Andhra Pradesh High Court slams Amway India once again--PartIII

This is the third and final part of the Andhra Pradesh High Court judgement which slammed the Amway India once again.

What is within the mischief of the Act is not “any scheme, by whatever name called, for the making of quick or easy money” simpliciter, but a scheme for the making of quick or easy 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 their periodical subscriptions). Two conditions must be satisfied before a person can be held guilty of an offence under Section 4 read with Sections 3 and 2(c) of the Act. In the first place, it must be proved that he is promoting or conducting a scheme for the making of quick or easy money and secondly, the chance or opportunity of making quick or easy money must be shown to depend upon an event or contingency relative or applicable to the enrolment of members into that scheme. It is necessary that the activity, charged as falling within the mischief of the Act, must be shown to be a part of a scheme for making quick or easy money, dependent upon the happening or non-happening of any event or contingency relative or applicable to the enrolment of members into that scheme. The systematic programme of action has to be a consensual arrangement between two or more persons under which the subscriber agrees to advance or lend money on the promise of being paid more money on the happening of any event or contingency relative or applicable to the enrolment of members into the programme. Reciprocally, the person who promotes or conducts the programme promises, on receipt of an advance or loan, to pay more money on the happening of such event or contingency. (State of W.B. v. Swapan Kumar Guha[1][2]).

The event or contingency on the happening of which the amount would become payable must be relative or applicable to the enrolment of members into the Scheme. It is immaterial by whom such members are enrolled. It may be by members, by promoters or their agents or by gullible sections of the society suo motu (by themselves). The sole consideration is that payment of money must be dependent on an event or contingency relative or applicable to the enrolment of more persons into the Scheme, nothing more, though nothing less. (Kuriachan Chacko¹).

The petitioner sells its products through individuals called distributors in terms of a distributorship agreement. Under the terms of the agreement of distributorship, the company has reserved to itself the right to confirm the independent business associates only after receipt of full payment; all distributors/IBAs are advised to sponsor new distributor/IBA in their downline only after their personal distributor/IBA is confirmed; the terms and conditions also stipulate that the company would distribute 90% of its total revenues; the application form, for registration as a distributor, shows that Rs.2,688/- is required to be paid as agency fee/distributor fee/membership fee for which free gifts of a dinner set, an idly cooker set, and a kadai 3 pieces set, are given to the applicant; in addition Rs.10,000/- is required to be paid for which the distributor is insured under the Bajaj Allianz unit gain policy, and he receives as free gifts a dinner set, an idly cooker set and a kadai 3 pieces set; the application for registration also requires the applicant to disclose who his sponsor IBA/distributor is; his position, and whether it is to the left or to the right. It is this scheme which the respondents contend attracts the provisions of the Act.

It is evident from the facts aforementioned that a person can become a “so called distributor” of the petitioner company, only if he is sponsored by another independent business associate/distributor. The incentives to which a newly enrolled distributor is entitled to is based on the number of distributors/independent business associates he sponsors. The petitioner company claims to distribute 90% of its total revenues among its distributors/IBAs. A substantial part of the income which the distributors/IBAs get, therefore, depends on an event or contingency relative or applicable to the enrollment of new distributors/IBAs into the scheme. The scheme is formulated as an inducement for enrollment of new distributors/IBAs to earn higher incentives. The lure of more incentives is the inducement for existing distributors/IBAs to aggressively pursue enrollment of new members, as distributors/IBAs, with a view to make quick/easy money. The petitioner company promises payment of incentives to the sponsorer distributors/IBAs, on the business turned out by the newly sponsored and enrolled distributors/IBAs, which constitutes an event or contingency relative to the enrollment of such members. The petitioner not only earns quick/easy money from its distributors, but it also provides attractive inducements to its distributors to earn quick/easy money. The ingredients of Section 2(c) of the Act, i.e., (a) making of quick or easy money; and (b) the chance or opportunity of making quick or easy money depending on an event or contingency relative or applicable to the enrollment of members into the scheme, are satisfied in the cases on hand. As the provisions of the Act are attracted, Section 7 of the Act empowers the respondents to enter into the petitioner’s business premises, and take into custody the persons involved in the scheme. The action of the respondents in initiating criminal proceedings against the petitioners, who have promoted such schemes, does not, therefore, necessitate interference in proceedings under Article 226 of the Constitution of India.

In more or less similar circumstances the Division Bench of this Court, in Amway India Enterprises v. Union of India[2][3], observed:-

“……But on a careful analysis of the true nature of the scheme as explained above, it is quite apparent that one of the components of the income earned by a sponsor member is the commission which is calculated not only on the personal PV of the sponsor member, but also from the PV earned by the remaining 102 members falling within his group. There is, therefore, no gainsaying that a substantial part of the income which the first sponsor member of the group gets depends on the event or contingency relative or applicable to the enrollment of members into the scheme…….. Thus the money which the member at the top of the line gets depends upon the members whom he enrolls or the members enrolled by him enroll……..”

“………Whether second ingredient is also satisfied or not is to be considered now. As seen above, each member on his enrollment pays Rs. 4,400/ -. Payment of Rs. 4,400/- by a member on his enrollment and his future earnings through marketing/enrolling other members constitutes event or contingency relative to his enrollment the distributor gets all this money as a consideration for promise made by the sponsor at the time of his enrollment Thus as far as the member joining the scheme is concerned, both the ingredients of Section 2 (c) of the Act, i. e. , a)making of quick or easy money, and b) the chance or opportunity of making quick or easy money depending on an event or contingency relative or applicable to the enrollment of members into the scheme are satisfied. …….”

…….It is, thus, evident that the whole scheme is so ingeniously conceived that the inducement for aggressive enrollment of new members to earn more and more commission is inherent in the scheme. By holding out attractive commission on the business turned out by the downline members, the scheme provides for sufficient inducements for its members to chase for the new members in their hot pursuit to make quick/easy money. On the part of the promoter by pushing each member to achieve the minimum sates worth Rs. 2,000/- per month, (this sale includes enrollment of new members) he is assured of about 1000 crores per annum. All this squarely satisfy the description of quick/easy money….. The plea of the first petitioner that there is no compulsion that a member shall renew his distributorship looks to us to be specious. Once a person becomes a distributor in a scheme of this nature where the sops in the shape of commission are so luring, it would be very difficult for a member to withdraw from their membership to avoid payment of the annual renewal subscription fee. ……”

“…..FROM the whole analysis of the scheme and the way in which it is structured it is quite apparent that once a person gets into this scheme he will find it difficult to come out of the web and it becomes a vicious circle for him….. By no means can it be said that the money which the first petitioner is earning is not the quick/easy money. By promising payment of commission on the business turned out by the down-line members sponsored either directly or indirectly by the up-line members (which constitutes an event or contingency relative to enrollment of members), (the first petitioner is earning quick/easy money from its distributors, apart from ensuring its distributor earn quick/easy money. Thus the two ingredients are satisfied in the case of promoter too. We are, therefore, of the considered view that the scheme run by the petitioners squarely attracts the definition of "money Circulation scheme" as provided in Section 2 (c) of the Act…..” (emphasis supplied)

The petitioners in W.P. No.22914 of 2006, 22916 of 2006 and 23737 of 2006 are not entitled to the relief sought for in the writ petitions filed by them. These writ petitions fail and are, accordingly, dismissed. Writ Petition No.25749 of 2006 is disposed of accordingly. However, in the circumstances, without costs.

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GODA RAGHURAM, J

RAMESH RANGANATHAN, J

Date: 30.07.2010

[1][2] (1982) 1 SCC 561

[2][3] 2007(4) ALT 808