Thursday, 9 December 2010

Madras High Court termed MLM illegal long back

In M/s. Apple FMCG Marketing (Pvt) Limited, Vs. The Union of India, the State of Tamil Nadu and the Director General of Police, the company filed a Petition 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.

The Madras High Court held that 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’. (Para 20)

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. (Para 21)

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’. (Para 32)

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.

The High Court also stated that 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.” (Para 22 ).

In this part of India, people are gullible and fall an easy prey to the tall promises made through the media. That was the reason why the lottery tickets were sold in large numbers in the State. Many companies want to exploit this attitude of people and float many schemes and lure the people to join the schemes. The petitioner is not entitled for direction for prohibiting the authorities from keeping surveillance over any meeting. Sec. 7 of the Act confers the right on the police officer to enter any premises, where he has got a reason to suspect that the premises are being used for purposes connected with the promotion or conduct of any prize chit or money circulation scheme in contravention of the provisions of the Act. (Para 33. ).