Wednesday, 15 October 2014

Govt turns down Amway's plea to amend PCMC Act

Plans to catch chit funds under Rs 100 cr that escape SEBI net

Aiming to tighten the noose on chit funds that have duped millions, the Centre proposes 
to crack down on all money collection schemes that would otherwise escape the market 
watchdog SEBI.
The Cabinet proposal plans to expand the definition of “money circulation scheme” in 
Prize Chits & Money Circulation Schemes (Banning) Act to include “unauthorised and 
unregulated collection schemes of corpus less than Rs 100 crore, which are excluded from 
the definition of ‘deemed collective investment scheme under SEBI Act.
A recent amendment in SEBI Act gives the market regulator powers to monitor all money-
pooling schemes involving Rs 100 crore or more and act against illegal ones through 
search and seizure, attachment orders and recovery proceedings. However, the high 
threshold would have meant that several small schemes slipped through the net.
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Ponzi scheme—a fraudulent investment operation where an individual or organisation pays 
returns to its investors from capital from new investors, rather than from profit earned 
on existing investments — have been bursting on the national scene with great regularity. 
Rough estimates reveal that consumers have lost a staggering Rs 3 lakh crore by 
“investing” in or “buying products” from schemes floated by firms such as Saradha, Pearls 
Agrotech and Speak Asia.
Experts say over 30,000 registered chit funds in the country are regulated by state
registrars under the 1982 Chit Funds Act. But the Intelligence Bureau reported in 2012 
that “fresh” illegal financial activities of chit fund companies were cheating lower 
middle class and poor people, especially in rural and semi urban areas.
The proposed changes, prepared by Department of Financial Services (DFS), also drags in 
“pyramid marketing schemes” within the act with some safeguards to exclude selling of 
goods and services, but not those sales where there is no economic activity or addition 
of economic value save for creating a chain of new participants and distribution of 
economic benefits to the existing ones. The department has also turned down request of 
Indian Direct Selling Association (IDSA) – comprising biggies like Amway, Tupperware and 
Hindustan Unilever Network – to include direct selling schemes as an exempted category 
under Section 11 of the Act.
“Even when an exception clause is to be added to the Act to exclude the activities of 
certain direct selling companies, such provision is not desirable or acceptable, unless a 
very strong legal framework or registration, regulation and scheme of penalties for 
violation of the law on direct selling, is put in place,” says the Cabinet proposal.
“Therefore, till the time a law on direct selling is enacted and unless there is specific 
reference in that law on prohibition of money circulation and pyramid marketing, no 
exception may be created in the PCMCSB Act to exclude the direct selling activities,” 
says the DFS proposal.
However, it passes the onus of framing that law to the Ministry of Consumer Affairs. It 
suggests that the ministry examine the case for creating a new law on direct selling in 
consultation with other relevant ministries. Consumer Affairs, earlier this year, had
asked DFS to “provide clarity

Written by Amitav Ranjan | New Delhi | Posted: October 15, 2014 3:56 am

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