Wednesday, 28 September 2016

Sudden volte-face by Ministry of Consumer Affairs regarding Multi-Level Marketing

It appears that the Ministry of Consumer Affairs has inadvertently issued the advisory to the State governments and Union territories to frame guidelines for the direct selling industry. In other words it is nothing but volte-face on the part of the Consumer Affairs Ministry to issue such contradictory and controversial advisory to the State governments.
Way back in 2003, the same Ministry of Consumer Affairs clarified to the Central Economic Intelligence Bureau, New Delhi over the letter of Wajahat Habibullah, secretary of Consumer Affairs which stated that his department was considering the issue of direct selling/network/multilevel marketing as an alternative form of marketing of goods and the entire issue was looked from that angle. It was further clarified that the Consumer Affairs letter does not cover pyramid structured marketing schemes and that area also does not fall within the purview of the department. 
Earlier, answering to a question on December 20, 2002, in Lok Sabha on RBI action against Amway India, Minister of State in the Ministry of Finance and Company Affairs Shri Anandrao V Adsul stated that the RBI after once again examining the matter on the representation of Amway, had made it clear that the Amway’s activities attracted the provisions of Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The minister also stated that the RBI had forwarded a report in this regard to the police authorities who are empowered under the Act for taking necessary action.
A quick glance at the definition of money circulation scheme under the provisions of the Prize Chits And Money Circulation Schemes (Banning) Act, 1978 reveals:
Section 2(c): “Money circulation scheme” means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the conservation 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 10 of Act says that all offences under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 are cognizable offences. Cognizable offence means police have to initiate action without any complaint from victim or loser or any person.
The Division Bench of the Andhra Pradesh High Court in 2007, held that from the whole analysis of the Amway India’s business 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 is earning is not the quick/easy money. By promising payment of commission on the business turned out by the down-line members sponsored either directly or indirectly by the up-line members (which constitutes an event or contingency relative to enrollment of members), the first petitioner is earning quick/easy money from its distributors, apart from ensuring its distributor earn 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).
The Supreme Court of India in the case of Kuriachan Chacko Vs. State of Kerala (2008) 8 SCC 708 held: “The Kerala High Court also upheld the argument of the prosecution that the Scheme was a "mathematical impossibility". The promoters of the Scheme very well knew that it is certain that the Scheme was impracticable and inworkable, making tall promises which the makers of the promises knew trully well that it could not work successfully. It could work for some time. These schemes are like "Paul can be robbed to pay Peter" but ultimately when there is a large mass of Peters, they will be left in the lurch without any remedy as they would by then have been deceived and deprived of their money. (para 41)”.
The High Court of AP in the case of Speak Asia online Vs. State of A.P. CRLP No.5626/2011 heldthat mere informing a scheme, which covered under the money circulation scheme and enrolling members as subscribers, itself is an offence. It is not necessary to further elaborate on the same, since the Sections are unambiguous and clearly indicate the acts which attract an offence.
When the Indian judiciary unequivocally held that enrollment of members attracts the provisions of the PCMC Act and Amway India has exactly been doing that in its business scheme, how the Ministry of Consumer Affairs could turn volte-face and issue advisory to the Statement governments and Union territories for framing guidelines for direct selling industry.
Moreover, the Andhra Pradesh State Government way back in 2008 issued GOMS No 178 restraining Amway India from publishing any material/advertisements containing such material connected with any Prize Chits and Money Circulation Scheme promoted or conducted in contravention of the provisions of the PCMCS Act. The GO also declared that every copy of the newspaper and every copy of the publication containing such material or the advertisement to be forfeited to the State government of Andhra Pradesh.
The official websites of the police departments of Andhra Pradesh and Telangana States warned people not to join the schemes of Amway and others and lose their hard-earned money. The websites also warned people to report to the police in case they suffer any loss due to joining such schemes.
When the issue is crystal clear that the Amway India and other companies under the aegis of Indian Direct Selling Association are into the illegal activities, how the State government could frame guidelines as per the advisory of the Ministry of Consumer Affairs when Amway and other IDSA members are promoting illegal Money Circulation Schemes in the name of direct selling.

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