IN THE HIGH COURT OF JUDICATURE OF ANDHRA RADESH

AT HYDERABAD
(Special Original Jurisdiction)
WRIT PETITION NO: 20471 OF 2006
Between:

1. K. Rajashekar Reddy S/o K. Laxmikanth Reddy

Aged 24 years, R/o Himayathnagar, Hyderabad.

2. DVSL Deepak S/o D Ramachander Rao,

Aged 31 years, R/o 24-87/4 Anand Bagh,
Malkajgiri, Hyderabad 47

3. G V Triveni Prasad S/o G V Chalapathi Rao

Aged 53 years, R/o Picket, Secunderabad.
…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

Secretary, Home Department,.
Secretariat, Hyderabad.

4. The Director General of Police,

Govt. of Andhra Pradesh,
Hyderabad.

5. The Superintendent of Police

CID (Economic Offences Wing)
Hyderabad.

6. The Dy Superintendent of Police (EOW)

CID., Hyderabad.

7. Amway India Enterprises

(a Private Company with unlimited liability)
Having its registered office at C-3, Qutub
Institutional Area, New Delhi -16
…RESPONDENTS

* * *
COUNTER AFFIDAVIT FILED ON BEHALF OF THE RESPONDENT
NO. 3 to 6

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 6th respondent herein authorized to file the affidavit on

behalf of respondents 3 to 5 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 7th respondent company have not
produced the authorization of the petitioner’s company about such
authorization or his legal distribution ship of such 7th 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
enrollment of members into the scheme.

Sl. Name of the How he is elevated

No. title
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 A founders platinum has attained 12 months

Platinum 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 A founders Sapphire is a qualified platinum

Sapphire 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 A founders Emerald is a qualified platinum

Emerald 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 A founders diamond has sponsored six legs,

Diamond 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 An Executive Diamond has sponsored none

Diamond 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 A founders Executive Diamond has sponsored

Executive nine legs, each of which qualified at the 21%
Diamond 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 A Double Diamond has sponsored 12 legs,

Diamond 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 A founders Double Diamond has sponsored 12

Double legs, each of which qualified at the 21%
Diamond 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 A Triple Diamond has sponsored 15 legs, each

Diamond 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 A founders Triple Diamond has sponsored 15

Triple legs, each of which qualified at the 21%
Diamond 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 A Crown Diamond has sponsored 18 legs,

Diamond 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 A founders Crown Diamond has sponsored 18

Crown 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 A Crown Ambassador Diamond as sponsored

Ambassador 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 A founders Crown Ambassador has sponsored
Crown 20 legs, each of which qualified at the 21%
Ambassador 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

PV 100 500 1000 2000 4000 7000 10000

Onwards
% of 3% 6% 9% 12% 15% 18% 21%
level
 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 Amway Sales and Marketing Plan of 6-4-
scheme 3 principle.
ii. There must be a A person enrolled into the scheme of
members of the Amway is called as distributor / Amway
scheme. 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 Amway India Enterprises induces public
i) for the making of through it’s Sales and Marketing Plan to
quick or easy money give easy money by way of huge
a) on any event or commissions on the event of not only on
b) contingency their personal sales but also on the
relative or sales and entry fee (PV obtained on the
c) applicable to cost of products included in the startup
the enrolment of kit) of their sponsored members.
members into the
scheme
or
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 In Amway Sales and Marketing plan,
contingency relative commissions are giving based on the
or applicable to the group sales not on the individual sales,
enrolment of thus the persons who fail to sell the
members into the products on his own but they will be
scheme will however getting commission on the sales of their
not be in any way group members. Thus the money
affected by the fact obtained by way of commissions on the
whether or not such efforts of other persons is nothing but
money or thing is easy money as specified by this
 derived from the condition.
entrance money of
the members of
such scheme or
periodical
subscriptions.

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 1
2 10
3 100
4 1,000
5 10,000
6 100,000
7 1,000,000
8 10,000,000
9 100,000,000
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/AmwayPyrami
dSuit.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/MythofMLMIn
come.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/BangaloreMon
thly.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 Se26 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 Deponent

me on this the 26th day of April, 2007
at Hyderabad.

Before me

Attestor

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. 40 Attestor
Corrections.