline.com/legal.htm)
It is
interesting to note that in the recent decision of Madras High Court ( on 7th
January, 2005) the court held that the Multilevel Marketing scheme, by whatever
attractive name it is called, is illegal and that the Director General of
Police and other law enforcing authorities must have a watchful eye on all such
activities and take timely actions. The court dismissing the writ petition
filed by appeal FMCG Marketing Pvt. Ltd., seeking to declare its Network
Marketing System legal and not in contravention of the provisions of the Price
Chits and Money Circulation (banning) Act, 1978, said “this scheme creates a
chain of customers and the long and unbroken chain ensures a large amount of
easy money. The shorter and missing
links in the chain results in earning lesser commission. Secondly, the person concerned does not get
the value of money he pays. Thirdly, the
companies collect service charges on the sale of goods. No service charge can be collected while the
goods are sold. Apart from that, the MLM
results in exploitation of personal influence of each and every distributor or
his close relative. If a