Tuesday, 15 February 2011

Amway's business plan is nothing but easy and quick money: AP High Court


What made the Andhra Pradesh High Court to come to the conclusion that Amway India has been making easy and quick money. The following paragraphs established that how Raja Naren, a diamond, made several hundreds of thousands of rupees every year without purchasing a single product.
14.       In his rejoinder, Shri B. Adinarayana Rao (counsel for the petitioner Amway India) reiterated that the Government of India has not taken a specific stand that the business activity of petitioner No.1 is hit by the provisions of the Act.  He submitted that the main ingredient of quick or easy money envisaged under Section 2(c) of the Act does not exist in the petitioners’ scheme.  He further submitted that the 1st petitioner has an annual business turnover of 700 crores  and even assuming that all the 4,50,000 subscribers paid the annual renewal fees of Rs.995/-, the 1st petitioner gets only about Rs.40 crores and by no stretch of imagination it can be said that the 1st petitioner is getting quick or easy money on this count.  He referred to the instance pertaining to Accused No.4 (Raja Naren) in Crime No.10 of 2006 narrated in the counter affidavit wherein it is stated that the said person became a diamond member of the 1st petitioner company in the month of August 2006 and that he has not purchased goods worth a single rupee, but still he has credited with points worth Rs.7,61,140/- during that year and submitted that even if these figures are correct, the provisions of Section 2(c) of the Act are not attracted because making of such a profit by a person is not forbidden by any law.  The learned counsel submitted that the commission credited to a sponsor on the purchases made by the downline distributors is only one of the components of the payments received by the sponsor members.  The learned counsel then submitted that even if the Court comes to the conclusion that Section 2 (c) is attracted in the case of the petitioners, they cannot be forced to close the business till the conclusion of the criminal proceedings and indiscriminate seizure of products being effected by the police should be declared illegal and nullified.
22.       We shall now examine whether on the admitted facts and the material available on record, the scheme envisaged by petitioner No.1 attracts the aforementioned ingredients of clause (c) of Section 2 of the Act. 
The Scheme:
23.       The purported theme behind the scheme appears to be direct selling which means sale of products to the customers by the distributors of the company without there being any wholesaler or retailer.  It is explained in the affidavit filed in support of the writ petition that a person becomes a distributor by purchasing a business kit at a cost of Rs.4,400/- comprising; a) Rs.2,600/- towards the products and other material (sales aid and literature) and b) Rs.1,800/- towards product literature and subscription fee.  In this process, the distributors are provided with incentives.  Annexure-7 (brochure) to the reply affidavit filed by the petitioner titled “Amway Sales and Marketing Plan in India” unfolds the entire scheme.  It is explained therein that distributors can generate income in two ways, namely; 1) by earning retail sales profit, and 2) through performance incentive; that the distributors purchase products from Amway at distributors cost and then sell these products at higher price (not more than printed MRP) which is the retail sales profit.  As regards performance incentive, it is appropriate to extract the relevant portion of the brochure:
Performance Incentive:
Your performance incentives are based on monthly calculation of your individual and group PV/BV.  This incentive is based on a slab system that ranges from 3% to 21@ depending on your business volume.  Your earnings would be proportionate to your efforts.
PV (Point Value) is a unit amount assigned to each product.  It is an effort index, which puts emphasis on the units sold and not the selling price.  Each month the PV is totaled in order to determine the performance incentive bracket.  These brackets range from 3% to 21%.
BV (Business Volume) is a monetary figure assigned to each product.  In order to calculate the Performance Incentive, the percentage amount determined by total PV is applied to the total BV for the month.  The ratio of PV to BV in India is 1 PV = 45 BV.
Performance Incentive table
If Total Monthly PV is          BV is           Performance incentive is
10,000                               4,50,000        21% of Your BV
  7,000                               3,15,000              18%
  4,000                               1,80,000              15%
  2,000                                  90,000              12%
  1,000                                  45,000                9%
     500                                  22,500                6%
     100                                    4,500                3%


27.       In the above given diagram drawn to a 1-6-4-3 pattern, the first member sponsors six members.  Each of the six members in turn sponsors four members and each of the twenty four members sponsors three members.  Thus the strength of the total group becomes 103.  At the minimum level of PV and BV, the profit margin and the commission the person heading the group, by taking his personal PV and BV gets is Rs.12,420/-, from the PV and BV of the six persons he sponsored he gets Rs.23,760/-, from the PV and BV of the 24 distributors who were sponsored by six distributors he gets Rs.1,14,480/- and from the PV and BV of 72 distributors whom the 24 distributors sponsored he will get Rs.6,83,300/.  This is the admitted position under the scheme.                         
28.       As is evident from the contentions advanced on behalf of the petitioners as noted earlier, the petitioners have taken the stand that there is no quick or easy money involved in the scheme and that the money which the sponsor member gets does not depend on any event or contingency relative or applicable to the enrollment of the members into the scheme.  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 all 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.  This conclusion can be tested by a further analysis of the income figures given in the earlier paragraph.  Supposing the sponsor member at the top does not introduce any member and if he merely sells the products given to him, he gets an income of Rs.12,420/-.  If he sponsors only six people and they in turn do not sponsor any member, then he will get an additional income of Rs.23,760/-.  If those six members whom he sponsored again sponsor four members each, he will get a further income of Rs.1,14,480/- and if the 24 members sponsor three members each, he will get a further sum of Rs.6,83,300/-.  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.  
29.       In Para 21 of the counter affidavit of respondent No.6 the example of Raja Naren is cited and the petitioner did not dispute the averment relating to the income he earned in a year.  The said instance is illustrative of a person earning fabulous income without doing anything after he accomplishes his task of enrolling the required number of persons as members into the scheme. 
30.       From the aforementioned discussion, it is proved that the scheme provides for easy/quick money to its distributors.  The first ingredient is thus satisfied.
30.       From the aforementioned discussion, it is proved that the scheme provides for easy/quick money to its distributors.  The first ingredient is thus satisfied. 
31.       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.
After thoroughly going through the submitted material to the High Court only the Division Bench has come to conclusion that the Amway India's business model is nothing but a money circulation scheme. 


21 comments:

NIKESH said...

very good article. sir i live in chandigarh and i want to know if similar case can be valid against webite making company if they dont charge you enrolling fees but encourages/forces you to sponser other people. they have almost similar structure to amway just the difference is that they don't have any enrollment fees. thank you in advance..... :)

Shyam Sundar said...

YES Nikesh, These websites could also be brought to book. I filed a criminal case against speakasiaonline and it is now closed.

NIKESH said...

sir my question is, if direct marketing or MLM is illegal in India then why apart from Amway, companies like Avon, Tupperware, Oriflame, Max New York Life Insurance
Co. Ltd., Gurgaon etc are not getting sued in India.

Shyam Sundar said...

Nikesh, Nobody is filing criminal cases against such companies. The police or the government would take action only if there were complaints against any person, institution.

NIKESH said...

thank you for your replies sir, articles like this will help people from geting duped.....

sir in India are all direct selling/
MLM companies are illegal?? if no then can you name one.....

SK Munna said...

I got this offer. Is it better to accept. Please reply.

Shyam Sundar said...

Even after reading this if you want to join, it is up to you

Nimesh Oza said...

Amway is not fraud....
Its Legal..... and neither easy and quick scheme.....


Amway 50 Facts (PDF)

1. Amway is a global leader in the $102-billion direct selling industry. More than three million Amway Business Owners operate independent businesses in more than 80 countries and territories around the world.
2. Amway and its subsidiaries employ more than 13,000 people worldwide.
3. Amway and its subsidiaries reported record sales of more than $7.1 billion for the year ending December 31, 2007.
4. Amway operates 65 Research and Development laboratories worldwide, staffed by more than 500 scientists, engineers, and technical professionals.
5. Amway Research and Development professionals have been awarded more than 500 patents and have had more than 400 papers published in top industry journals.
6. Amway is a leader in the U.S. Direct Selling Association, the World Federation of Direct Selling Associations, the National Association of Manufacturers, and the U.S. Chamber of Commerce.
7. Amway was ranked #43 on the Forbes Magazine 2007 list of “America’s Largest Private Companies.”
8. Our eco-friendly home care products help maintain a cleaner environment and a cleaner home.

Our Subsidiaries

9. Amway owns the Amway Grand Plaza Hotel and the JW Marriott Hotel in downtown Grand Rapids, Michigan, as well as Peter Island Resort in the British Virgin Islands.
10. Amway owns the Laura Mercier™ line of cosmetics, which is sold in fine boutiques and department stores.
11. Amway manufacturing facilities are located in Ada, Michigan, USA; Dongnai Province, Vietnam.
12. Each year, 75 million units of soap, detergents, and cleansers; 150 million units of cosmetics; and 6 billion vitamin and mineral tablets are produced by Amway.
13. Amway operates six distribution centers across North America, totaling more than 1.5 million square feet of warehouse space.

Nutrilite Products

14. Nutrilite™ is the world’s leading brand of vitamin, mineral, and dietary supplements, according to 2007 sales figures.
15. In 2008, sales of Nutrilite™ products worldwide reached a record $3 billion.
16. More than 75 years ago, Nutrilite founder Carl Rehnborg created the first multivitamin/multimineral supplement sold in North America.
17. Nutrilite™ is the only global vitamin and mineral brand to grow, harvest, and process plants on its own certified organic farms.
18. Nutrilite operates 6,400 acres of farmland in the U.S., Mexico, and Brazil, where plants are grown and harvested in accordance with nature using sustainable, chemical-free methods.
19. Nutrilite scientists are at the forefront of a new scientific discipline called nutrigenomics, the study of how our genes interact with nutrients.
20. The Nutrilite Health Institute Scientific Advisory Board, a worldwide group of leading nutrition, health, and genetics scientists, helps guide the future of the Nutrilite™ brand.
21. The Nutrilite Health Institute Center for Optimal Health is a world-class teaching and training facility offering visitors a personal,
interactive path to optimal health.

Artistry Products

22. Since its 1968 launch, the Artistry™ brand has become the only direct sell brand in the prestige skin care and cosmetics category with more than $1 billion in annual sales.
23. The Artistry™ brand is one of the world’s top five largest-selling prestige brands of facial skin care and color cosmetics.
24. More than 250 Artistry™ products are sold in more than 50 markets worldwide.
25. In 2007, the Artistry Scientific Advisory Board was established to lead Artistry researchers and scientists in the study of skin and skin care.

Nimesh Oza said...

Amway is not fraud....
Its Legal..... and neither easy and quick scheme.....
contd...

26. Artistry™ Creme L/X is the most luxurious, technologically-advanced product ever developed by Artistry scientists.
27. The Artistry Beauty Institute in Grand Rapids, Michigan, USA, is an in-depth, comprehensive training destination for Business Owners.

Durable Products

28. iCook™ Cookware offers the most advanced technology in stainless steel cookware, enabling busy families to eat healthier meals at home.
29. The eSpring™ Water Purifier was the first point-of-use system to combine carbon filtration with UV light technology, removing 99.99% of bacteria and viruses.
30. In Europe, Amway sells more point-of-use water filtration systems—our eSpring Water Purifier—than any other competitor, according to a study by the business research and consulting firm Frost & Sullivan.
31. The Atmosphere™ Air Purifier removes 99.99% of indoor airborne pollutants that pass through the system.
32. It would take 16 of the leading competitor’s air purifiers to do the job of one Atmosphere™ Air Purifier.

Corporate Citizenship

33. Since its 2003 launch, the Amway One by One Campaign for Children has given more than $52 million to make a difference in the lives of children around the world.
34. Since 2003, Amway employees and Business Owners have volunteered a combined 606,000 hours in support of One by One Campaign for Children projects.

Environmental Leadership

35. The first product launched by Amway in 1959 was L.O.C.™ Liquid Organic Cleaner—one of the first-ever biodegradable cleaning products.
36. Amway recycles up to 95% of recyclable waste produced at our manufacturing facility in Ada, Michigan, USA.
37. Amway was an early innovator in the use of biodegradable surfactants in its SA8™ Laundry Detergents and its cleaning products.
38. No synthetic chemical pesticides, herbicides, or fertilizers are used on the organic acreage where the plants used in Nutrilite™ concentrates are grown.

Endorsements and Sponsorships

39. Volleyball champion Gabrielle Reese and championship runner Sanya Richards are spokespeople
for Nutrilite™ products
40. International soccer star Ronaldinho (born Ronaldo de Assís Moreira), a two-time Fédération Internationale de Football Association (FIFA) World Player of the Year, is a celebrity spokesperson for the Nutrilite™ brand.
41. International celebrity chef Jason Roberts serves as the Global Ambassador and Culinary Expert for iCook™ cookware.
42. The Artistry™ brand is the official skin care and cosmetics sponsor of Skate Canada events, and the Skate Canada national team.

Amway Business Owners

43. Globally, Amway has paid its Business Owners more in performance-driven bonuses than any other direct selling company in history.
44. The top health and beauty brand in China is Amway.
45. Amway Business Owners follow Rules of Conduct and a Code of Ethics designed to protect themselves, their customers, and the Company.

Overall Brand—Creating Change With a Caring Touch

46. Through Amway’s One by One Campaign for Children, we’re creating change with a caring touch by volunteering in communities where we live and work.
47. The Amway business opportunity enables people all over the globe to create meaningful change in their lives and to leave something of value to their children.
48. We care about our Business Owners’ success, so we equip them with well-made products, proven sales tools and a strong support system.
49. At Amway, we infuse a caring touch into everything, from our innovative products, to our business opportunity to our eco-friendly farming practices.
50. This year, Amway celebrates 50 years of creating change through leadership, innovation, caring and vision.

Reference :
http://www.thetruthaboutamway.com/amway-50-facts/

Nimesh Oza said...

Facts
COUNTRY’S NO 1 DIRECT SELLING COMPANY
Amway India is the country’s leading direct selling FMCG-company which manufactures and sells world-class consumer products. All its products are covered by a 100 per cent Money Back Guarantee. If not completely satisfied with the product, the consumer can return it for a 100% refund.
There is no joining fee for the Amway business – any adult can enrol as an Amway distributor, without any payment.
CORPORATE CREDENTIALS
Amway India is a wholly owned subsidiary of US $ 11.3 billion Amway Corporation, Ada, Michigan, USA. Amway Corporation is one of the largest Direct Selling companies in the world. It has a presence in more than 100 countries & territories.
Established in 1995, Amway India commenced commercial operations in May 1998 and has emerged as one of the largest Direct Selling FMCG Company. The Company has its headquarters in the National Capital Region of India - New Delhi.
Amway has invested in excess of US$ 35 million (Rs. 151 crore) in India of this approx Rs. 22 crore is in the form of direct foreign investment.
Amway India has 500 full time employees and has generated indirect employment for 2000 persons at all the contract manufacturer locations.
The Company has provided income-generating opportunities to over 650,000 active independent Amway Business Owners.
Amway India provides free and unlimited training to all its distributors to help them grow their business. Amway India conducts over 23,000 training sessions during an average 12-month period .
Amway India recorded a sales turnover of over Rs. 2188 crore in 2012, a 7% growth over its 2011 sales turnover of Rs.2130 crores.
Amway India is a member of the Confederation of Indian Industries (CII) and Federation of Indian Chambers of Commerce (FICCI).


CORPORATE SOCIAL RESPONSIBILITY

The World Blind Union presented an award and citation to Amway India in 2003, for its peerless work for the blind child.
Aaj Tak, a leading Hindi News Channel and part of the Living Media (India Today) Group presented the Aaj Tak Care Award to Amway India in 2012 for its initiatives in the field of Education.
CMO Asia conferred the Asia’s Best Practices CSR Award to Amway India in 2012 for its initiatives in education 2012
The Asian Confederation of Businesses conferred the Asian CSR Leadership Award to Amway India for its Education initiatives in 2012
World CSR Congress conferred the Global CSR Excellence & Leadership Awards to Amway in 2013 for Education Initiatives.


NATIONAL PRESENCE
In Fifteen years of commercial operation, Amway India has established a nation-wide presence of over 152 offices and 64 city warehouses and four regional mother warehouses. The distribution and home delivery network is spread across over 4000 cities and towns and 11000 pincodes.


Nimesh Oza said...

MANUFACTURING

Almost all Amway India products are manufactured in the country through seven third-party contract manufacturers. To bring the identified contract manufacturers’ production facilities and skills to international standard, Amway has invested US$ 4 million (Rs 20 Crores) in the transfer of world-class technology to the contract manufacturers.
Amway’s first state of the art LEED certfied greenfield manufacturing facility will go live in End-2014 - early 2015 at an investment of Rs. 580 Crores at 40 Acre Plot located at Nilakottai (Dindigul Distt) in Tamil Nadu, and will manufacture Nutrition and Beauty products predominantly.


PRODUCTS

At present, Amway India offers over 140 products in five categories. They are Personal care category, Home Care category, Nutrition & Wellness category, Cosmetics and Great Value Products.
With the exception of Cosmetics range (Artistry*) and some products in Nutrition and Wellness category, all Amway India products and bottles are manufactured in India.
The products match Amway’s global quality standards. They carry a tamper-proof seal. Amway products are environment friendly, and are not tested on animals. Amway encourages the return of its used product bottles for re-cycling and to prevent their misuse.


PROMOTING FREE ENTERPRISE AND SELF-EMPLOYMENT

Amway distributors follow a Code of Ethics and Rules of Conduct consistent with the World Federation of Direct Selling Associations (WFDSA), which defines the goals, principles and responsibilities in building and operating an Amway business.




Amway India is a member of the Indian Direct Selling Association (IDSA). The IDSA is an industry regulatory body, with several reputed international and Indian Direct Selling companies as members.
References:
http://www.amway.in/Articles/Article.aspx?pid=8d7694c8-241a-4fcb-8545-6f69fec18c01&ctg=AboutUs


Amway is the only company who pays income to family of its Distributors killed in Mumbai train blasts.... still you doubt Amway ?????????????

Shyam Sundar said...

Mr Nimesh is beating around the bush instead of answering to the judgement delivered by the Andhra Pradesh High Court.
LIES and Lies and Nothing But LIES.

Swaroop G R said...

Good reply Nimesh.

Swaroop G R said...

Good reply Nimesh.

Arjya said...

The judgement is flawed like many other judgements. I am not questioning the reasoning of the esteemed judges but I think the arguments presented by the petitioner are not satisfactory. It must be a biased judgement. I feel Amway is still doing business in Andra Pradesh and there are more number of qualifiers in the business from AP than anywhere in India. I will give you an example: In a typical job - as a knowledge worker you are hired to do a job as demanded but how many times it happens you don't end up meeting the end result. For example a faulty product, a wrong decision that ruined the project, financial mismanagement, irregularities by workers, bad raw materials? But still you get paid. There is no electricity in the village but the section officer or the Junior Engineer gets paid. The phone lines are down but still BSNL employees get paid. In a job you get paid for the work you don't do when you are on the top of the business. In a business if you own it you get the biggest share of the profits/income. Likewise Raja Naren was owning a business of direct selling to customers. He had liasoned with multiple distributors to do this job and he got the profit distributed by Amway. I feel that most of our lawyers fail to understand finance, science and relativeness of economies. Lawyers are the people with least amount of IQ and are slow to comprehend things easily. They are too mechanical in their approach and often take support of blatant lies to win cases in their client's favor..I hope many will agree and people like Shyam Sundar will not but many don't care..We can't give judgements on the basis of a law that was formed 40 years ago.

TRY It Before You BUY It said...

Thank you for your awesome & nice post.I like your eSpring Water Purifie system.

Nimesh Oza said...

Mr Shyam Sundar
Its really pathetic you cant digest facts.... Amway India is Growing and will continue to grow with benefiting millions of Indians.
Amway is the only Zero debt company in world .... :) Amway is awesome :D

Shyam Sundar said...

Open your eyes Nimesh. Amway has admitted that its sale has gone down and is facing difficulties. I pity you.

Shyam Sundar said...

You must also know that the Enforcement Directorate served notice for illegally siphoning out of Rs 2000 crore from India. The day is soon, it may be forced to leave India. Out of the Rs 2000 crore illegally siphoned out, Rs 20 crore is peanuts. We Indians never look at the damage this company is doing to our economy. Wake UP man!

Pankaj Sharma said...

Mr shyam sunder ji .. . Can u give some facts which clear all this issue of Amway growth is going down??? Plz give a advise about Amway scheme..thnx

RevBay app said...

What is the best way to improve your #online #reputation? Try our Free Reputation Calculator