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PRESENTATION ON MULTI-LEVEL MARKETING(MLM) FRAUDS

Frauds by some of MLM companies...Newspaper reporting

Amway • Rs.8,000 Crore

The cheating and looting of these MLM Companies reached to Rs.3 lakh crore each year

RMP • Rs. 3000 Crore PACL • Rs.45,000 Crore Speak Asia • Rs.5,000 Crore N-Mart • Rs.1,500 Crore Gold quest • Rs.5000 Crore

Note:- The list is extending day by days…

Deccan Chronicle 21/6/20114

F.I.Rs. AGAINST SOME MLM COMPANIES

3 Southern Wonder World( 100 Cr.) Alekya Marketing Yellow Pages (20 Cr.) Amway India (1000 Cr.) Herbal life (1000 Cr.) ALGI Network Marketing (50 Cr.) Bajaj Capital (200 Cr.) Chain System Schemes (40 Cr.) Maruthi Motors (200 Cr.) MHM Marketing Pvt Ltd Mickway Finance Company Ltd Mihira Net Pvt Ltd. Prathusha Motors (200 Cr.) (200 Cr.) P.A.C.L. (pearls) (1000 Cr.) (20 Cr.) (200 Cr.) Mithra Marketing Company (500 Cr.) Devi Networks Business System Management (1000 Cr.) Dew Soft (60 Cr.) Diamond Sahaya Schemes (30 Cr.) e-Biz.com (2000 Cr.) Gold Quest (1000 Cr.) Golden Choice Network Business Golden Jubli Marketing Pvt. Ltd Happy Life Marketing (20 Cr.) Japan Life (1000 Cr.) Lucky draw (10 Cr.) Speak Asia (5,000 Cr.) HIM (400 Cr.) Gurudev (100 Cr.) (10 Cr.) (10 Cr.) Prem Shiva Lucky Scheme (20 Cr.) Raga Sindhuja Enterprises (10 Cr.) Ray Ready Made shirts (10 Cr.) Sri Ramanjaneya Lucky Bumper Scheme (20 Cr.) Sridevi Enterprises (10 Cr.) Suraj Holiday resorts and townships (200 Cr.) Synergy Shopping Pvt. Ltd. (200 Cr.) Varasiddi Vinayaka Managements (30 Cr.) V-Can Network (1000 Cr.) Venkateswara Motors (20 Cr.) Vigneswara Motors (20 Cr.) KMJ Land Team Life Care Akshaya gold N-Mart Tupperware Herbalife

THESE ARE ONLY FEW COMPANIES…..

HOW MLM COMPANIES TRAP

•Want to earn Rs.25,000/ or 1 lakh or upwards. •Foreign Business Opportunity. •MNC Business Opportunity. •Your own Business. •Jobs to Retired, Youth and Housewives.

•Part-Time Business.

•Health Club / Nutrition Club. •Resorts promotion business.

Work from home Part time business

4 • Internet Typing Business. • Internet ads clicking business • Guaranteed Earn Rs.25,000/ • Want to lose weight

No investment No boss, No office timings

• No boss, No targets, No tensions, No Hassles. • Work from home. • No 10 to 5 job. • Earn Extra income from home.

TARGETEES OF M.L.M. COMPANIES AS PER CNN IBN STUDY

Unemployed youth Retired Persons Poor people Middle Class Govt. Employees House wives

Note:- Misuse of social status and exploitation of social relations is the business of these companies.

Types of Money Circulation Schemes

Product based

•Called as •“Multi Level Marketing” •“Network Marketing” •“Referral Marketing” •“Introduction Marketing” etc. •Product is showcased in the front end

and in the backend enrollment of members

Naked

• Called as

“Pyramid” or

“Ponzi” schemes.

• Here only money or IPOs or cheques are exchanged

Money circulation schemes

MLM ?

•Product + Naked Money Circulation Scheme = Multi Level Marketing (MLM) •Hence, MLM is nothing but product camouflaged Money Circulation Scheme

Commissions will be on Personal Retail Sales

MLM VS TRADITIONAL MARKET

In Traditional Market

1. Personal Retail Sales 2. personal Enrolling members Commissions in MLM will be on 3. downline’s enrollment 7 No. of Distributorship is fixed In MLM Distributorship is unlimited

Money Circulation Schemes Banning Act

• AP is the first state to enact a law in 1965 • Later Chandigarh and MP also made laws • Union of India constituted James Raj Committee to study these schemes 1965 1974 8 • Indian Parliament enacted “The Prize

Chits and Money Circulation Schemes

(Banning) Act, 1978” 1978 1982 • The Act came in force without any transitional period

Prize Chits and Money Circulation Schemes (Banning) Act, 1978

An Act to ban the promotion or conduct of prize chits and money circulation schemes and for matters connected therewith or incidental thereto.

Sec.9

•Sec.9:-Offences are trialable by Chief Judicial Magistrate or Chief Metropolitan Magistrate

Sec.8

•State Government can confiscate the properties of the company.

Sec.10

• All offences punishable under this Act shall be cognizable

Sec.2(c)

• Defines Money Circulation Scheme

Sec.7

• Power of Police to conduct search and Seizure

Sec.4 to 6

• Punishments.

Sec.3

•Bans Money Circulation Schemes.

This is a Central Act It applies to entire country This Act came in force from 1/1/1983

The Hon’ble Supreme Court of India divided the definition of “Money Circulation Scheme” for better understanding in State of West Bengal Vs. Swapan Kumar Guha: (1982) 1 SCC 561. This is the graphical representation of the same.

Any Scheme by whatever name called

(Ex. Multi-Level Marketing, Network Marketing, Pyramid Scheme, Referral Marketing, Introduction Market etc.) For making of quick or easy money 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 enrollment of members into the scheme On any event or contingency relative or applicable to enrollment of members into the scheme

Whether or not such money or thing derived from entrance money of the members of such scheme or periodical subscriptions

Whether or not

such money or thing derived from entrance money of the members of such scheme or periodical subscriptions

Personal Explanation:

The whole crux is “

whether or not

”. Due to these words, Sales, Seminars etc fall under the purview of definition of MCS. It is immaterial whether such money or thing is derived from entrance money of the members of such scheme or periodical subscriptions or otherwise viz. sales and services, conducting seminars etc.

Event means that may happen Contingency means that may or may not happen It is immaterial whether money is derived from Entrance fee, Renewals, Sales, Seminars etc.

Banned Activity under - Prize Chits and Money Circulation Schemes (Banning) Act, 1978

11 1. Promote or conduct 4. Receive or remit any money

Sec.3 : No person shall:-

3. participat e in it otherwise

2. Enroll as a member

The Hon’ble Division bench of High Court of AP (2007(4) ALT 808(DB) – Amway Vs. Union of India – held that (Para 49)-

It is a well settled principle of criminal jurisprudence that no person shall be presumed to be guilty until his guilt is proved, but we are unable to accept the broad submissions of the learned counsel for the petitioners that till the conclusion of the criminal case the police have no power to interfere with the business activities of the petitioners. Section 7 of the Act empowers the police officer not below the rank of an officer in charge of a police station to exercise all or any of the powers enumerated therein.

Penalties and Punishments under the Act

Sec.4. Penalty for contravening the provisions of section 3.

Sec.5. Penalty for other offences in connection with prize chits or money circulation schemes. Like Prints, publish, sells, distributes, letting premises etc.

Sec.6. Offences by companies.

[any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence]

Sec.11-The following are exempted from the application of the Act

A State Government A company wholly owned by a state Government A banking company or a banking institution notified by the Central Government Any charitable or educational institution notified by the State Government.

HOW TO IDENTIFY THESE SCHEMES….

•Earn money by sitting at homes •referring friends and neighbours.

•No boss, No office timings, Endless earnings

By Ads By Fancy names

•Multi Level Marketing, • Network Marketing, •Direct Selling, Direct Marketing, •chain marketing, •Introduction marketing, •Referral marketing, •Integrated marketing, etc.

•Promises commissions not only on personal efforts of joining new members but also on the efforts of joining members by downliners.

More members more commissions.

By Commis sion pattern By Enrolling pattern

•

Sponsoring / Enrolling/Joining/Introduce Binary

: - (1:2) endless enrolling

Trinary 9-6-3

endless :- (1:3) endless enrolling :- (1+9+54+162)

6-4-3

:- (1+6+24+72) endless 13

Court verdicts against MLM in India

14 

High Court of A.P. (Division Bench)- Amway India Enterprises Vs. Union of India 2007(4) ALT 808 (DB):

◦ 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 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).



High Court of A.P. - Speak Asia online Vs. State of A.P. CRLP No.5626/2011

◦ on a mere reading, indicate that there is no need of any loss or misappropriation of funds to attract an offence. 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.

Court verdicts against MLM in India



Supreme Court of India 708

– Kuriachan Chako Vs. State of Kerala (2008) 8 SCC

 The 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).

15  39.We are unable to agree with the learned counsel. The courts below rightly held that prima facie case had been made out against the accused both the ingredients necessary for application of Section 2(c) of the Act are present in the case on hand. The trial court, for coming to that conclusions' referred to certain documents. The advertisement clearly declared that a member would get double the amount when after his enrolment, two members were enrolled under him and thereafter, 4 other persons were enrolled and after the enrolled 4 persons, 8 persons were enrolled under them. Thus, only after 14 persons under the first enrolled person become members under the Scheme, the first person would get Rs.1250 i.e., double the amount of Rs625

(1+2+4+8)

. The trial court also noted that Kuriachan Chacko (Accused I) who proposed the project for implementation, described how the project would work from which also it is clear that the

double amount will be given to a person who purchases a unit only after 14 persons are enrolled subsequent to him.

When Sale of goods are justified?

Sale of movable Products are governed by Sale of Goods Act, 1930 r/w Indian Contract Act, 1872 and likewise Immovable property i.e. land under Transfer of Property Act. When Consideration is illegal, the transaction becomes illegal. Because of Section. 23 of Contract Act, sale of Guns and NDPS substance etc. became illegal.

•As per Section 3 of Act: All transactions are subject to Section 23 of Contract Act

Sale of Goods Act, 1930 Transfer of Property Act, 1888

•As per Section 4 of Act: All transactions are subject to Section 23 of Contract Act • Section 23: When consideration is illegal

Contract Act, 1872 Section 23 of Contract Act

•All sales are legal unless and until the transactions are hit by this section the Court regards it as immoral, or opposed to public policy.

of involves or implies, injury to the person or property of another; or is of such nature that, if permitted it would defeat the provisions of any law or It is forbidden by law; or is fraudulent;

Therefore, even sale of products by MLM companies adopting the Money Circulation Schemes, becomes illegal under Section. 23 of Contract Act.

Collection of Deposits

S.E.B.I. Act, 1992 – Section. 11AA.Collective investment scheme

(1) Any scheme or arrangement which satisfies the conditions referred to in sub section (2) shall be a collective investment scheme.

RBI Act

(2) Any scheme or arrangement made or offered by any company under which, — (i) The contributions, or payments made by the investors, by whatever name called, are pooled and utilised for the purposes of the scheme or arrangement; (ii) The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii) The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) The investors do not have day-to-day control over the management and operation of the scheme or arrangement.

Collection of deposits are banned under RBI Act subject to permission of RBI.

Under RBI Act, advance for sale is not deposit, hence most companies will issue invoices to colour their transactions as advances for sales.

Companies Act

(3) Notwithstanding anything contained in sub-section (2), any scheme or arrangement — (i) Made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State; (ii) Under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-1 of the Reserve Bank of India Act, 1934; (iii) Being a contract of insurance to which the Insurance Act, 1938, applies; (iv) Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952; (v) Under which deposits are accepted under section 58A of the Companies Act, 1956; (vi) Under which deposits are accepted by a company declared as a Nidhi or a 31 mutual benefit society under section 620A of the Companies Act, 1956; (vii) Falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982; (viii) Under which contributions made are in the nature of subscription to a mutual fund; Shall not be a collective investment scheme.

Sec.58AA – Companies are not authorized to collect deposits from public, but they can mobilise deposits from their own relatives.

Protection of Depositors Act

Collection of amounts with a promise to return it in cash or kind is deposit.

There is no exemptions and exceptions to the definition of “deposit” like RBI Act, SEBI Act and Companies Act.

Food Safety and Standard Act, 2006

Seller is responsible for unsafe or unhygienic conditions Section 27 (Seller Responsibility) Section 31 (Registration Mandatory)

Punishment is minimum Rs.3 lakh fine and three months imprisonment under this Act for violation of various commissions / ommissions. (1) No person shall commence or carry on any food business except under a license.

(2) petty retailer, hawker, itinerant vendor or a temporary stall holder or small scale or cottage or such other industries relating to food business or tiny food business operator have to register to carry on business.

Tupperware India Pvt. Ltd., Gurgaon Modicare Ltd., Delhi K-Link Healthcare (India) Pvt. Ltd., Chennai Herbalife International India P. Ltd., Bangalore CNI Enterprise (India) Pvt. Ltd., Bangalore AMC Cookware (India) Pvt. Ltd., Bangalore Tianjin Tianshi India Pvt. Ltd Chennai Max Life Insurance Co. Ltd., Gurgaon Jafra Ruchi Cosmetics India Pvt. Ltd.

Elken International India Pvt. Ltd., Bangalore Avon Beauty Products India Pvt. Ltd., Gurgaon Altos Enterprises Ltd. Ludhiana Oriflame India Pvt. Ltd., Delhi Hindustan Unilever Network, Mumbai Daehsan Trading (India) P. Ltd., Delhi 4Life Trading India Ltd.

Glaze Trading India Pvt. Ltd. New Delhi.

AMWAY India enterprises Case Study

1994 • Got F.I.P.B. approval to develop direct selling but not through creating chain of distributors 1995 • Floated “Indian Direct Selling Association (IDSA)” wherein Amway is founder member, for lobbying with government 1996 • Started “Amway Opportunity Foundation” to attract the general public in the name of charity programmes.

1997 • Floated sister companies with NRIs to conduct seminars to brainwash public to join into its scheme.

20 1998 • Started its commercial activity of promoting illegal money circulation scheme 2002 • RBI filed criminal FIR against Amway in Sector 26 PS of Union Territory of Chandigharh • Minister for company Affiaris and Finance Shri Adusul V. Ananad made a statement in Lok Sabha that the scheme of Amway is creating chain of Distributors. It falls within the mischief of the provisions of Prize Chits and Money circulation schemes (Banning) Act, 1978.

2006 •C.I.D. Police registered criminal case against Amway and seized its offices 2007 • Hon’ble Supreme Court (SLP 13414/2007) found prima facie in the scheme of Amway and directed police for action 2008 • The Govt. of A.P. vide GO Ms No.178 Dt. 15/9/2008 directed Amway to restrain from issuing advertisements and also directed to confiscate the same.

2013 • Kerala State Police booked cases and arrested CEO, AMWAY and other Directors 2014 • AP Police booked cases and arrested CEO AMWAY for promoting illegal money circulations

• •

Amway Business opportunity :- www.amway.in

Amway Business Opportunity

• Are you working towards a better life for you and your family?

• Are you in control of your future?

• Are you getting the rewards your hard work deserves?

Sales and Marketing Plan

• The Amway Sales and Marketing Plan is a low risk, business opportunity that is open to everyone. It allows you to build your business through retailing products and sponsoring other people who, in turn, can retail products 6905-209e-442e-b8a8 and offer 9a0980241c6w&ctg=CompanyProfile the enable others to build one of their own. business opportunity to others. By passing your sales and marketing knowledge to your developing team, you not only build your own business network but also http://www.amway.in/Articles/Article.aspx?pid=3e3b Your life doesn't have to be a trade-off between making the money you need and having the flexibility and time to live your life to the fullest.

How to Join?

Starting your own business

The Amway Sales and Marketing Plan puts you in control, allowing you the flexibility to work where and when you want, giving you time for family and friends as well as the opportunity to earn a good income. It adapts easily to your needs and ambitions, and grows with them, offering you all the personal support and assistance you require to become the Business Owner you want to be.

There is no cost of Starting the Amway business. You need to be sponsored in the business by an already existing Amway Business Owner.

Amway business opportunity is flexible, it can taken as a part time or full time business. It is accessible virtually by anyone interested in operating an independent business.

http://www.amway.in/Articles/Article.aspx?pid=3e3b 6905-209e-442e-b8a8 9a0980241c6p&ctg=CompanyProfile The Amway Opportunity works in two-fold. Giving you a chance to build your own business at your pace and achieve the rewards and recognition linked to the plan and at the same time helping other people do the same.

http://www.amway.in/Articles/Article.aspx?pid=64a9cdcc 1afa-4d82-ada1-35c7fa297bd1&ctg=CompanyProfile

Amway Recruiting seminars...

All transactions are done by using PV and BV. PV means Point Value while BV means Business Volume. PV is nothing but dollar while BV is Indian Rupee Value.

Joining one person is shown as business of 50 PVs If a member fails to get 50 PVs in a month, he is denied his monthly commissions Amway does not conduct seminars on its own. It will be done by its sister concerns like BWW, Yager, Duxter etc During these seminars mass recruitment will take place by putting undue influence using brain wash techniques.

Points will be given for bringing persons to these seminars and these points will be converted into commissions.

Joining fee may be paid within 60 days.

------Contingency-------

 Source : - www.amwayindia.com-images-SalesMarketPlan.jpg

Through this plan Amway is inducing to give Rs.56,925/- for enrolling / sponsoring 102 members with merchandise of products worth Rs.4,500/- (100 PV of each member). In traditional market for merchandise of products worth Rs.4,500/- of one can get Rs.5,000/- or Maximum Rs.9,000/-, but not Rs.56,925/-. It also promises to Give Rs.6,83,100/- per annum if this contingency extends .Thus the money above earned belongs to the efforts of down line members thus this money is earned without personal efforts, hence it is easy money.

Note : - If it is not possible, then giving advertisements and promises are nothing but Cheating the public.

Rules of Conduct

Amway Rules of conduct

2.1.5 “Amway Sales and Marketing Plan” 24 2.1.5 “Amway Sales and Marketing Plan” means the plan provided in the Amway Business Starter Guide detailing Amway’s performance incentive systems, sponsoring procedures and guidelines, requirements, systems, procedures and policies regarding the presentation of Amway Products, the Amway business and the management of an Amway organisation, as amended from time to time by Amway and of which these Rules are a part.

2.1.18 “Line of Sponsorship” 2.1.18 “Line of Sponsorship” shall include in an ascending manner the Sponsor of a Distributor, the Sponsor’s Sponsor, and so forth and shall end at Amway. 2.1.8 “Business Group” 2.3 Sales & Marketing plan 8.5 No Obligation to Purchase

4.19 Retail effort

2.1.8 “Business Group” refers to that Distributor and all his personally sponsored Distributors, all those Distributors sponsored by his personally sponsored Distributors and so on down to and including those who have not sponsored anyone, but excluding any Platinums in the organisation under him or any Distributors in the Business Group of such Platinums. 2.3 The Amway Sales and Marketing Plan shall be considered to be an integral part of these Rules of Conduct.

8.5 No Obligation to Purchase: No Distributor shall represent that there is any obligation to purchase products and/or services under the Amway Sales & Marketing Plan, nor shall he/she represent, purposely allow or gain from any representation or implication that benefits may be derived solely from the purchase of Amway products or services in conformity with the Amway Sale and Marketing Plan. To be entitled to earn a Performance Bonus on downline volume during a given month, an Amway Business Owner who qualifies at any performance level in a month must have at least 50 PV of personal purchases of Amway products for retailing in that month. If such ABO fails in any month to make such purchase he will be denied the applicable Bonuses & Commissions for that month on downline volume which will then pass up and shall be paid to the next eligible upline ABO who has done the requisite 50 PV of personal purchase in that month for retailing.

Promise of commissions by Amway

Commission/ Incentives (a) Retail Profit Margin: (b) Commission on Personal Purchases:

Distributors buy Amway products at Distributor Acquisition Price (DAP) and may resell products at a retail price, not to exceed the maximum retail price, as published. In this case, the Distributor’s income would be the difference between the DAP and retail price. In accordance with Amway’s Performance Bonus Schedule (6% - 21%) a Distributor may earn commission on the volume of the Distributor’s individual purchases of Amway products during the month. 25

(c) Commission on Group Sales:

A Distributor may recruit a sales group and based on the success and productivity (as defined by product sales) of the sales group, a Distributor may earn commissions.

If you along with your Group sell Amway products equivalent to Business Volume (BV) (Business Volume (BV) is equal to the Distributor Acquisition price (DAP) of Amway products minus Taxes).

22,800 76,000 1,52,000 3,04,000 5,32,000 7,60,000 Your Group Total Points would be Point Value (PV) for Amway products purchased. (Point Value (PV): Every Amway product has denominated points which you get upon purchasing Amway products for sale).

300 1,000 2,000 4,000 7,000 10,000

This purchase of Amway products for sale will make you and your Group entitled to volume based discount/commission on Business Volume.

Current PV:BV ratio is 1 PV = 76 BV and is subject to change.

*50 Personal PV required to become eligible for commission on group sale. (Refer rule 4.19).

6% 9% 12% 15% 18% 21%

Is there no joining fee in Amway scheme?

Enrolment application form of Amway

Ban on advertisement relating to efficacy of products

FOOD SAFETY AND STANDARD ACT 2006

24. Restrictions of advertisement and prohibition as to unfair trade practices.

The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954

3. Prohibition of Advertisement of Certain Drugs for Treatment of Certain Diseases and Disorders……..

(1) No advertisement shall be made of any food which is misleading or deceiving or contravenes the provisions of this Act, the rules and regulations made thereunder.

(2) No person shall engage himself in any unfair trade practice for purpose of promoting the sale, supply, use and consumption of articles of food or adopt any unfair or deceptive practice including the practice of making any statement, whether orally or in writing or by visible representation which (a) falsely represents that the foods are of a particular standard, quality, quantity or grade-composition; (b) makes a false or misleading representation concerning the need for, or the usefulness; 4. Prohibition of Misleading Advertisements Relating to Drugs.– Subject to the provisions of this Act, no person shall take any part in the publication of any advertisement relating to a drug if the advertisement contains any matter which – a) directly or indirectly gives a false impression regarding the true character of the drug; or b) makes a false claim for the drug; or c) is otherwise false or misleading in any material particular.

(c) gives to the public any guarantee of the efficacy that is not based on an adequate or scientific justification thereof: Provided that where a defence is raised to the effect that such guarantee is based on adequate or scientific justification, the burden of proof of such defence shall lie on the person raising such defence.

5. Prohibition of Advertisement of Magic Remedies for Treatment of Certain Diseases and Disorders.– No person carrying on or purporting to carry on the profession of administering magic remedies shall take any part in the publication of any advertisement referring to any magic remedy which directly or indirectly claims to be efficacious for any of the purposes specified in section 3.

Amway Products

28 State Food Laboratory, Nacharam, Hyderabad, Telangana after analyzing products opined that, nearly 24 products of Amway are not food, misbranded and some are adulterated. Amway is facing criminal trial in Criminal Court, Hyderabad in this regard.

District Consumer Forum of Vijayawada, Andhra Pradesh after enquiry fined Amway and in turn on appeal State Consumer Forum AP Hyderabad upheld the same. Now the matter is in National Commission.

Union of India issued a Circular prohibiting sale of dietary supplements as food.

Lr. No. P-15015/6/2003 Director General of health services, New Delhi Nirman Bhavan Dated 12th January, 2004 All State/UTs. Food (health) Authorities.

Sub: Sale of food supplements under PFA Rules 1995 – Licensing – Regarding.

*** Madam/Sir, A number of food supplements / dietary supplements / herbal foods are being marketed with or without medicinal claims. These products are mostly in capsure or Tablet form with dosage level given on the label.

The Department of Indian System of Medicines & Homeopathy in the Ministry of Health and Family Welfare is formulating a legislation ‘Draft Health Food Supplement Bill’ to regulate manufacture, sale / distribution of dietary supplements / health food supplements, neutraceutical and herbaceuticals which do not fall under the definition of ‘food; as defined under PFA Act, 1954.

Hence, you may inform all PFA Licensing Authroities under your control to take action accordingly.

The receipt of letter may please be acknowledged.

Yours faithfully, Sd/ (Dr. B.K. Mahajan) Assistant Director General (PFA) Copy to: All Central Food Laboratories / All Public Analysts

Claim of Central Govt. permissions

GOVERNMENT OF INDIA MINISTRY OF FINANCE & COMPANY AFFAIRS DEPARTMENT OF ECONOMIC AFFAIRS, BANKING DIVISION LOK SABHA UNSTARRED QUESTION NO. 4889 TO BE ANSWERED ON THE 20TH DECEMBER, 2002/AGRAHAYANA 29, 1924 (SAKA) RBI ACTION AGAINST AMWAY INDIA QUESTION 4889. SHRI RAVINDRA KUMAR PANDEY: DR. S. VENUGOPAL: DR. M.V.V.S MURTHI: SHRI RAM MOHAN GADDE: Will the MINISTER OF FINANCE AND COMPANY AFFAIRS be please to state: a) Whether any observations has been passed by RBI against AMWAY India and its promoter’s company.

b) if so, the details of observation passed by the RBI against this company; whether the said company is involved in violation of various rules; if so, the details thereof; whether some members of parliament and investors Association brought to the notice of RBI and Government regarding the violations committed by the said company; and if so, the details of action taken by the Government against this company?

ANSWER MINISTER OF STATE IN THE MINISTRY OF FINANCE & COMPANY AFFAIRS (SHRI ANANDRAO V. ADSUL) (a),(b),(c)&(d): Reserve Bank of India (RBI) has reported that it had examined the scheme of M/s. Amway India Enterprises (AMWAY) in March 2001 and again in May 2002 aiming at creating a chain of distributors and taken a views that the said scheme appears to be a prize chit or money circulation scheme as defined in and prohibited under Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

The offences under the said Act are cognizable and the police authorities of the concerned State Governments have to investigate and take a view whether the scheme of Amway India attract the prohibition under the said Act.

(e)&(f): Amway had made representation to the Minister (Economic), Embassy of India in Washington DC that its schemes are not covered under the Act. RBI had once again examined the matter and it had advised to the Embassy that the Amway’s activities appear to attract the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. RBI has forwarded a report in this regard to the Police authorities who are empowered under the Act for taking necessary action.

29 1994 – FIPB Permission was given to develop direct selling.

But not to create chain of distributors.

2002 – RBI filed Criminal Case against Amway for promoting illegal money circulation scheme .

2002 – Honourable Minster for Finance and Company Affairs Minister made statement in Parliament that the scheme of Amway is creating chain of distributors falls under the mischief of PCMCS Act, 1978.

2003 – On the letter of CEIB, the Ministry of Consumer Affairs clarifies that their letter saying network marketing does not fall under PCMCS Act, 1978 and further their letter does not cover pyramidal structure marketing.

2007 – In Rajya Sabha it was informed by Central Govt.

that AP Police are investigating Cases against Amway.

What's the way for Amway? Conflicting laws about direct selling cos -

G. Chandrashekhar MUMBAI, Dec. 31, 2002

30 ……………………………………………………………………… scheme of Amway India attracts the prohibition under the Act. What if the police decide that direct selling is not violative of the law?

The State police authorities have to investigate and take a view whether the In that case what is the sanctity of RBI's findings? Ironically, police in different States can take different views. How will the company Amway function? Wait for the answer.

MISUSE OF LETTER ISSUED BY CONSUMER SECRETARY BY MLM COS SUBSEQUENT CLARIFICATION LETTER ISSUED BY CONSUMER SECRETARY Wajahat Habibullah SECRETARY Phone : 23782807 Fax : 23384716 Government of India

MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION

Department of consumer Affairs

KRISHI BHAWAN, NEW DELHI-

110001 March 31, 2003 Subject: Inapplicability of the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 to direct/net work/multi level marketing. …..

A number of representations have been received by this Department regarding alleged harassment of companies dealing with direct/net work/multi level marketing by the Police authorities in various States/Union Territories. Very often the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 are invoked against these companies.

harassment and commercial losses to bonafide investors.

With regards. Yours sincerely, Sd/-xxxxxxx Chief Secretaries of All States & UTs North Block, New Delhi.

(Wajahat Habibullah) Sd/-xxxxx (C.K.G. Nair) Director. We have examined these issues in detail, including consulting the Ministry of law, regarding the applicability of the said Act to these companies. It is our considered view that the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 are not applicable to companies dealing with distribution of goods including multi level/net work marketing companies. Interpretation of various judgments by the Hon’ble Supreme Court [(a) State of West Bengal Vs. Swapan Kumar Guha (1982) 1 SCC 561; (b) Srinivasa Enterprise Vs. UOI. (1980) 4 SCC 507; and (c) Reserve Bank of India Vs. Peerless Co. (1987), 1 SCC 499)] implies that activities of direct/net work/multi level marketing do not fall within the provisions of the aforesaid Act.

In light of the above, I would request you to kindly instruct the officials concerned to distinguish between Companies dealing with activities coming strictly under the purview of the above Act and those such as direct/net work/multi level marketing dealing in distribution of goods so as to avoid

Copy for information to:- Shri N. Gopalaswami, Secretary, Ministry of Home Affairs,

F. NO. 21/(22)/IT/2001 Government of India Ministry of Consumer Affairs, Food & Public Distribution Deptt. of Consumer Affairs Shastri Bhavan, New Delhi.

Dated: 23.9.2003.

To MS. Sunitha Kalla, Dy. Director General & Joint Secretary, Ministry of Finance, Department of Revenue, Central Economic Intelligence Bureau 6th Floor, ‘B’ Wing, Janpath Bhavan, Janpath, New Delhi 110 001.

Subject: Applicability of the Provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 to pyramid marketing structures/schemes – Regarding. …..

Madam, I am directed to refer to your D.O. Letter No. 301/15/200-CEIB (Pt-II) dated the 22nd September, 2003 addressed to Shri Wajahat Habibbullah, Secretary (Consumer Affairs) on the subject mentioned above and to say that this Department was considering the issue of direct selling/network/multi-level, marketing as an alternative form of marketing of goods and the entire issue was looked from that angle.

However, subsequent feed back/response have showed that companies using pyramid structured marketing techniques too sell their products putting forth their schemes based on the clarification issued vide D.O. letter of even no dated the 31st March, 2003 claiming that their activities also do not fall within the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

It is clarified that this Department’s clarification of even number dated 31st March, 2003 does not cover pyramid structured marketing schemes. That area also does not fall within the purview of this Department.

This issues with the approval of Secretary (CA).

Yours faithfully, Sd/-xxxxxxx (Alice Chacko) Under Secretary to the Government of India. Copy to: Chief Secretaries of all States and UTs.

Source: http://www.thehindubusinessline.in/2003/01/01/stories/2003010102040600.htm

Is Amway doing direct selling?

“Direct selling” means no middle man in between Company and End consumer.

Indian laws Retailer Referred as Direct seller Amway

•Sells products to ABO <20% of MRP

A.B.O.

•Sells to consumer with 20% retail profit

End consumer

•

Note:

Rule 2 (w) of Standards of Weight and Measurements Act, 1977: 'wholesale dealer' in relation to any commodity in packaged form means a dealer who does not directly sell such commodity to any consumer but distributes or sells such commodity through one or more intermediaries;

The above clearly indicates that AMWAY has not been indulging in direct selling due to involvement of middlemen i.e. ABOs/IBOs

Truth in Amway Claims….

No Joining Fee (to be paid in 60 days)

Amway says there is no joining fees, but term No.9 of Application says within 60 days, have to make 50 PVs. This is nothing but entrance fees.

100% Return of Products (It is not true)

This is subject to deduction of Taxes and PVs. Apart from the approval of upline members.

Direct selling Co.

(Amway is not direct selling Co.)

Non-member can not be allowed to purchase directly from Amway. Sales will be through ABOs. In direct selling what is role of ABOs(middle men).

Investment-Rs.18 Cr

As per RBI, from 1/1/1991 to 30/11/2006, Amway brought only 18 Crore from Amway Mauritius Develop company, Mauritius.

Collected Recruitment Fee 450 Cr.

Taken away Rs.450 Crore only on initial recruitment of members (Rs.4500 entrance x 10 lakh members)

Collected Renewal Fee 40 Cr – Siphoned of 8K Cr.

Getting Rs. 40 cr every year on Renewals. This is in addition to recruitment of members.

Employment (This is not Business and employees are not necessary)

Employees are only in 100s while members are more than 10 lakhs. These members are not employees but consumers as per Amway.

Illegal Payments to Foreigners without RBI Registration.

Huge amount is siphoned out to foreign countries in the name of commissions to upline members without RBI Registration of these persons.

Stubborn Attitude

Amway req. for rules and even after guidelines by Kerala State Govt., Amway did not change its business model.

Is Amway facing problem in AP only?...

Chandigarh RBI gave complaint in Sector 26 PS 33

Kolkata High Court - WP 229/2011

Amway secured police protection from high court against disturbances being caused by victims of Amway Delhi resident lodges police complaint against Amway India

AMWAY

Delhi Bengaluru Police registered FIR Ramji Ramachandra wrote an article against Amway on behalf of victims.

A Delhi resident has lodged a police complaint accusing Amway India of being involved in a scam

allegedly worth over Rs.2000 crores.

According to the complainant, Kiran Pal, key officials of Amway India, including Pinckney and Chief Marketing Officer Sundeep Shah, allegedly adopted restrictive trade practices that resulted in misrepresentation, and the sale of inferior quality health, beauty and nutritional products.

…Business Standard – 16/3/2014 Kerala Chennai Several cases were booked against Amway and CEO, Amway was arrested During Trial in Gold Quest Case Mrs. Nalini Chidambaram asked Madras High Court to register FIR against Amway based on her affidavit.

These are some of examples……

Madras High Court

• • In Radhakrishnan Alias R.K. vs The State And Anr.-

HC suo moto ordered

to register case against Amway and MLM companies 2003 CriLJ 4167 In Gold quest case CRL.O.P. No.2347 of 2003 Nalini Chidambaram requested HC to register case against Amway based on her affidavit.

Kerala State

• • All Amway offices were seized by Police and also arrested CEO and two directors of Amway.

Further Amway even violated the guidelines framed by the Kerala Govt.

Is it possible permanent employment with MLM ?

Amway CEO confessed before Kurnool Police that, 50% of members dropout every year from the scheme.

After analysis of criminal cases, it emerged that one person will get benefit with the loss of 4 persons. Getting commissions based on enrollment of members in the name of business is illegal as per Sale of Goods Act.

Nearly 200 MLM companies are vanishing every year after cheating the public.

The Supreme Court also held in Kuriachan Chacko Case (2008) that, this is nothing but “Rob Paul to pay Peter” Schemes.

Thus employment in MLM is nothing but a mirage……

Is there any ambiguity in PCMCS Act ?

Supreme Court, India Madras High Court Kuriachan Chacko Case & Amway Case Gold Quest, Apple FMCG, V-Can Network, etc., Upheld action under PCMCS Act Upheld action under PCMCS Act High Court of AP Amway, Speak Asia, N Mart, etc., Uphled action under PCMCS Act PCMCS Act, 1978 Delhi High Court Uphled action under PCMCS Act 35 Karnataka High Court Uphled action under PCMCS Act Jaipur High Court Uphled action under PCMCS Act

When Most of High Courts in India and Hon’ble Supreme Court of India did not find ambiguity in the Act, where is the question of ambiguity in PCMCS Act, 1978……

AP State Gazette restraining Amway from issuing Ads GOVERNMENT OF ANDHRA PRADESH ABSTRACT

36 Investigation of case against M/s Amway India Enterprises – Issue of Notification under Section 8 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 – Orders- Issued ------------------------------------------------------------------------------------------------------ HOME (GENERAL-B) DEPARTMENT GO Ms No. 178 Dated:15-09-2008 Read: Letter Rc. No.121/A2/2008, dated: 26-05-2008 of the Director General of Police, Andhra Pradesh, Hyderabad.

*** ORDER: Whereas the Director General of Police, Andhra Pradesh, Hyderabad, in the reference read above has informed that investigation in the case of M/s. Amway India Enterprises has been finalized and charge sheet has been filed on 24-01-2008, in the Court of Hon’ble Chief Metropolitan Magistrate, Hyderabad, vide C.C.No.125/2008, and requested the Government, to issue Notification under Section 8 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, in the official Gazette declaring every copy of the Newspaper and every copy of the publication / websites containing such material or the advertisement connected with any prize chit or money circulation scheme promoted or conducted in contravention of the provisions of this Act or any advertisement or in relation thereto, to be forfeited to the Government of Andhra Pradesh.

2. And whereas, the Government have carefully examined the proposal of the Director General of Police, Andhra Pradesh, Hyderabad, and after careful consideration have decided to issue a Notification in the Official Gazette of Andhra Pradesh, to declare every copy of the Newspaper and every copy of the Publication / containing such material to be forfeited to the Government of Andhra Pradesh which is connected with the propagation or otherwise under the Prize Chits & Money Circulation Schemes (Banning) Act, 1978.

3. Accordingly the following notification shall be published in the next Extraordinary issue of the Andhra Pradesh Gazette.

NOTIFICATION In exercise of the powers conferred under section 8 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (Central Act No.43 of 1978), the Government of Andhra Pradesh hereby notifies that the “Amway India Enterprises” is hereby restrained from to the State Government of Andhra Pradesh publishing any material / advertisements containing such material connected with any Prize Chit or Money Circulation Scheme, promoted or conducted in contravention of the provisions of the Act, and declare every copy of the Newspaper and every copy of the publication containing such material or the advertisement to be forfeited (BY ORDER AND IN THE NAME OF THE GOVERNOR OF ANDHRA PRADESH)

AJOYENDRA PYAL, PRINCIPAL SECRETARY TO GOVERNMENT To The Commissioner of Printing, Stationery & Stores Purchase, Andhra Pradesh, Hyderabad (with a request to publish the Gazette Notification and to furnish 500 copies of the Gazette to the Government immediately) Copy to: The Director General of Police, Andhra Pradesh, Hyderabad The Additional Director General of Police, CID, A.P, Hyderabad The Law (E) Department

//FORWARDED::BY ORDER// SECTION OFFICER

Does MLM members come under Consumer Protection Act ?

Company 37

• MLM Companies enroll members as their distributors

Consumer Distributor

• In the case of Amway, All the members of Amway are its distributors.

• Amway sells products to ABOs for retailing as ABOs are retail distributors.

Thus ABOs i.e. members of Amway are not end-consumers but they sell for retail profit.

Consumer Case Civil Court

• As per Consumer Protection Act, only end-consumers will get protection under the Act not the retailers/distributors.

Amway Business owner Member = Distributor Being distributor not eligible to approach Consumer Court.