Wednesday, 18 August 2010

Amway India's business model is money circulation scheme :AP High Court

Now let's have a look at the second ingredient observed by the AP High Court.

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 (Para31).
As pleaded by the petitioners (Amway India) themselves, out of Rs. 4,400 a substantial part, namely Rs. 1,800 is collected as subscription fee, ;license fee, business kit etc. To qualify for earning commission a member has to earn the minimum monthly PV of 50 which he will get by selling products worth Rs. 2000. Respondent No 6 in Para 11 (c) of his counter affidavit specifically pleaded that 'Amway" (first petitioner) would automatically get a business of the quantum of Rs. 1080 crore (4,50,000x2,000x12 months) per annum which would yield an astronomical profit and it cannot but be stated as though the company may conveniently refer it as 'turnover by sale of products'. Significantly, this assertion made in the counter affidavit is not denied in the rejoinder of the petitioners (Amway India). They have merely tried to explain the said allegation by offering certain justifications. The petitioners have not specifically denied that the first petitioner (Amway India) would get a sum of Rs. 1080 crore by ensuring that each distributor maintains the minimum sales level. Even though the scheme per se does not stipulate that each distributor has to maintain the minimum required business level, prescription of minimum level of 50 PV to qualify for getting commission is sufficient inducement for the members to relentlessly strive for maintaining the PV level at or above the said minimum levels. (Para 33).
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 inducement 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 sales worth Rs. 2,000 er 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. In addition to this, it is an admitted fact that each person in order to continue to be the distributor, shall pay renewal subscription fee of Rs. 995 per annum. In para 11(b) of the counter affidavit on the admitted number of distributors of 4,50,000 this amount is calculated at about Rs. 45 crore per annum. These figures are not denied by the first petitioner (Amway India) in its rejoinder. 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. (Para 34).
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. In any event the petitioners have not specifically denied the turnover they are achieving and the income they are earning towards the initial enrollment of the distributors, the renewal subscription fee and the minimum sales being achieved by the distributors as alleged in the counter affidavit. By no means can it be said that the money which the first petitioner (Amway India) is earning is not the 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. (Para 35).
From the above analysis, the Andhra Pradesh has conclusively stated that the business model of Amway India attracts the definition of money circulation scheme. Is it not enough for Amway apologists? Do they need a slap in the face to come to reality?

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