Tuesday, 31 August 2010
Now let us look at the judgement of the highest court of the land, the Supreme Court of India. In Kuriachan Chacko and others vs. State of Kerala (2008) 8 SCC, the Supreme Court stated that Section 2 (c) of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 does not insist that enrollment of members must be by members already enrolled. It also stated that enrollment of new members by whosoever is immaterial. (It should be noted here that Amway also claims that there is no compulsion to enroll new members.)
A quick look at the scheme reveals that each member has to pay Rs. 625 and purchase one unit of lotteries from the promoters. The promoters will make use of Rs. 350 to purchase 35 lottery tickets of the Kerala Government for the next 35 weeks. If the unit-holder wins any prize up to Rs. 5000 in the 35 draws, the promoters shall collect the amount and pay the same to the unit-holder. If the unit-holder wins any prize above Rs. 5,000 the ticket shall be handed over to the unit holder for collection of the amount. The balance of Rs. 275 will be used for the subscription of a magazine for one year. The unit holder will be returned not only Rs. 635 for twice his investment Rs. 1250 on an early date. The promoters said that all persons would be able to double their investment at the earliest. No specific time, however, was given but it was assured that the amount would be doubled at the earliest and it would be paid on the basis of seniority.
Under the scheme, the amount of Rs. 1250 will be paid to the unit-holder as soon as 14 more members are enrolled. The idea appeared to be very attractive and the membership collection during a short period reached to almost Rs. 500 crore (five billion). There was aggressive publicity and marketing through visual and print media. More and more amounts were coming into the kitty of the promoters from unit holders.
Suddenly, however, there is a jolt to the scheme. Police authorities registered a crime against the promoters for an offence punishable under Section 420 of IPC (cheating) read with Section 34 (joint liability) and under Sections 4 and 5 read with Sections 2(c) and 3 of the PCMC Act, 1978 and Sections 45 -I (bb) 45-S and 58-B of the Reserve Bank of India Act, 1934. The High Court confirmed the trial court framing of charges.
When the case reached the Supreme Court, in this case, it was held that both the essentials of Section 2(c) of the Act are present. The scheme provides for (i) making of quick of easy money and (ii) it is dependent upon an event or contingency relative or applicable to the enrollment of members into the scheme. A member would be entitled to double the amount only when after his enrollment, additional 14 members are enrolled in the scheme. The second ingredient such payment of money is dependent on the 'event or contingency relative or applicable to the enrollment of members into the scheme' is thus very much present. The contention that there is no obligation on the part of the unit-holder to enroll more members has no force. Section 2 (c) nowhere provides that a member of the scheme must himself, enroll other members. The requirement of law is 'an event or contingency relative or applicable to the enrollment of members into the scheme' and nothing more. The event or contingency on the happening of which the amount would become payable must be relative or applicable to the enrollment of the members into the scheme. It is immaterial by whom such members are enrolled. The sole consideration is that payment of money must be dependent on an event or contingency relative or applicable to the enrollment of more persons into the scheme, nothing more though nothing less. In the present case, the second ingredient is very much present.
It is clear in the advertisement, a member would get double the amount when after his enrollment, two members were enrolled under him and thereafter, 4 other persons were enrolled under them and after their enrollment 8 persons were enrolled under them. Thus only after 14 persons under the first enrolled person become members under the scheme, the first person would get Rs. 1250 i.e. double the investment. It must be evident for any discerning mind that this scheme cannot work unless more and more subscribers join.
The Supreme Court stated that there is no reason to assume that the promoters had no contumacious intention and they embarked on the venture without any culpable motive on the honest assumption that the tickets sold through them will win prizes and sufficient commission will be available to pay double the amount to all the unit holders. The Court took note that the fact that inherently there is merit in the allegation of the prosecution that the scheme so grossly unworkable that the persons who made representations to that effect and induced persons to part with money did entertain the contumacious intention.
The Supreme Court upheld the High Court observation that the promoters very well knew that it is certain that the scheme was impracticable and unworkable making tall promises which the makers of the promises knew full well that it could not work successfully. It could work for some time in that "Paula can be robbed to pay Peter" but ultimately when there is a large mass of Peters, they will be left in the lurch without any remedy as they would by then have been deceived and deprived of their money. If it is so, it could be said to be a case for application of Section 420 (cheating) read with 34 (joint liability) of IPC of course at this stage.
The Supreme Court, thus, dismissed the appeals.
Monday, 30 August 2010
In 2003, a multilevel marketing company V-Can Network (Private) Limited which marketed three products - Ozone water purifier, Magnetic bed and Companion (multipurpose foldable table with four seats and designed to look like a suit case) filed a writ petition in Madras High Court to issue a writ of Mandamus directing the police not to prevent the company from carrying on their day-to-day business of selling their products and services under the multilevel marketing scheme by using their respective offices and network systems.
The company said that each of the products cost Rs. 5990 and sold under distribution system in addition to the direct sales which is being networked from individual to individual. This system already existed in India and many other companies are doing the same business of individual networking system. The consumer makes the purchase out of his won will and there is no compulsion in the business and the same person out of his own decision and will may become a distributor or may remain as consumer himself. (Amway puts forward the same argument) The distributor is getting commission for the sale he is undertaking and such independent distributor have the power not only to sell the products but also appoint two other distributors under him and all of them can sell the company products and earn points apart from incentive commission on the value of the products sold.
The purchaser who became distributor on accumulation of 600 value points, becomes an independent distributor and eligible to avail discount up to 30% of the sale price of the product. Three products are manufactured scientifically. Nearly 50,000 distributors in five States are depending on this business and nearly two lakh people are directly involved earning livelihood out of this system. Though there is no complaint from any quarter, recently police arrested four distributors and registered a case. The company stated that leading legal personalities have certified that their system of business would not fall within the ambit of PCMC Act.
After exhaustive hearing, the High Court held that though the company claim innocence and their business being lawful, the same has to be ascertained only after thorough investigation, final report, trial, evidence and judgement and in such circumstance, the grievance expressed by V-Can Network cannot be gone into a writ jurisdiction. It is needless to mention that it is open to them to put-forth their defence before the appropriate court if their business is lawful. Hence this writ petition is dismissed.
Sunday, 29 August 2010
NMart, a national level racket is about to strike Indians. NMart, a Gujarat-based retail outlet is soon launching 30 retail outlets through out the country including a small city like Vijayawada. They plan to sell provisions and every purchaser would get points on purchase of provisions like rice, cooking oil and others. On attaining some points, they would be rewarded with cash incentives or they could opt for more provisions. It looks good. We all purchase provisions every day and we purchase them wherever it is reasonably priced and of good quality. What more we need if we get points in our kitty for purchasing goods and would be rewarded.
But the catch is, we have to enroll as members by paying Rs. 5,500. We would be given coupons worth Rs. 5,000 which could be used in 48 months. If we use them we get points also. If every member enrolls more members they would be benefited. Rings any bell. This is nothing but another copy cat of Amway India.
In essence, this fellow wants to encash the greed of people even before launching a single retail outlet. If he could enroll 1,000 members (5,500x1000) he would neatly pocket Rs 5.5 million even without selling a single kilo of rice. If he collects membership fee from all the 30 retail outlets through out the country, one could imagine how much he is going to pocket. That is the racket which is out there waiting to strike Indians.
Now the question is whether the Indians would accept to be robbed once again. Already a set of racketeers set foot in the market inducing the gullible to become members in the scheme. These shameless, educated brutes do not mind to cheat their own friends and relatives with the promise of getting rich easy and quick. The other day a mysterious person called the Secretary of Corporate Frauds Watch (CFW) and attempted to convince him that this is a good business opportunity. He said that he has seen the pamphlets distributed by CFW appealing people not to fall prey to the multilevel marketing menace.
Corporate Frauds Watch has already taken up this issue with the higher police officials and they promised to look into the racket.
Saturday, 28 August 2010
Friday, 27 August 2010
Now let us look at another multilevel marketing company M/s Apple FMCG Marketing (Pvt) Ltd which filed a writ petition in the Madras High Court appealing to declare that its business model of selling products through the network marketing system is legal and not in contravention of the provisions of the Prize Chits & Money Circulation Schemes (Banning) Act, 1978 or any other law. This was way back in 2004.
The Madras High Court held: It is true that several companies including multinational companies carry on the business of the 'multilevel marketing' and ti is also true the 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 (para 22).
The petitioner is a company marketing various products including shampoo, tea, coffee powder, after-shave lotion etc. under the brand name 'Joy Eternal' through network marketing. Several unemployed youth have taken up the marketing of these product and have earned satisfactory incomes depending on their talents and efforts.
No complaints have been received from any consumer about the quality of 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, distributor 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 enroll more distributors. The commissions are given only as per the volume of the 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.
There are only two stages-- 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. (Rings any bell. This is the same modus operandi employed by Amway India- Editor)
The petitioner (Apple FMCG) 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 Rs. 35 are sold at Rs. 100 and this Rs. 35 covers not only the price of the goods but also expenditure involves forth administration of the company. Of course the court cannot interfere with the fixation for 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 of expectation that he may get more 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 products 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.
The main contentions of the petitioners are as follows:
1) So far no complaints have been received against them from any distributor. Therefore, this multilevel 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 purchaser 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 (the Police) violates the petitioners' fundamental right provided under Articles 19 (1) (a) and 19 (1) (g) of the Constitutions of India.
9) Further the Union of India has also clarified that the multilevel marketing does not infringe the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
Mere fact no complaints were received does not make an act legal, if it be otherwise illegal.
The contention of the petitioners is that there is no chain of customers. This contention appears not acceptable. The 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.
The contention that no service charge is collected also does not appear to be correct.
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. Therefore lakhs or even millions of people are bound to lose their entire money.
There cannot be any doubt by enrolling new members and by the process of selling the goods to new distributors this chain progresses; the person who became such member 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.
Regarding the Union of India making a clarification that multilevel marketing does not violate or offend the provisions of the Act, it is to suffice to say that it is not for Union of India or any Member of Parliament to interpret the provisions of any Act. The power to interpret the Act is only vested in the judiciary and that power is not given to the Executive. The statement given by the Union of India or its Officers that multilevel marketing does not attract the provisions of the Act cannot legalise an illegal act.
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 do not take preventive action to enforce the provisions of the existing law.
For all these reasons the scheme of so called multilevel marketing cannot be said not to violate the provisions of the PCMC Act.
Apart from that this multilevel marketing results in exploitation of the personal influence of each and every distributor or his close relative. Though it may not amount to in violation of this Act, it would attract some other laws; it may result in undue influence, coercion, extortion, etc.
It is true that the petitioners are comparatively a small fish in the business of the so called MLM. There are other comparatively bigger associations or institutions or companies which adopt similar schemes. (Probably, the Madras High Court was thinking of Amway India). It is for the enforcing authorities to have a watchful eye on all such activities.
Wednesday, 25 August 2010
A person was arrested for indulging in a crime. He was arrested, chargesheeted and the trial is going on. Could he be allowed to commit the same offence again and again. Is it possible in any country? But it happens only in India.
Here the person in question is Amway India. Police conducted raids on the premises of Amway India and filed a criminal case. Amway India approached the High Court to declare its business model as legal. However, the High Court decided otherwise and held that its business model is illegal and the police could go ahead with the investigation. The Amway India again moved the Highest court of the land, the Supreme Court of India. The Highest Court also found the company guilty. The Police filed the charge sheet in the Chief Metropolitan Magistrate Court, Nampally, Hyderabad. The trial is going on.
However, the Amway India is allowed to continue its illegal operations. It is high time to ponder what is wrong with our judicial system.
Another thing is the perfunctory investigation by the CID police of Andhra Pradesh. They investigated into a money circulation scheme but found out that only nine persons were involved in the money circulation scheme. How come? Don't ask questions. That is the way the CID investigates. More, they do not take cognizance of the persons who filed writ petitions in the High Court stating that they are Independent Business Owners of Amway India. For reasons better known to the CID, they were let off without including their names in the charge sheet.
The State Government issued an order restraining specifically Amway India from issuing advertisements in any media. This order is more in breach than in observance. Still, no action is initiated against Amway India.
Above all, Amway India through its front organisation the Indian Direct Selling Association demands legalisation of direct selling in the country. Never ask what is direct selling.
What would happen to the country if there is no respect for the law of the land?