Madras High Court held in V-Can Network case MLM is a fraud played on hapless, innocent public

In a land mark judgement the Madras High Court in Writ Petition No. 2908 and Writ Petition No.4144, W.P.M.P.Nos. 3650 and 5221, W.P.No. 2908 all of 2003, stated that the V-Can Network (P) ltd is indulging in money circulation scheme in the name of selling products.

One look at the facts of the case reveals that there are striking similarities between the present NMart and V-Can Network in the business model with only difference that former has set up retail shops all over the place.

Let us get into the details of V-Can Network. A case in Crime No.42/2003 was registered on 24-01-2003, under Sections 420 and 506 (1) I.P.C.; under Sections 4, 5 and 6 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978; under Section 15 of Indian Medical Council Act; under Sections 3 and 4 of Drug and Magic Remedies Objectionable Advertisement Act, 1978 by Central Crime Branch, Chennai City Police, based on a complaint given by one Jayaraman of Chennai.

The allegation in the complaint is that one Senthil Murugan, who had become a member and who had bought a magnetic bed, falsely induced the complainant that if he purchases a magnetic bed for Rs.5,990, he would in turn become a member and if he in turn introduces two more members, he would make quick money to the tune of lakhs of rupees and thereby cheated the complainant.

As per definition 2 (c), money circulation scheme or multi-level marketing or whatever by name called, is a fraud being played on the hapless and innocent public by way of manipulation and deceit. It is the case of the respondents that inferior quality products are sold with false claims at exorbitant rates while the products are worthless and thereby they cheat the public.

Likewise, the members/distributors are falsely induced by selling inferior products at exorbitant rates which are worth nothing and in turn for them to make quick or easy money.

The members/distributors have to falsely induce more members. It is demonstrated before me that as per that scheme, every member/distributor has to be necessarily enrolled with a membership fee which is taken by the petitioner/promoter to buy their products and each member/distributor has to falsely induce and enroll more members and if that is done, he gets a minor share of the ill-gotten wealth and thereby the chain continues. The intention of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was to prevent white collar crimes being perpetrated on hapless and innocent public. It is the case of the respondents that the preliminary investigation prima facie discloses that the petitioner/promoter company is involved in money circulation scheme, thereby whatever money is paid to a member/distributor is money paid by the members themselves to a minor extent and the major part is illegally kept by the petitioner/promoter company by false inducement and false representations.

It is also demonstrated that unless the member/distributor falsely induces others to become members/distributors, they cannot make quick or easy money and the money paid or circulated as commission or incentive is only the ill-gotten money made from other members/distributors and the chain continues by manipulation and deceitful false claims.
Learned senior counsel for the petitioner has contended that though this system already existed in this country and multi-national companies are doing the same business, the petitioner-VCan Network alone was singled out and the police have taken action against them.

For this, the learned Government Advocate has brought to notice that they have already taken action against promoters of Cymbolic Multi-crore company and arrested the persons concerned. It is also stated that their bail applications were dismissed. He also brought to notice that apart from this, a case has been registered in Crime No. 230/2003 on the file of Inspector of Police, Central Crime Branch, Chennai against Japan Life company which is also indulging in the sale of magnet beds and about 80 persons have already been arrested and later released on bail. The above particulars show that there is no mala fide intention on the part of the respondents and there is no basis for the allegation that action was taken against the petitioner alone.

Though the V-Can Network management claims innocence and their business being lawful, the same has to be ascertained only after thorough investigation, final report, trial, evidence and judgment and in such a circumstance, the grievance expressed by V-Can Network and the distributors cannot be gone into in a writ jurisdiction under Article 226 of the Constitution of India. It is needless to mention that it is open to them to put-forth their defence before the appropriate forum/Court if their business/activities are lawful.
In such circumstances, since the investigation is at the crucial stage, any interference in the investigation will seriously hamper and prejudice the investigation.


This Court hoped that the Investigation Agency will undertake the task promptly and complete the same expeditiously. With the above observation, both the Writ Petitions are dismissed.