Download - Counter in Amway-20616
IN THE HIGH COURT OF JUDICATURE OF ANDHRA RADESH AT
HYDERABAD
(Special Original Jurisdiction)
WRIT PETITION NO: 20616 OF 2006
Between:
1. Sistla Ravitega S/o S. Radhakrishna Murthy, Aged 38 years, R/o Vijayawada.
2. Tirumala Raja Naren Kumar S/o T. Janarthana Naidu, Aged 27 years, R/o Tirupathi.
3. Tirumala Anjali Naren W/o.Raja Naren Kumar, Aged 22 years, R/o Tirupathi.
4. Gummakonda Sreeti Reddy W/o. G. Ashok Reddy, Aged 36 years, R/o Hyderabad.
5. Gummakonda Ashok Reddy S/o.Lakshma Reddy, Aged 39 years, R/o Hyderabad.
6. Turaga Radhika Ramani D/o. T. Kamaraju, Aged 41 years, R/o Tirupathi.
…PETITIONERS
AND
1. Union of India, rep. by Secretary Govt, Ministry of Home, New Delhi.
2. Union of India, rep. by Secretary, Ministry of Consumer Affairs, Food & Public Distribution, New Delhi.
3. Govt. of Andhra Pradesh, rep. by Chief Secretary,Secretariat, Hyderabad.
4. Govt. of Andhra Pradesh, rep. by Secretary, Home Department,. Secretariat, Hyderabad.
5. The Director General of Police, Govt. of Andhra Pradesh, Hyderabad.
6. The Addl. Director General of Police, C.I.D., Govt. of Andhra Pradesh, Hyderabad.
7. The Superintendent of Police CID (Economic Offences Wing) Hyderabad.
8. The Dy Superintendent of Police (EOW) CID., Hyderabad.
9. The commissioner of Police, Cyberabad.
10. The commissioner of Police, Vijayawada City, Krishna district.
11. Amway India Enterprises (a Private Company with unlimited liability) Having its registered office at C-3, Qutub Institutional Area, New Delhi -16
12. Britt World Wide India Pvt. Ltd., Having its Head Office at Vardhaman Chambers, Plot No.84, Sector 17, Navi Mumbai.
13. A.V.S.Satyanarayana, director, Altus Systems Pvt. Ltd, Hyderabad.
14. The Indian Performing Right Society Ltd., Rep. by its Director, Regd. Office, Mumbai. …RESPONDENTS
* * *COUNTER AFFIDAVIT FILED ON BEHALF OF THE
RESPONDENT NO. 3 to 8
I, S.Ashok Kumar S/o. Late Satyanarayana, aged about 55
years, Deputy Superintendent of Police, Economic Offences wing,
C.I.D., Hyderabad r/o. Hyderabad, do hereby sincerely and
solemnly affirm and state on oath as follows:
1. I am the 8th respondent herein authorized to file the affidavit
on behalf of respondents 3 to 8 also as such, I am well acquainted
with the facts of the business of the respondent. I have read the
averments in the affidavit filed by the petitioner and deny the
various allegations made therein except those that are specially
admitted in this counter affidavit.
2. It is humbly submitted that Sri K. Rajasekhar Reddy S/o. K.
Lakshmikanth Reddy r/o. Hyderabad and others though styled
themselves as Distributors of the 11th respondent company have
not produced the authorization of the petitioner’s company about
such authorization or his legal distributionship of such 11 th
respondent company or trade licences issued by the Government
for carrying on the business of respondent and hence unless and
until they furnish the authorization proof they have no locus standi
to file this writ and the same is liable to be rejected.
3. Preliminary Submission:
It is humbly submitted that before submitting the parawise
remarks to the affidavit filed by the petitioner, I submit few words
about the business operations and other aspects of the petitioner’s
business.
4. Direct selling Business :
It is humbly submitted that India is citadel to Direct selling in
the world. Direct selling means no intermediary and no retail
profit in the selling. There will be no resell in between the
manufacturer and end consumer. In Direct Selling both the
manufacturer and end consumer are beneficiaries. Manufacturer
sells with not intermediatories thus avoiding the costs involved in
this regard and the consumer gets the goods at a lesser price as
they are getting directly from the manufacturer. By this way the
Consumer gets the goods/services at a lesser price.
It is humbly submitted that the Milk man is the best example
of direct selling. Milk man has a buffalo, he draws milk from
buffalo and sells milk directly at our doorstep without any
intermediary or further resell. If there is any reselling then it is a
retail business and not direct selling. Like Milk man, our Ryot
Bazaars and recently factory outlets, exhibitions, malls, centrals
are the best examples of direct selling as there is no intermediary
and resell business except direct selling by the company.
It is humbly submitted that it is clear that direct selling
means selling of goods directly by the manufacturer to end
consumer without any resell or retail profit.
5. Scheme of Petitioner company:
It is humbly submitted that petitioner’s company Amway
India Enterprises (shortly called as Amway) is a subsidiary of
foreign company, and it was permitted by the Foreign Investment
Promotion Board (shortly called as FIPB) of Government of India in
the year 1994 only to develop direct selling business.
After starting of commercial operations in India, the
petitioner’s company has floated a scheme instead of developing
direct selling with the end consumer. The petitioner company is
running a scheme wherein members are enrolled into the scheme
by sponsoring of new members by already enrolled members. The
new member is called as ‘Independent Business Owner’ or ‘Amway
Business Owner’ and he has to pay an entrance fee of Rs.4,400/-
(Startup Kit) for which the company is claiming that it will sell
products and business kit, distribution ship as well as literature.
Subsequently the new enrolled member has to sponsor more
members, for which the company will provide various attractive
incentives for sponsoring members not only on his personal
sponsoring but also on the sponsoring of his downliners (enrolled
members). Besides this the company is promising depending on
the sponsoring / enrolling of members, a enrolled member of the
petitioner scheme can easily become millionaire’s within a short
span of time.
(a) Sponsoring in this business / scheme of Petitioner:
It is humbly submitted that the sponsoring scheme of
petitioners is called as ‘Sales and Marketing Plan of 6-4-3 principle’
wherein initially person has to sponsor 6 members and in turn
these 6 members have to enroll / sponsor 4 persons each totaling
24 members and in turn these 24 members have to enroll /
sponsor 3 members each totaling 72 members thus the total of
103 members are called as one leg. Like wise an enrolled member
can sponsor / enroll infinite members into the scheme but follow
the system of sponsoring of members in 6-4-3 levels by him and
his downliners or 102 members alone.
It is humbly submitted that depending on the sponsoring of
members into the scheme, the petitioner’s company is awarding
the following 22 titles to its members. Sponsoring the members
into the scheme equals selling products. The petitioners company
on one hand is claiming that it is doing direct selling but on the
other hand awards titles with fancy names to its members
depending on enrllment of members into the scheme.
Sl. No.
Name of the title
How he is elevated
1 Silver producer
A silver producer has attained a qualifying month at 21% as defined in the Amway Business Manual.
2 Gold producer A gold producer has attained three qualifying months at the silver producer level within a rolling 12 months period.
3 Platinum A platinum has attained six qualifying months at the Silver producer level, at least three of which are consecutive, in a rolling 12 months period.
4 Ruby A Ruby is a qualified platinum who has attained at least 20,000 ruby PV in any month in the fiscal year during or after Platinum qualification.
5 Founders Platinum
A founders platinum has attained 12 months at the silver producer level during a fiscal year or has attained at least 10 months at the SP level with a volume Equivalency of 1,44,000 PV during the fiscal year.
6 Founder’s A founders Ruby is a qualified Platinum who
Ruby has maintained 20,000 Group PV for 12 monhts in a fiscal year.
7 Sapphire A sapphire has sponsored any two in market 21% legs in the same six months in a fiscal year whilst maintaining 4000 Group PV (An additional 21% leg may be counted in the absence of 4000 GPV in any of these months)
8 Founders Sapphire
A founders Sapphire is a qualified platinum who has maintained Sapphire qualification for all 12 months in a fiscal year.
9 Emerald An Emerald has sponsored at least 3 legs, each of which was at the 21% commission level for at least 6 months in a fiscal year
10 Founders Emerald
A founders Emerald is a qualified platinum who has maintained Emerald qualification for all 12 months in a fiscal year. A founders Emerald has sponsored at least 3 legs, each of which was at the 21% commission for all 12 months in a fiscal year. Volume Equivalency is applicable to each of the qualifying legs.
11 Diamond A Diamond has sponsored six legs, each of which qualified at the 21% performance incentive level for at least six months in a fiscal year.
12 Founders Diamond
A founders diamond has sponsored six legs, each of which qualified at the 21% performance incentive level for all 12 months or is a diamond who has achieved 8.0 FAA points in a fiscal year. Volume equivalency is also applicable to the qualifying legs.
13 Executive Diamond
An Executive Diamond has sponsored none legs, each of which qualified at the 21% performance incentive level for 6 months or is a diamond who has achieved 10.0 FAA points in a fiscal year.
14 Founders Executive Diamond
A founders Executive Diamond has sponsored nine legs, each of which qualified at the 21% performance Incentive level for all 12 months or is a Diamond who has achieved 12.0 FAA points in a fiscal year. Volume equivalency is also applicable to the
qualifying legs.15 Double
DiamondA Double Diamond has sponsored 12 legs, each of which qualified at the 21% performance incentive level for 6 months or is a Diamond who has achieved 14.0 FAA points in a fiscal year.
16 Founders Double Diamond
A founders Double Diamond has sponsored 12 legs, each of which qualified at the 21% performance incentive level for all 12 months or is a diamond who has achieved 16.0 FAA points in a fiscal year. Volume equivalency is also applicable to the qualifying legs.
17 Triple Diamond
A Triple Diamond has sponsored 15 legs, each of which qualified at the 21% performance incentive level for 6 months of is a Diamond who has achieved 18.0 FAA points in a fiscal year.
18 Founders Triple Diamond
A founders Triple Diamond has sponsored 15 legs, each of which qualified at the 21% performance incentive level for all 12 months or is a Diamond who has achieved 20.0 FAA points in a fiscal year. Volume equivalency is also applicable to the qualifying legs.
19 Crown Diamond
A Crown Diamond has sponsored 18 legs, each of which qualified at the 21% performance incentive level for 6 months or is a Diamond who has achieved 22.0 FAA points in a fiscal year.
20 Founders Crown
A founders Crown Diamond has sponsored 18 legs, each of which qualified at the 21% performance Incentive level for all 12 months or is a Diamond who has achieved 25.0 FAA points in a fiscal year. Volume equivalency is also applicable to the qualifying legs.
21 Crown Ambassador
A Crown Ambassador Diamond as sponsored 12 legs, each of which qualified at the 21% performance incentive level for six months or is a diamond who has achieved 27.0 FAA points in a fiscal year.
22 Founders Crown Ambassador
A founders Crown Ambassador has sponsored 20 legs, each of which qualified at the 21% performance incentive level for all 12 months r is a diamond who has achieved 30.0 FAA points in a fiscal year. Volume Equivalency is also applicable to the
qualifying legs.
It is humbly submitted that when a member while filling up his
enrollment application has to give information about the line of
sponsorship which is also mandatory. The line of sponsorship will be as
follows:-
- Your immediate sponsor
- Your sponsor’s sponsor
- And his/her sponsor
So ultimately the chart will be as follows:-
A - A is sponsored by X.
B - B is sponsored A.
C - C is sponsored by B.
D - New Member sponsored by C.
Thus this network / chain moves down.
(b) Easy Money relative or applicable to or depending on
sponsoring of members promised by the company in the disguise
of incentives:
It is humbly submitted that the company is promising
additional incentives in addition to their normal merchandise.
(i) Easy Money based on Sponsoring activity: -
It is humbly submitted that if anybody wishes to join the
scheme, he must be sponsored by already enrolled member and
the sponsored member will be treated as downliner to sponsorer
and his upline members. There is no other way to directly enroll
into the scheme of the company except sponsoring by already
enrolled member.
For instance: E was sponsored by D, D was sponsored by C, C
was sponsored by B and B was sponsored by A so on. E was called
as downliner to D, D was called as downliner to C and so on. All the
A to E are named as one group by the company.
E----< D ----< C ----< B----< A----<PROMOTERS---<COMPANY
--------- Uplines ------
As soon as new members are sponsored by directly or by the
efforts of his downliners, then all the uplines in the group will get
points for monthly commissions, in the instant case on enrolment
of new member 44.72 PVs (1 PV= Rs.45/-) will be given to all
members from immediate member to company situated in USA
who are in the same group / chain, means 44.72 x 45/- =
Rs.2,012/- business credited their account and all the points
earned by each member week will be calculated monthly once and
commissions will be disbursed accordingly.
It is humbly submitted that the petitioner’s company is
promising through its Sales and Marketing Plan of 6-4-3 principle
that member will not only get points on his personal sponsoring
but also on the sponsoring of his downliners who are in his group
by following the performance incentive level table.
PERFORMANCE INCENTIVE LEVELS
PVOnwards
100 500 1000 2000 4000 7000 10000
% of level
3% 6% 9% 12% 15% 18% 21%
It is humbly submitted that as per the Sales and Marketing
Plan of 6-4-3 principle of petitioner’s company which is also
available in the internet in the following address also promises that
a member will get Rs.56,925/- per month for enrolling / sponsoring
102 members under his down line in 6-4-3 levels and making
mandatory monthly purchase of products worth Rs.4,500/-. In
conventional market it is not possible(Impossible!) to get
Rs.56,925/- for selling of products worth Rs.4,500/-.
Source : http://www.amwayindia.com/images/SalesMarketPlan.jpg
(ii) On Renewal activity : -
It is humbly submitted that on the promise of easy money to
members, the company is collecting non-refundable mandatory
renewal fee of Rs. 995/- and block renewal fee from the members
and thus it is making quick money and this quick money will
depend on the members sponsored / renewed and this money will
increase every year as the members in the chain / group will
increase.
6. The Prize Chits and Money Circulation Schemes (Banning)
Act, 1978:
It is humbly submitted that the Statements of Object and
Reason of The Prize Chits and Money Circulation Schemes
(Banning) Act, 1978 (for brevity called as Act) is as follows:
“An Act to ban the promotion or conduct of prize
chits and money circulation schemes and for
matters connected therewith or incidental
thereto.”
Sec.2(c) of Act defines what Money Circulation Scheme is:
“money circulation scheme” means 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;
Sec.11 exempts certain entities from the above definition:
Sec.11. Act not to apply to certain prize chits or
money circulation schemes.-Nothing contained in
this Act shall apply to any prize chit or money
circulation scheme promoted by-
(a) a State Government or any officer or authority
on its behalf; or
(b) a company wholly owned by a State
Government which does not carry on any business
other than the conducting of a prize chit or money
circulation scheme whether it is in the nature of a
conventional chit or otherwise; or
(c) a banking company as defined in clause ( c ) of
section 5 of the Banking Regulation Act, 1949 (10 of
1949), or a banking institution notified by the Central
Government under Section 51 of that Act or the State
Bank of India constituted under Section 3 of the State
Bank of India Act, 1955 (23 of 1955), or a subsidiary
bank constituted under section 3 of the Banking
Companies(Acquisition and Transfer of
Undertakings)Act, 1970 (5 of 1970),or a Regional Rural
Bank established under Section 3 of the Regional Rural
Banks Act, 1976 (21 of 1976) or a co-operative bank as
defined in clause (ii) of Section 2 of the Reserve Bank of
India Act, 1934 ( 2 of 1934);or
(d) any charitable or educational institution notified
in this behalf by the state Government, in consultation
with the Reserve Bank.
Sec.3 of the Act bans the Money Circulation Scheme:
Sec.3: Banning of prize chits and money
circulation schemes or enrolment as members or
participation therein:- No person shall promote or
conduct any prize chit or money circulation scheme, or
enroll 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.
Sec.4 of the Act imposes penalty for Money Circulation
Scheme:
Sec.4: Penalty for contravening the provisions of
Section 3:- Who ever 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; (3) Provided that in the absence of special and
adequate reasons to the contrary to be mentioned in
the judgment of the court, the imprisonment shall not
be less than one year and the fine shall not be less than
one thousand rupees.
(a) As per the principles laid down by the Supreme Court in STATE
OF WEST BENGAL Vs. SWAPAN KUMAR GUHA (1982) 1 Supreme
Court Cases 561:
Para No.78: -
“To be a money circulation scheme, a scheme must be
for the making of quick or easy money on any event or
contingency relative or applicable to the enrolment of
the members into the scheme. The scheme has
necessarily to be judged as a whole, both from the
viewpoint of the promoters and also of the members.”
It is humbly submitted that the Hon’ble Supreme Court of
India in the same case has laid down the following criteria to call
the scheme as a Money Circulation Scheme.
Condition No.1 : It must be proved that the person is promoting or
conducting a scheme for making of quick or easy money; and
It is humbly submitted that in the case of Amway, the
company has been inducing its members to sponsor / enroll to promote
its business and according to their enrolling of members, the company
has been giving commissions not only on the sales of his products but
also on the sales of their down line (Network).
The business of company is carried out only by the sponsoring of new
members by the uplines. Thus the scheme creates a network of
customers and only when the downline / network progresses the
principal distributors gets more commission.
The company and its distributors are promoting a scheme for
making easy money by creating network / down the line.
Condition No.2 : The chance or opportunity of making quick or easy
money must be shown to depend upon on an event or contingency
relative or applicable to the enrolment of members into that scheme
It is humbly submitted that in the case of Amway and the
petitioners scheme, the principal distributor gets more commission only
when he enrolls new members / sponsors downline.
(E.g. in a 6-4-3 principle of Amway there will be 103 persons, in
which each person sells products worth Rs.4,500/-. Then the first
person (principal distributor) gets commission of cash Rs.56,925/-.
This is nothing but easy money. The person could get this amount
only by enrolling persons downline.
Sl. Condition Present Amway Model
No
.
i. There must be a
scheme
Amway Sales and Marketing Plan of 6-
4-3 principle.
ii. There must be a
members of the
scheme.
A person enrolled into the scheme of
Amway is called as distributor / Amway
Business Owner. After enrolling into
the scheme, a member will be eligible
to enroll / sponsor further members
into the scheme.
iii. The scheme must
be
i) for the making of
quick or easy
money
a) on any event
or
b) contingency
relative or
c) applicable to
the enrolment of
members into the
scheme
or
Amway India Enterprises induces
public through it’s Sales and Marketing
Plan to give easy money by way of
huge commissions on the event of not
only on their personal sales but also on
the sales and entry fee (PV obtained on
the cost of products included in the
startup kit) of their sponsored
members.
ii) there must be a
scheme for the
receipt of any
money or valuable
thing as the
consideration for a
promise to pay
money
a) on any event
or
b) contingency
-
relative or
c) applicable to
the enrolment of
members into the
scheme
iv. The event or
contingency relative
or applicable to the
enrolment of
members into the
scheme will
however not be in
any way affected by
the fact whether or
not such money or
thing is derived
from the entrance
money of the
members of such
scheme or
periodical
subscriptions.
In Amway Sales and Marketing plan,
commissions are giving based on the
group sales not on the individual sales,
thus the persons who fail to sell the
products on his own but they will be
getting commission on the sales of
their group members. Thus the money
obtained by way of commissions on the
efforts of other persons is nothing but
easy money as specified by this
condition.
It is humbly submitted that even as per the guidelines laid
down by the Hon’ble Supreme Court of India the petitioner’s
scheme squarely falls in a Money Circulation scheme because the
scheme of Amway consists of systematic arrangement of action of
Sponsoring as well as Merchandise of products / services.
There is a proposal on the side of promoter to give easy
money on the direct or indirect enrollment / sponsoring of
members into their scheme besides personal merchandise. The
money which was awarded on the indirect sponsoring of members
into the scheme is nothing but easy money as stated in the
definition of the Sec.2(c) of Act.
(b) As per the judgement in W.P.No:22674 OF 2004 AND
W.P.M.P.No:27411 OF 2004 on the file of Hon’ble High Court of Madras,
delivered by Hon’ble Justice A.K. Rajan, in M/s. Apple FMCG
Marketing (Pvt) Limited, Chennai Versus Union of India reported in
2005 Writ LLR 115.
Para – 20 :
“Definition in Sec. 2(c) makes it clear that any scheme
by whatever name it is called whereby on a promise
that one would receive or would make quick or easy
money be enrolment as members into the scheme is
‘money circulation scheme’ – Such members earlier get
commission without doing any work; getting such a
commission is nothing but getting quick or easy money-
Therefore, such schemes/ the so called ‘Multilevel
Marketing’, definitely falls within the definition of
‘money circulation scheme’. (Para 20)”
Para – 22 :
“It is true that several companies including
Multinational Companies carry on the business of the
“Multilevel Marketing” and it is also true that the
Executive and the law enforcing authorities keep a blind
eye on such activities. This also does not make an
illegal act legal. It is always a fact that the law enforcing
authority would try to close the stable only after the
horse had escaped.” Para 22”
Para – 33:
“In this part of India, people are gullible and fall an easy
prey to the tall promises made through the media. That
was the reason why the lottery tickets were sold in
large numbers in the State. Many companies want to
exploit this attitude of people and float many schemes
and lure the people to join the schemes. The petitioner
is not entitled for direction for prohibiting the
authorities from keeping surveillance over any
meeting. Sec. 7 of the Act confers the right on the
police officer to enter any premises, where he has got a
reason to suspect that the premises are 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. Para 33.”
Para – 36 :
“The event is enrolment of new members: the
commission received is relative to such enrolment of
new members into the scheme. Therefore, the
argument of the learned counsel for the petitioners that
there is no promise of quick or easy money is not
correct for the reasons stated above. Thus, the so-
called Multi-level Marketing, though called by a very
attractive name, squarely falls within the definition of
‘Money Circulation Scheme” under the Act. Hence, it is
prohibited by the Act. It is for the law enforcing
authorities to take appropriate action. In the result, the
writ petition is dismissed (Para 36).
(C) As per the judgement in W.P.No:2908 OF 2003 AND
W.P.No:4144 OF 2003 on the file of Hon’ble High Court of
Madras, delivered by Hon’ble Justice P. Sathasivam, in V-Can
Network (P) Ltd., Chennai Versus Union of India reported
vide (February 13, 2003) 2003 (TLS)1206810.
Para No.10:.
10. It is useful to refer the statement of Objects and
Reasons for the enactment of the Prize Chits and
Money Circulation Schemes (Banning) Act, 1978. In
June, 1974, the Reserve Bank of India had constituted a
Study Group under the Chairmanship of Shri James S.
Raj, the then Chairman, Unit Trust of India, for
examining in depth the provisions of Chapter III-B of the
Reserve Bank of India Act, 1934 , and the directions
issued thereunder to non-banking companies in order
to assess their adequacy in the context of ensuring the
efficacy of the monetary and credit policies of the
country and affording a degree of protection to the
interests of the depositors who place their savings
with such companies. In its report submitted to the
Reserve Bank in July, 1975, the Group observed that
the prize chit/benefit/ savings schemes benefit primarily
the promoters and do not serve any social purpose, and
that they are prejudicial to the public interest and
affect the efficacy of the fiscal and monetary policies of
the country. Ultimately the Group recommended that
prize chits or money circulation schemes, by whatever
name called, should be totally banned in the larger
interests of the public and suitable legislative
measures should be undertaken for the purpose.
Pursuant to the said recommendation, the Parliament
enacted the Prize Chits and Money Circulation
Schemes (Banning) Act, 1978. Among the other
provisions, the following sections are relevant:
"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 consideration for a promise to
pay money, on any event or contingency relative or
applicable to the enrolment or 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 3. Banning of prize chits and money circulation
schemes or enrolment as members or participation
therein.- 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."
Sections 4 and 5 speak about punishments. Learned
Government Advocate points out that the investigation
prima facie discloses an offence under Prize Chits and
Money Circulation Scheme (Banning) Act, 1978,
whereby V-Can Network are running a Money
Circulation Scheme and they sell inferior products to
the public after enrolling them as members/distributors
and thereafter promise them that they can make
quick and easy money. It is further brought to my
notice that they then in turn falsely induce more
members into the scheme. According to them, this
very scheme is a chain fraught with manipulation and
deceit. It is to be noted that in order to curb offences in
the name of
schemes/promotion/distribution/membership, the said
Act was enacted. As per Section 3 of the Act, no one is
permitted to promote or conduct either prize chit or
money circulation scheme, or enrol any one as member
for the same and receive any money in pursuance of
such chit or scheme. Learned Government Advocate
has produced pamphlets and details regarding Money
Circulation Scheme. As rightly pointed out by Mr.
Abudu Kumar Rajaratnam, learned Government
Advocate, all these issues have to be investigated in
detail. Considering the plea of the learned Government
Advocate that so far the police have received 30
complaints against V-Can Network, in the light of
the statutory provisions referred to above, I am of the
view that interference by this Court exercising extra-
ordinary jurisdiction under Article 226 of the
Constitution of India is not warranted at this juncture.
Para No.11:
“11. As per definition 2 (c), money circulation
scheme or multi-level marketing or whatever by name
called, is a fraud being played on the hapless and
innocent public by way of manipulation and deceit. It
is the case of the respondents that inferior quality
products are sold with false claims at exorbitant
rates while the products are worthless and thereby
they cheat the public. Likewise, the
members/distributors are falsely induced by selling
inferior products at exorbitant rates which are worth
nothing and in turn for them to make quick or easy
money. The members/distributors have to falsely
induce more members. It is demonstrated before me
that as per that scheme, every member/distributor has
to be necessarily enrolled with a membership fee which
is taken by the petitioner/promoter to buy their
products and each member/distributor has to falsely
induce and enrol more members and if that is done, he
gets a minor share of the ill-gotten wealth and
thereby the chain continues. I have already referred
to the Statement of Objects and Reasons in enacting
the legislation, namely, Prize Chits and Money
Circulation Schemes (Banning) Act, 1978. The intention
of the legislation was to prevent white collar crimes
being perpetrated on hapless and innocent public. It
is the case of the respondents that the preliminary
investigation prima facie discloses that the
petitioner/promoter company is involved in money
circulation scheme, thereby whatever money is paid to
a member/ distributor is money paid by the members
themselves to a minor extent and the major part is
illegally kept by the petitioner/promoter company by
false inducement and false representations. It is also
demonstrated before me that unless the
member/distributor falsely induces others to become
members/distributors, they cannot make quick or easy
money and the money paid or circulated as commission
or incentive is only the ill-gotten money made from
other members/distributors and the chain continues by
manipulation and deceitful false claims. In such
circumstances, since the investigation is at the crucial
stage, I am of the view that any interference in the
investigation will seriously hamper and prejudice the
investigation.”.
It is humbly submitted that thus, on the plain reading of Act
itself, it is clear that the company will claim exemption from the
Money Circulation Scheme only if it is a Banking or co-operative
Bank or State Government promoted company, but it do not fall in
any of the categories, hence it will not fall within the exemption of
the Act. Secondly the company is running or promoting a scheme
(a systematic arrangement of acts) with a promise of easy money
in the form the incentives on the event or contingency of
enrolment of members by their direct efforts or by the efforts of
their downliners who were sponsored by them, into it’s scheme. All
the Easy Money earned is not prohibited by this act, but the easy
money earned based on the event or contingency relative or
applicable to enrolment of members was prohibited. Thus in the
instant case the person will get nominal benefit on the personal
merchandise but on the sponsoring activity he is promised huge
easy money which squarely falls within the definition of this Act”.
7. Camouflaging activities under Corporate Veil:
It is humbly submitted that as the Act prohibits promotion of
Money Circulation Scheme’s under any circumstances, but cleverly
the promoters, under the corporate veil by registering themselves
with Registrar of Companies, are promoting Money circulation
scheme camouflaging it with product selling, so that they can
easily divert the attention of common man and also the law
enforcement authorities from the perceptive of Money circulation
Scheme.
It is humbly submitted that under the corporate veil, the
promoters are propagating that their sponsoring business, is not
new, but same like as L.I.C. and Banks promoted by Govt. But as
per Sec.11 of the Act, both of these are exempted from the Money
Circulation Scheme and further in the above institutions there is
no benefits received for further enrollment of members.
It is humbly submitted that by conducting lavish parties in the
expensive star hotels with public figures and influential persons
the promoters of such scheme are drawing the attention of
common man and making false impression that their schemes are
not money circulation schemes but a good business opportunity to
become millionaires.
It is humbly submitted that in the name of great business
opportunity, false lucky draws, involving in Social Activities and
public claim of Registrar of Companies Registration Certificate the
promoters are encashing the gullibility of public by camouflaging
their illegal scheme with product selling.
It is humbly submitted that thus in the backend the
promoters Amway and its members are promoting money
circulation schemes and in the front end the promoters are
camouflaging their illegal scheme with product selling and thus
defrauding the public and sucking the hard earned money of the
middle class families besides destroying the economic fabric of this
country. It is all the more necessary in public interest and for
public good to prohibit such companies from running / conducting
these money circulation schemes under the garb of “direct sale of
products to consumers”.
8. Unjust Enrichment and opposed to public policy :
It is humbly submitted that the provisions of the Contract Act
prohibit unlawful enrichment of one at the cost of many. Being the
promoters, the initial members are uplines to all the members into
the scheme and they will get easy money without any efforts.
Thus they are unlawfully enriching themselves at the cost of
innocent distributors down the line.
Undue influence in the name of Sponsoring opposed to public
policy:
It is humbly submitted that the promoters of the scheme to
promote their scheme promises huge easy money for sponsoring
members as well as encouraging and instigating the members to
listout their family members, relatives, subordinates, colleagues
and other known persons and make them to enroll or sponsor
members into their scheme by exploiting their personal relations.
They are making the family and neighbourhood as their
markethood. In the chase of wild dream for huge easy money, the
members are making undue influence by exploiting the personal
relationships and thereby social fabric of our well knitted society is
getting affected.
For instance a woman by name Sailaja r/o. Vijayawada who is
the alleged distributor of Amway, was brutally murdered in the bid
of sponsoring more members through her downlines, is the
subject matter in Cr.No.688/2006 U/s. 302, 380 IPC of Patamata
L&O P.S. of Vijayawada city.
It is humbly submitted that the promoters are naming these
scheme as a Good Business Opportunity and it is Multi-Level
Marketing (MLM) Scheme and in these schemes the promoters will
Make Huge Money through Other People’s Efforts and Other
Peoples Money (i.e. MLM = O.P.E. + O.P.M.) by way of
exploitation of personal relationships and also due to gullibility of
public. This leads to unjust enrichment. Such unlawful enrichment
at the cost of gullible and innocent consumers is opposite to public
policy and in violation of the provisions of the Contract Act and is
therefore prohibited under statute.
9. Malafide claiming of valid registrations and paying taxes:
It is humbly submitted that every Law and Act has its own
spear of action and getting registration in one law cannot claim
impunity from the other laws in force. Payment of taxes to
Government does not immune themselves from the laws of the
land. Every one should follow the law of land.
For instance if one person gets the driving license and paying
taxes under M.V. Act cannot exempt him from causing hurt/death
by rash and negligent driving.
10. Claiming the Statement of Minister and letters of Secretary of Ministry of Consumer Affairs, Food and Public distribution:
It is humbly submitted that on 20.12.2002 on the question
about the enactment of new law on the efforts of Indian Direct
Selling Association in the Ministry, Hon’ble Minister of Consumer
Affairs, Food and Public Distribution has intimated to House of
Parliament that there is adequate provisions in the law to safe
guard the provisions of consumers and no need of new law and
also reiterated about the direct selling of goods which are actually
doing direct selling do not fall within the mischief of the aforesaid
Act. But Hon’ble Minister did not exempt the selling of goods
through sponsoring activities from this act.
It is humbly submitted that the Hon’ble Minister for Finance
and Company Affairs on the very same day i.e. on 20.12.2002
when Hon’ble Minister for Consumer Affairs, Food and Public
Distribution has intimated to House of Parliament, replied to the
unstarred question No.4889 to the following :
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;
c) whether the said company is involved in violation of various rules;
d) if so, the details thereof;
e) 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
f) 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 vies 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.
It is humbly submitted that the petitioner company is wisely
hiding this bare fact and claiming the Statement of Hon’ble
Minister of Consumer Affairs, food and Public distribution and thus
misleading the law enforcement authories, Hon’ble Court and
ultimately cheating the Indian public at large.
It is pertinent to state that the letter of Shri Wajahat
Habibullah, the then Secretary of Ministry of Consumer Affair, Food
and Public distribution Dt.31.3.2003 was annulled by way of
clarification letter Dt. 23.9.2003 by the said department, even
though claiming the annulled letters is nothing but misleading the
court and ultimately cheating the public at large.
It is humbly submitted that Hon’ble Madras High Court has
emphasized in M/s. Apple FMCG, Chennai Vs. Union of India
reported in 2005 Writ L.R. 115 delivered on 7.1.2005 in para
No.21:
Para No.21:
“21. The learned counsel for the petitioner submitted
that Union of India has made a clarification in an answer
to a question in Parliament that Multi-level Marketing
does not violate or offend the provisions of the Prize
Chits and Money Circulation Schemes (Banning) Act. It
is suffice to say that it is not for Union of India or any
Member of Parliament to interpret the provisions of any
Member of Parliament. The act has been passed by
the Parliament, but the power to interpret the Act is
only vested in judiciary and that power is not given
to the Executive. The statement given by the Union
of India or its Officers that Multi-level Marketing
does not attract the provisions of the Act cannot
legalise an illegal act.”
11. Misrepresentations in the affidavit of petitioner:
(i) It is humbly submitted that the petitioner’s company were
permitted in India only to develop direct selling business. But
contrary to the concept of Direct selling, Amway has floated a
scheme consisting of enrolling of members by sponsoring and by
introduction of intermediary in the name of distributor encouraging
its members for reselling with retail profit of 20% and above and
naming it as direct selling. In reality Amway is not directly selling
the products to end consumer and end consumer cannot purchase
products directly from the Amway. Thus the petitioner and their
company are misrepresenting the Hon’ble Court that their retail
business is a direct selling.
(ii) It is humbly submitted that the petitioner are
misrepresenting the Hon’ble Court that they are the distributor of
the Amway, but they are not registered with any Government
agency to carryon their business and besides this they don’t have
even a trade licence from Municipalities, PFA License and VAT
registrations and by claiming that they are the distributors of
Amway is not but cheating the Government also because they are
conducting their business without any valid licences, this is nothing
but willful misrepresentation.
(iii) It is humbly submitted as per the information furnished
by the Reserve Bank of India from 1994 to 2006, Amway has
brought only 18 crores of Foreign Money to India, but claiming in
the affidavit that it has invested in excess of US $35 Million (Rs.151
Crorers) in India is nothing but misrepresenting.
(iv) It is humbly submitted that Amway as founder member
of Indian Direct Selling Association and allowed some other foreign
companies to join in the association and now claiming that other
companies are also doing the same and hence their business is
legal. Moreover now claiming that it is only a member instead of
founder member, this nothing but willful misrepresentation.
(v) It is humbly submitted that the letter of Shri Wajhat
Habibullah, the then Secretary, Ministry of Consumer Affairs, Food
and Public Distribution was annulled vide letter Dt.23.9.2006 by
the Ministry of Consumer Affairs, Food and Public distribution.
Even though the petitioner is presenting the outdated and annulled
letter, this is nothing but misrepresenting the court.
(vi) It is submitted that the petitioner’s claim that and his
company minimizes overheads and advertising budgets is nothing but
misleading. The costly brochures, Phamplets, hoardings in important
places (In Hyderabad at Khairathabad, Tank bund etc), advertisements
in leading news papers and above all conferences and seminars in
luxurious places with costly peripherals, speak volumes of their
overheads and advertising budgets. The company claims that it is
spreading purely entrepreneurial venture is nothing but a Money
Circulation Scheme camouflaged with self proclaimed quality products.
(vii) It is humbly submitted that products of Amway are not as per
standards and out of 18 health products, 14 were proved misbranded,
adulterated and 4 are not food items by the State Food Laboratory,
Nacharam, Hyderabad. Hence the claim of quality products are nothing
but a deception and a blatent cheating of innocent conusmers in the
name of quality products.
12. Ill-effects of sponsoring based easy money business:
(a) Sponsoring needs introduction and it may exploit the
personal relation ships and thereby ruin the well knitted social
fabric of our society.
(b) It leads to undue influence. If the boss of the organization
enrolls himself in such companies illegal scheme then the
subordinates are forced to become in the scheme unwillingly.
(c) To oblige the reference of the Family elder, Superior
Officer or Role model, we have to purchase the goods of these
companies which will ultimatelty lead to unnecessary
consumerism.
(d) In this business every consumer is a distributor and it will
lead to infinite distribution ship, and it will become hardship to
Governments to monitor the activities of these unchecked
distributionships.
(e) Gullible public may fall prey to these companies and to
get out of the cheating by these companies there is likelywood
that they will trap the other innocents by their influence into these
schemes.
It is humbly submitted that Money Circulation Schemes are
known as Pyramid schemes World wide.
Hypothetical calculation of result of continuous sponsoring of members into a scheme:
It is humbly submitted that in a hypothetical pyramid
scheme, with respect to how it is claimed to work. Suppose the list
included in this scheme contains six names. You are to send a
dollar to each person listed, remove the top name, move all the
other names up one position, and send it on to more people. Let
us assume, that you get ten people to join, and each of them gets
ten people, and so on.
As the pyramid grows below you, here's what supposedly happens:
1. The first level below you has ten people. They each send you
a dollar, so you collect $10.
2. The next level has a hundred people. (Each of your first ten
gets ten more.) You collect $100.
3. The next level has a thousand people. You collect $1,000.
4. The next level has 10,000 people, so you collect $10,000.
5. The next level has 100,000 people, so you collect $100,000.
6. The next level has 1,000,000 people, so you collect
$1,000,000.
7. At this point, your name drops off the list, and you collect no
more.
So, for your initial investment of $6, (one dollar to each of the
six people above you), you collect a total of $1,111,110. There are,
of course, many variations on this concept.
It's very easy to understand how this kind of scheme should
work. It all seems so simple and so obvious.
It is, unfortunately, somewhat more difficult to understand
why this kind of scheme does not work, and why it is unethical
and dishonest, and, in most cases, very much illegal.
The truth is, this scheme does not work, except for those who
get in at the first few levels. The vast majority of participants in
such a scheme will only lose their original investment, and make
no profit at all. In a moment, I'll get into why this is so; but
because it is so, every instance where a person is induced to join
such a scheme, based on the promise that he will make a profit by
participating, a fraud has been committed.
It is humbly submitted that nearly every nation, and every
government, has laws against fraud. Most have specific laws
against pyramid schemes, Ponzi schemes, and similar operations.
It is humbly submitted that even if the particular variation in
which you might participate happens to avoid running afoul of the
laws which are relevant in your situation, I ask you to consider that
by participating in such a scheme, you would be engaging in
something that is dishonest and unethical, and which is very
unlikely to make you any profit.
It is humbly submitted that in order to understand why
pyramid schemes do not work, there are two points which you
must understand.
It is humbly submitted that The pyramid must fail because
there is a finite and limited number of potential participants.
It is humbly submitted that Pyramid schemes depend on
bringing in an exponentially-growing number of new participants.
I've used the term “exponentially” several times already, perhaps I
should explain it. Where n represents some number, if you start
with one person, who gets n people to join, and each of those
people gets n more people to join, and so on, you have the total
number of people growing by powers of n. Even where n is a
fairly small number, the total number of people involved grows to
amazingly huge numbers without very many steps being required
to reach these huge numbers. Indeed, it is these huge numbers,
which you are led to believe represent the number of people who
will each be sending you $5 or whatever, that makes pyramid
schemes attractive.
It is humbly submitted that but these huge numbers create
a problem. There are somewhere between five and six billion
people in the world. Let's suppose that every one of these people
could be induced to join a particular pyramid scheme. For how
many levels could this scheme run before it failed, for lack of new
participants? You'll be amazed when you see how quickly the
number of required new participants grows to exceed the
population.
It is humbly submitted that in the example above, I
assumed that each person who joined would bring in ten new
people. How many levels can be supported by a population of five
to six billion? Let's count them...
Level People in Level
1 12 103 1004 1,0005 10,0006 100,0007 1,000,0008 10,000,0009 100,000,000
10 1,000,000,000
(The above calculations also available in the internet in the
following address :
http://members.impulse.net/~thebob/Pyramid.html )
It is humbly submitted that that's ten levels, counting the one
person at the top who started it. By the time these ten levels are
filled, there will be a total of 1,111,111,111 participants. The
eleventh level would require 10,000,000,000, or ten billion new
participants to fill in. But there aren't that many people in the
world. There's only between five and six billion, minus the
somewhat over a billion who've already joined. Most of the billion
people in the tenth level will not be able to get any new
participants below them, and will therefore make no money at all.
And of course, none of those who join in the eleventh level will get
any new participants below them. There aren't enough people to
fill in the eleventh level, much less to start a twelfth level below
that.
It is humbly submitted that at this point, the pyramid
collapses. And when it does, a solid majority of those who had
joined will not have made any return at all. They will have paid
their money to get in, but the promise that they will profit as
people join below them will never be fulfilled.
It is humbly submitted that of course, the number of levels
that can be filled depends on how many new participants, on
average, are brought in by each previous participant. But even if
each participant brings in only two new participants, the pyramid
will collapse in about 32 or 33 levels (still assuming, of course, that
you can get all five or six billion people in the world to join) with
most participants having lost money.
13. World wide banning on the easy money business based on
sponsoring of members:
It is humbly submitted that Money Circulation Schemes are
known world wide as Pyramid Schemes, Ponzi Schmes, Chain
schemes, Multi-level Marketing, Network Marketing, Sponsoring
Marketing, Referral Marketing and Introduction Marketing.
(a) It is humbly submitted that during the year 1996-97 after the
civil riots and death of 2000 people happened in the Albenia due to
pyramid schemes (sponsoring based business), International
Monitory Fund has conducted a study and requested all the
countries in the world to take stringent action on such schemes.
(IMF study report dt. March 2000 under caption- The rise and fall of
Albania’s Pyramid schemes available in the internet -
http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm).
“The pyramid scheme phenomenon in Albania is important because its
scale relative to the size of the economy was unprecedented, and
because the political and social consequences of the collapse of the
pyramid schemes were profound. At their peak, the nominal value of
the pyramid schemes' liabilities amounted to almost half of the
country's GDP. Many Albanians—about two-thirds of the population
—invested in them. When the schemes collapsed, there was
uncontained rioting, the government fell, and the country descended
into anarchy and a near civil war in which some 2,000 people were
killed. Albania's experience has significant implications for other
countries in which conditions are similar to those that led to the
schemes' rise in Albania, and others can learn from the way the
Albanian authorities handled—and mishandled—the crisis.
------------
Finally, the IMF and the World Bank should be aware of the
possibilities of pyramid schemes emerging when the conditions for
their growth are present and should be vigilant in warning
governments about them. When they can, the IMF and the World
Bank should insist on action”.
(b) In the year 2005, due to huge losses suffered by the ¼
of the citizens in the Country, SriLanka has enacted a
legislation banning pyramid schemes.
(c) In the year 1998, China has also banned the Pyramid structure (sponsoring based) business.
(d) Like China and Srilanka several countries in the world have
banned the pyramid structure (sponsoring based) business.
(e) Federal Trade Commission which is the legal agency for the protection of Consumers in U.S.A. has issued alert messages vide
their internet messages published in the website address- Source:
http://www.ftc.gov/bcp/conline/pubs/alerts/pyrdalrt.shtm as “…….
Joining a pyramid is risky because the vast majority of
participants lose money to pay for the rewards of a lucky
few. Most people end up with nothing to show for their
money except the expensive products or marketing
materials they're pressured to buy.
…..
Be skeptical if a distributor tells you that for the price of a "start-up
kit" of inventory and sales literature - and sometimes a commitment
to sell a specific amount of the product or service each month - you'll
be on the road to riches. Often consumers spend a lot of money to
"build their business" by participating in training programs, buying
sales leads or purchasing the products themselves. Too often, these
purchases are all they ever see for their investments.
….”
In USA also launched prosecution against Amway, a self styled
big Multi-level Marketing company who happened to be a
member of WFDSA and founder member of many DSAs in more
than 88 countries engaged in the self named direct selling
company in the world (filed in US District court in the northern district of
California on January 10, 2007, case number 3:07-cv-00201-EMC.)
Full text is available in the internet in the following source :
http://www.pyramidschemealert.org/PSAMain/news/AmwayPyramid
Suit.pdf
So many experts and victims allover the world have
published huge material in the internet. Some of them are
(i) The Myth of Income Opportunity in Multilevel Marketing : -
http://www.pyramidschemealert.org/PSAMain/news/MythofMLMInco
me.doc.pdf
President, Pyramid Scheme Alert (PSA), USA Mr.Robert
L.Fitzpatrick speaking at a lecture on “Combating Pyramid
Schemes” at the Centre for Banking Studies, Rajagriya called
Pyramid Schemes as “Financial Tsunamis!”
(Available at www.southasianmedianet.com).
Mr.Fitzpatrick in his article “Ethics in Economics-The Pyramid
Scheme: A “Devastating Con” has clearly state “the pyramid
scheme
phenomenon---fashion. The fraud of pyramid-----payback occurs.
But what is the actual harm----- dashed hopes. In a recent petition
to FTC----- their fault. Participants ------continues. The products or
services------cosmetics (available at www.businessethics.org).
Mr. Robert Fitzpatrick has published in 2004 in Marketing
Master Mind a monthly publication of the Institution of Chartered
Financial Analysts, a division of ICFAI, University Bangalore India
an article called “The Non-Retail ‘Direct Selling’ Company”. In this
article he has clearly explained about the con ways of such
companies (available at www.pyramidschemealert.org.)
Mr.Fitzpatrick after analyzing and researching the MLM
Schemes for more than 10 years has written a article called “The
Ten Big Lies of MLM”. The research has shown that MLM business
model as it is practiced by most companies is a “Marketplace
Hoax”(available at www.pyramidschemealert.org).
(ii) The Merchants of Deception:
http://www.merchantsofdeception.com/DOWNLOADBOOK2.html
(iii) The 10 Big lies of Multilevel Marketing : -
http://www.falseprofits.com/MLM%20Lies.html
(iv) To know about the Multilevel Marketing and Pyramid scheme
scams : http://www.pyramidschemealert.org/PSAMain/home.html
(v) The Mirages of Multilevel Marketing : -
http://www.quackwatch.org/01QuackeryRelatedTopics/mlm.html
Consumer Activist Mr.Stephan Barrett M.D. in his article “The
Mirage of Multi-Level Marketing” has analysed how such
companies are cheating the common man with dubious claims. He
recommends “Govt. Agencies should Police the Multilevel Market
place aggressively, using undercover investigators and filing
criminal charges when wrong doing is detected (available at
www.quackwatch.org)
(vi) What is wrong with Multilevel Marketing : -
http://www.vandruff.com/mlm.html
(vii) Article published by the Investigative Jounalist by name Ramji
Ramachandran of Banglore, India in monthly magazine : With
soaps in their Hands and Hopes in their Hearts :
http://www.pyramidschemealert.org/PSAMain/news/BangaloreMont
hly.html
(viii) Why pyramid schemes are illegal :
http://72.14.235.104/search?q=cache:7ML_jSK2V_UJ:www.mlm-
thetruth.com/PyramidSchemes-Internet-
EcCrimesSummit04.ppt+MLM+survivors.com&hl=en&ct=clnk&cd
=1&gl=in
(ix) History and nature of Ponzi schemes : -
http://www.sjsu.edu/faculty/watkins/ponzi.htm
(x) Is MLM Legal : - http://www.falseprofits.com/FSLegalityPg.html
It is humbly submitted that Mr.Ravi Dykema Publisher/Editor
in Chief NEXUS, Clorado’s Holistic Journal in his article “The Dark
Side of MLM’s” states that “Here’s what I see happening in many
MLM’s: A few are getting very rich. A few more are getting
spending money. A lot are getting disappointed. However it
appears to me that the pyramid selling system employed by MLM’s
breeds deception. Hundreds of thousands of people are investing
substantial time and money and losing it. These folks thought they
had a decent chance to “build a dream”. They didn’t. That dreamn
of time freedom and prosperity was always a long shot. The MLM
system of product distribution is designed to sell consmetics or
computers at a profit for the company, NOT to make Mr. or Ms.
Distributor rich (available at
www.falseprofits.com/NexusEditorial.html.
(xi) It is humbly submitted that Dr.Jon Taylor another consumer
activist has rightly said in the article “MLM-NetWork Marketing,
Direct Selling and the DSA” has “Most MLM’s are no more direct
selling programs than a pig is a horse”. Another activist Douglas
M.Brooks, Gulman and Pastor, LLP in the same article has said
“Dr.Taylor has coined the term “Product –based Pyramid Schemes”
to describe (MLM) plans and I believe his term to be dead-on
accurate”(available at www.mlm-thetruth.com/dsa.htm).
(xii) It is humbly submitted that Shri M.P.George Addl.Drugs
Controller, Kerala in his article called “Multilevel marketing of
medicines” has stated “Usually multilevel marketers select
products, taking…….. and MLM is a dignified form of looting. Keep
away from the modified and dignified forms of crimes for the
benefit of oneself and the society”.
(available in the internet in the following address :
http://www.kerala.gov.in/keralacallfeb04/p15-16.pdf )
It is humbly submitted that Shri S.Prakash in his article
“Cashing the ignorance?” has correctly stated “The Multi-line
marketing--------in star hotels for consumers. In many cases, the
consumers----------lies the importance of multi-level marketing
companies.”
(Available in the internet in the following address :
http://www.kerala.gov.in/keralacallfeb04/p14.pdf ).
Para wise Remarks :
14) It is humbly submitted that Para Nos.1 to 5 are descriptive in
nature.
14) It is humbly submitted that in reply to para No.6, It is
pertinent to state FIPB has permitted only to develop direct selling
not resell to end consumer by the so called distributors.
15) It is humbly submitted that in reply to para No.7, It is
pertinent to state that every law has its own spear of action and
taking permission under one law will not exempt from punishment
from violation of other laws. Law enforce authories will take action
only when there is violation of law. If the person may possesses
some good qualities but they will not be exempted from actions as
per law, if he violates law of land.
16) It is humbly submitted that in reply to para No.8 and 9, It is
pertinent to state that Amway is the founder member of IDSA and
moreover IDSA is a private body and does not have any status in
the Indian laws.
17) It is humbly submitted that in reply to para No.10 and 11, It is
pertinent to state that paying taxes does not exempt the illegal
acts from taking action under various laws for violations. It is
further submitted that the petitioner’s claim of paying various
taxes is nothing but “Robbing Peter to Pay Paul”.
18) It is humbly submitted that in reply to para No.12 and 13, It is
pertinent to state that the reply to this para was already explained
in the previous paras.
It is humbly submitted that law is enforced only when there
is violation of law. If the person may possesses some good
qualities, but they will not be exempted from actions as per law, if
he violates law of land.
19) It is humbly submitted that in reply to para No.14 to 16, It is
pertinent to state that right to free trade guaranteed under Article
19(1)(g) of the Constitution of India was subjected to reasonable
restrictions. If the modus operandi of the business violates the law
of land, there will be no such right and if such act falls under
cognizable offence, Police have right to initiate criminal action
against such violaters and U/s.149 Cr.P.C. Police have preventive
powers in cognisable offences.
20) It is humbly submitted that in reply to para No.17 and 18, It is
pertinent to state that Hon’ble Minister did not state that the direct
business through sponsoring of members will not fall within the
definition of Money Circulation Scheme. But in the instant case
easy money based on the sponsoring of new members attracts the
provisions of Money circulation Scheme as per the Sec.2(c) of Act.
It is humbly submitted that on the complaint of Reserve Bank
of India, a criminal case vide Cr.No.280/2001 U/s.3 & 4 Prize Chits
and Money Circulation Schemes (Banning) Act, 1978 of Se206 P.S.
of Chandigarh.
21) It is humbly submitted that in reply to para No.19, It is
pertinent to state that the letter of Shri Wajahat Habibullah
Dt.31.3.2003 was annulled by issuing a clarification letter Dt.
23.9.2003 by the said department. Producing the outdated letter
to the Hon’ble Court is nothing but misleading.
22) It is humbly submitted that in reply to para No.20, it is
pertinent to state that the opinion Para No.23 and 25 of the
Hon’ble retired Chief Justice of India, Sri Justice Y.V. Chandra Chud
also says that the scheme of Amway falls under Money Circulation
Scheme.
23) It is humbly submitted that para Nos.21 to 29, it is pertinent
to state that police has a right to investigate a cognizable offence
and the provisions of the Prize Chit and Money Circulation Scheme
(Banning) Act, 1978 are cognizable offence. It is humbly submitted
that just information is enough to launch prosecution in Cognisable
offences. Even if any one has right to trade as per Article 19(1)(g)
of Constitution of India, it is subjected to reasonable restrictions
and if the modus operandi of the business falls within the violation
of laws, generally there will be no right to free trade.
24) It is humbly submitted that the Writ Petition is unrighteous.
It is not bonafide and is devoid of merits and filed to legalise their
illegal acts with misleading and misrepresentation.
25) It is humbly submitted that for all the aforesaid reasons, I
beseech the Highest court of the state to dismiss the Petition.
Solemnly affirmed and signed before Deponentme on this the day 26th April, 2007at Hyderabad.
Before me
Page No. 40 Attestor Corrections.
VERIFICATION STATEMENT
I, S. Ashok Kumar, S/o. Late Sri S. Satyanarayana, aged about
55 years, Deputy Superintendent of Police, Economic Offences
Wing, C.I.D., Hyderabad r/o. Hyderabad do hereby verify that the
contents in paras 1 to 25 of the Counter Affidavit are based on
information and records and believed to be true and correct.
Verified on this the 26th day of April, 2007 at Hyderabad.
Counsel for respondents Deponent
Page No. 41 Attestor Corrections.