AP High Court slams Amway India once again- PartII

Here is the second part of the High Court judgement on Amway India.

The 7^th respondent (Corporate Frauds Watch) gives a graphical representation, of the enrolment scheme of the petitioner, in the form of a chart.

It is contended on behalf of the respondents that the petitioners’ scheme requires enrolled members to sponsor new members called independent business associates; the members so enrolled are required to pay Rs.10,000/- as entrance fee for which the company claims that it would allot web space which is completely intangible in nature; subsequently the new members are required to sponsor more members for which attractive incentives are provided to them by the company; the sponsoring scheme is a binary system where each member sponsors two members; additional incentives are given for sponsoring of new members in addition to the normal merchandise; the sponsored member is treated as a down liner to the sponsorer and his upline members; this scheme of enrolment of new members, attracting them in the form of commission which is relative to the enrolment of new members into the scheme, falls within the definition of “Money Circulation Scheme” under the Act; these Money Circulation Schemes are pyramid schemes wherein the levels grow with induction of new members at every level; the scheme works to benefit those in the first level, and the vast majority of participants who join at lateral levels lose their original investments; while these companies could challenge their prosecution and contend in the criminal cases filed against them that the Act does not apply to their activities, they cannot pre-empt criminal action being initiated on the basis of a declaratory relief as sought for in the present writ petition.

The Prize Chits and Money Circulation Scheme (Banning) Act, 1978, (hereinafter called the Act), is an Act to ban the promotion or conduct of prize chits and money circulation schemes, and for matters connected therewith or incidental thereto. Section 2(c) of the said Act defines money circulation scheme to mean any scheme, by whatever name called, for making of quick or easy money; or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme; whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions. Section 2(e) of the Act defines prize chit as under:

“prize chit” includes transaction or arrangement by whatever name called under which a person collects whether as a promoter, foreman, agent or in any other capacity, moneys in one lumpsum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift or any other scheme or arrangement by whatever name called, and utilises the moneys so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes, namely:-

i. giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or kind, whether or not the recipient of the prize or gift is under liability to make any further payment in respect of such scheme or arrangement;

ii. refunding to the subscribers or such of them as have not won any prize or gift, the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage by whatever name called, on the termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein, but does not include a conventional chit.

Under Section 3, no person shall promote or conduct any prize chit or money circulation scheme, or enrol as a member to any such chit or scheme, or participate in it otherwise, or receive or remit any money in pursuance of such chit or scheme. Under Section 4, whoever contravenes the provisions of Section 3 shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees or with both. Section 7 (1) of the Act confers powers on a police officer to enter any premises which he has reason to suspect is 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; to search the said premises and the persons he may find therein; to take into custody and produce before any Judicial Magistrate all such persons against whom a complaint has been received or a reasonable suspicion exists of their being concerned with the use of the said premises for purposes connected with, or with the promotion or conduct of any such prize chit or money circulation scheme; to seize all things found in the said premises which are intended to be used, or reasonably suspected to have been used, in connection with any such prize chit or money circulation scheme.