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.