1

PRESENTATION ON
MULTI-LEVEL
MARKETING(MLM) FRAUDS
Frauds by some of MLM companies...Newspaper reporting 2

The cheating
and looting of
these MLM
Amway Companies
reached to Rs.3
• Rs.8,000 lakh crore each
Crore year

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

Note:- The list is extending day by days… Deccan Chronicle 21/6/20114

F.I.Rs. AGAINST SOME MLM COMPANIES 3

Southern Wonder World(100 Cr.) Maruthi Motors (200 Cr.)

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

THESE ARE ONLY FEW COMPANIES…..

 HOW MLM COMPANIES TRAP 4

•Want to earn Rs.25,000/- •Jobs to Retired, Youth and

or 1 lakh or upwards. Housewives.
•Foreign Business •Part-Time Business.
Opportunity. •Health Club / Nutrition
•MNC Business Club.
Opportunity. •Resorts promotion
•Your own Business. business.

Work from Part time

home business

No
investment No boss, No
office timings

• Internet Typing Business. • No boss, No targets, No

• Internet ads clicking tensions, No Hassles.
business • Work from home.
• Guaranteed Earn • No 10 to 5 job.
Rs.25,000/- • Earn Extra income from
• Want to lose weight home.
TARGETEES OF M.L.M. COMPANIES AS PER CNN IBN STUDY 5

Unemployed Retired
youth Persons

Poor people Middle Class

Govt.
House wives
Employees

Note:- Misuse of social status and exploitation of social relations is the business of these companies.
 Types of Money Circulation Schemes 6

•Called as
•“Multi Level Marketing”
•“Network Marketing”
•“Referral Marketing”
Product •“Introduction Marketing” etc.

based •Product is showcased in the front end

and in the backend enrollment of
members

Naked

• Called as
“Pyramid” or
Money circulation
“Ponzi” schemes. schemes

• Here only money or

IPOs or cheques
are exchanged

•Product + Naked Money Circulation Scheme = Multi Level Marketing (MLM)

MLM ? •Hence, MLM is nothing but product camouflaged Money Circulation Scheme
 MLM VS TRADITIONAL MARKET 7

1.
Commissions Personal
will be on Retail
Personal Sales
Retail Sales
2.
personal
Enrolling
members

In
Traditional Commissions
in MLM will be 3.
Market on downline’s
enrollment

No. of
Distributorship
is fixed
In MLM
Distributorship
is unlimited
Money Circulation Schemes Banning Act 8

• AP is the first state to • Union of India

enact a law in 1965 constituted James
Raj Committee to
• Later Chandigarh study these schemes
and MP also made
laws

1965 1974

1978
• Indian Parliament
enacted “The Prize
Chits and Money
Circulation Schemes
(Banning) Act, 1978”
1982
• The Act came in
force without any
transitional period
Prize Chits and Money Circulation Schemes (Banning) Act, 1978 9
An Act to ban the promotion or conduct of prize chits and money circulation schemes and for matters
connected therewith or incidental thereto.

Sec.10
Sec.9

•Sec.9:-Offences
are trialable by
This is a
Chief Judicial
Magistrate or
• All offences
punishable
Central Act
Chief under this Act
Metropolitan shall be
Magistrate
cognizable
Sec.8 Sec.2(c)
•State Government
can confiscate
• Defines Money It applies to
Circulation
the properties of
the company.
Scheme entire country

Sec.7 Sec.3
• Power of •Bans Money
Police to
conduct
Circulation This Act came
search and Schemes. in force from
Seizure
Sec.4 to 6 1/1/1983
• Punishments.
 10
Sec. 2(C) – Defines “ Money Circulation Scheme”
The Hon’ble Supreme Court of India divided the definition of “Money Circulation Scheme” for better
understanding in State of West Bengal Vs. Swapan Kumar Guha: (1982) 1 SCC 561. This is the
graphical representation of the same.

Whether or not such

On any event or money or thing
contingency relative derived from
For making of quick or applicable to entrance money of
Any Scheme or easy money enrollment of the members of
members into the such scheme or
by whatever scheme periodical
subscriptions
name called
(Ex. Multi-Level
Marketing, Network Whether or not
Marketing, Pyramid such money or
Scheme, Referral On any event or
For the receipt of any thing derived
Marketing, contingency relative
money or valuable from entrance
Introduction Market or applicable to
thing as the money of the
etc.) enrollment of
consideration for a members of such
members into the
promise to pay money scheme or
scheme
periodical
subscriptions

Personal Explanation: The whole crux is “whether or not”. Due to these words, Sales, Seminars etc fall under the
purview of definition of MCS. It is immaterial whether such money or thing is derived from entrance money of the
members of such scheme or periodical subscriptions or otherwise viz. sales and services, conducting seminars etc.

Event means that may Contingency means that It is immaterial whether money is
derived from Entrance fee, Renewals,
happen may or may not happen Sales, Seminars etc.
 Banned Activity under - Prize Chits and Money Circulation 11
Schemes (Banning) Act, 1978

1. Promote
or conduct

The Hon’ble Division bench of

High Court of AP (2007(4) ALT
808(DB) – Amway Vs. Union of
India – held that (Para 49)-
4. Receive Sec.3 : - 2. Enroll It is a well settled principle of criminal
or remit
any No person as a jurisprudence that no person shall be

money shall:- member presumed to be guilty until his guilt is

proved, but we are unable to accept the
broad submissions of the learned counsel
for the petitioners that till the conclusion
of the criminal case the police have no
power to interfere with the business
activities of the petitioners. Section 7 of
3.
participat the Act empowers the police officer not
e in it below the rank of an officer in charge of a
otherwise police station to exercise all or any of the
powers enumerated therein.
 12
Penalties and Punishments under the Act

Sec.11-The following are exempted

Sec.5. Penalty for from the application of the Act
other offences in
Sec.4. Penalty connection with
for prize chits or
contravening money circulation
the provisions schemes. Like A State Government
Prints, publish, sells,
of section 3. distributes, letting A company wholly owned by a state
Government
premises etc.
A banking company or a banking
institution notified by the Central
Government
Any charitable or educational institution
Sec.6. Offences by companies. notified by the State Government.
[any director, manager,
secretary or other officer of the
company, such director,
manager, secretary or other
officer shall also be deemed to
be guilty of that offence]
HOW TO IDENTIFY THESE SCHEMES…. 13

•Earn money by sitting at •Multi Level Marketing,

homes • Network Marketing,
•referring friends and •Direct Selling, Direct
neighbours. Marketing,
•No boss, No office timings, •chain marketing,
Endless earnings •Introduction marketing,
•Referral marketing,
•Integrated marketing, etc.

By
By Ads Fancy
names

By
By
Commis
Enrolling
sion
pattern
•Promises commissions not
pattern • Sponsoring /
only on personal efforts of Enrolling/Joining/Introduce
joining new members but Binary: - (1:2) endless
also on the efforts of joining enrolling
members by downliners. Trinary:- (1:3) endless
More members more enrolling
commissions. 9-6-3:- (1+9+54+162)
endless
6-4-3:- (1+6+24+72) endless
 14
Court verdicts against MLM in India
 High Court of A.P. (Division Bench)- Amway India Enterprises Vs. Union of India 2007(4) ALT 808 (DB):

◦ From the whole analysis of the scheme and the way in which it is structured it is quite apparent that once a
person gets into this scheme he will find it difficult to come out of the web and it becomes a vicious circle for
him. In any event the petitioners have not specifically denied the turnover they are achieving and the income
they are earning towards the initial enrollment of the distributors, the renewal subscription fee and the
minimum sales being achieved by the distributors as alleged in the counter affidavit. By no means can it be
said that the money which the first petitioner is earning is not the quick/easy money. By promising payment
of commission on the business turned out by the down-line members sponsored either directly or indirectly
by the up-line members (which constitutes an event or contingency relative to enrollment of members), the
first petitioner is earning quick/easy money from its distributors, apart from ensuring its distributor earn
quick/easy money. Thus the two ingredients are satisfied in the case of promoter too. We are, therefore,
of the considered view that the scheme run by the petitioners squarely attracts the definition of
“Money Circulation Scheme” as provided in Section 2(c) of the Act. (Para 35).

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

◦ on a mere reading, indicate that there is no need of any loss or misappropriation of

funds to attract an offence. Mere informing a scheme, which covered under the
money circulation scheme and enrolling members as subscribers, itself is an offence.
It is not necessary to further elaborate on the same, since the Sections are
unambiguous and clearly indicate the acts which attract an offence.
Court verdicts against MLM in India 15

 Supreme Court of India – Kuriachan Chako Vs. State of Kerala (2008) 8 SCC
708:
 The High Court also upheld the argument of the prosecution that the Scheme
was a '"mathematical impossibility". The promoters of the Scheme very
well knew that it is certain that the Scheme was impracticable and inworkable,
making tall promises which the makers of the promises knew trully well that it
could not work successfully. It could work for some time. These schemes are
like "Paul can be robbed to pay Peter" but ultimately when there is a large
mass of Peters, they will be left in the lurch without any remedy as they would
by then have been deceived and deprived of their money. (para 41).

 39.We are unable to agree with the learned counsel. The courts below rightly
held that prima facie case had been made out against the accused both the
ingredients necessary for application of Section 2(c) of the Act are present in
the case on hand. The trial court, for coming to that conclusions' referred to
certain documents. The advertisement clearly declared that a member would
get double the amount when after his enrolment, two members were
enrolled under him and thereafter, 4 other persons were enrolled and after the
enrolled 4 persons, 8 persons were enrolled under them. Thus, only after 14
persons under the first enrolled person become members under the Scheme,
the first person would get Rs.1250 i.e., double the amount of Rs625
(1+2+4+8). The trial court also noted that Kuriachan Chacko (Accused I) who
proposed the project for implementation, described how the project would
work from which also it is clear that the double amount will be given to a
person who purchases a unit only after 14 persons are enrolled
subsequent to him.
 When Sale of goods are justified? 16

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

•As per Section 3 •As per Section 4

of Act: All of Act: All
transactions are transactions are
subject to Section subject to Section
23 of Contract 23 of Contract the Court is of such nature
Act Act regards it as that, if permitted
Transfer immoral, or it would defeat
Sale of opposed to the provisions of
of public policy. any law or
Goods
Property
Act, 1930
Act, 1888
of involves or
implies, injury to
the person or is fraudulent;
Section property of
another; or
Contract 23 of
Act, 1872 Contract
Act It is
•All sales are legal forbidden
• Section 23: by law; or
unless and until
When the transactions
consideration are hit by this
is illegal section

Therefore, even sale of products by MLM companies adopting the Money Circulation Schemes,
becomes illegal under Section. 23 of Contract Act.
 17
Collection of Deposits
S.E.B.I. Act, 1992 – Section. 11AA.Collective investment scheme

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

(2) Any scheme or arrangement made or offered by any company under Collection of deposits are banned under RBI
which,— Act subject to permission of RBI.
(i) The contributions, or payments made by the investors, by whatever name
called, are pooled and utilised for the purposes of the scheme or arrangement;
(ii) The contributions or payments are made to such scheme or arrangement by Under RBI Act, advance for sale is not deposit,
the investors with a view to receive profits, income, produce or property, whether
movable or immovable, from such scheme or arrangement;
hence most companies will issue invoices to
(iii) The property, contribution or investment forming part of scheme or colour their transactions as advances for sales.
arrangement, whether identifiable or not, is managed on behalf of the investors;
(iv) The investors do not have day-to-day control over the management and
operation of the scheme or arrangement.

(3) Notwithstanding anything contained in sub-section (2), any scheme or Companies Act
arrangement—
(i) Made or offered by a co-operative society registered under the Co-operative Sec.58AA – Companies are not authorized to
Societies Act, 1912 or a society being a society registered or deemed to be
registered under any law relating to co-operative societies for the time being in
collect deposits from public, but they can
force in any State; mobilise deposits from their own relatives.
(ii) Under which deposits are accepted by non-banking financial companies as
defined in clause (f) of section 45-1 of the Reserve Bank of India Act, 1934;
(iii) Being a contract of insurance to which the Insurance Act, 1938, applies;
(iv) Providing for any Scheme, Pension Scheme or the Insurance Scheme
framed under the Employees' Provident Fund and Miscellaneous Provisions Act,
1952;
Protection of Depositors Act
(v) Under which deposits are accepted under section 58A of the Companies Act,
1956; Collection of amounts with a promise to return
(vi) Under which deposits are accepted by a company declared as a Nidhi or a it in cash or kind is deposit.
31 mutual benefit society under section 620A of the Companies Act, 1956;
(vii) Falling within the meaning of Chit business as defined in clause (d) of
section 2 of the Chit Fund Act, 1982; There is no exemptions and exceptions to the
(viii) Under which contributions made are in the nature of subscription to a
mutual fund;
definition of “deposit” like RBI Act, SEBI Act and
Shall not be a collective investment scheme. Companies Act.
 18
Food Safety and Standard Act, 2006

(1) No person shall

commence or carry on
any food business except
Section 27 Section 31 under a license.
(Seller (Registration
Seller is Responsibility) Mandatory) (2) petty retailer, hawker,
responsible for itinerant vendor
unsafe or or a temporary stall holder
unhygienic or small scale or cottage
conditions or such other industries
relating to food
business or tiny food
business operator have to
Punishment is minimum Rs.3 register to carry on
lakh fine and three months business.
imprisonment under this Act
for violation of various
commissions / ommissions.
 Indian Direct Selling Association (IDSA) Members
19
Amway is founder member of IDSA. http://www.idsa.co.in/members.html
Tupperware Tianjin Tianshi Oriflame India
India Pvt. India Pvt. Ltd Pvt. Ltd.,
Ltd., Chennai Delhi
Gurgaon

Modicare Max Life Hindustan

Ltd., Insurance Unilever
Delhi Co. Ltd., Network,
Gurgaon Mumbai

K-Link Jafra Ruchi Daehsan

Healthcare Cosmetics Trading
(India) Pvt. India Pvt. Ltd. (India) P.
Ltd., Chennai Ltd., Delhi

Herbalife Elken
International International
India India Pvt. Ltd.,
P. Ltd., Bangalore
Bangalore

CNI Avon Beauty 4Life Trading

Enterprise Products India India Ltd.
(India) Pvt. Pvt. Ltd.,
Ltd., Gurgaon
Bangalore

AMC Altos Glaze Trading

Cookware Enterprises India Pvt. Ltd.
(India) Pvt. Ltd. New Delhi.
Ltd., Ludhiana
Bangalore
 AMWAY India enterprises Case Study 20
• Got F.I.P.B. approval to develop direct selling but not through creating chain of distributors
1994

• Floated “Indian Direct Selling Association (IDSA)” wherein Amway is founder member, for
1995 lobbying with government

• Started “Amway Opportunity Foundation” to attract the general public in the name of charity
1996 programmes.

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

• Started its commercial activity of promoting illegal money circulation scheme

1998

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

•C.I.D. Police registered criminal case against Amway and seized its offices
2006

• Hon’ble Supreme Court (SLP 13414/2007) found prima facie in the scheme of Amway and
2007 directed police for action

• The Govt. of A.P. vide GO Ms No.178 Dt. 15/9/2008 directed Amway to restrain from issuing
2008 advertisements and also directed to confiscate the same.

• Kerala State Police booked cases and arrested CEO, AMWAY and other Directors
2013

• AP Police booked cases and arrested CEO AMWAY for promoting illegal money circulations
2014
 Amway Business opportunity :- www.amway.in
Amway Business Opportunity
• Are you working towards a better
life for you and your family?
• Are you in control of your future?
• Are you getting the rewards your
hard work deserves?
• Your life doesn't have to be a trade-off between
making the money you need and having the
flexibility and time to live your life to the fullest.
• The Amway Sales and Marketing Plan puts you in
control, allowing you the flexibility to work where
and when you want, giving you time for family and
friends as well as the opportunity to earn a good
income. It adapts easily to your needs and
ambitions, and grows with them, offering you all the
personal support and assistance you require to
become the Business Owner you want to be.
http://www.amway.in/Articles/Article.aspx?pid=3e3b
6905-209e-442e-b8a8-
9a0980241c6p&ctg=CompanyProfile
21
Sales and Marketing Plan
• The Amway Sales and Marketing Plan is a low risk,
business opportunity that is open to everyone. It
allows you to build your business through retailing
products and sponsoring other people who, in turn,
can retail products and offer the business
opportunity to others. By passing your sales and
marketing knowledge to your developing team, you
not only build your own business network but also
enable others to build one of their own. -
http://www.amway.in/Articles/Article.aspx?pid=3e3b
6905-209e-442e-b8a8-
9a0980241c6w&ctg=CompanyProfile
How to Join?
Starting your own business
There is no cost of Starting the Amway business. You need to
be sponsored in the business by an already existing Amway
Business Owner.
Amway business opportunity is flexible, it can taken as a
part time or full time business. It is accessible virtually by
anyone interested in operating an independent business.
The Amway Opportunity works in two-fold. Giving you a
chance to build your own business at your pace and
achieve the rewards and recognition linked to the plan and
at the same time helping other people do the same.
http://www.amway.in/Articles/Article.aspx?pid=64a9cdcc-
1afa-4d82-ada1-35c7fa297bd1&ctg=CompanyProfile
 Amway Recruiting seminars... 22

All transactions are

Joining one
done by using PV and person is shown
BV. PV means Point as business of 50
Value while BV means
Business Volume. PV is PVs
nothing but dollar while
BV is Indian Rupee
Value.

If a member fails to Amway does not

get 50 PVs in a conduct seminars on
its own. It will be done
month, he is denied by its sister concerns
his monthly like BWW, Yager,
commissions Duxter etc

During these
seminars mass
recruitment will take Joining fee
place by putting may be paid
undue influence within 60 days.
using brain wash
techniques.
Points will be given
for bringing persons
to these seminars
and these points will
be converted into
commissions.
 23

------Contingency-------

Source : - www.amwayindia.com-images-SalesMarketPlan.jpg
Through this plan Amway is inducing to give Rs.56,925/- for enrolling / sponsoring 102 members with merchandise of products worth
Rs.4,500/- (100 PV of each member). In traditional market for merchandise of products worth Rs.4,500/- of one can get Rs.5,000/- or
Maximum Rs.9,000/-, but not Rs.56,925/-. It also promises to Give Rs.6,83,100/- per annum if this contingency extends .Thus the money
above earned belongs to the efforts of down line members thus this money is earned without personal efforts, hence it is easy money.
Note : - If it is not possible, then giving advertisements and promises are nothing but Cheating the public.
 Amway Rules of conduct 24
2.1.5 “Amway Sales and Marketing Plan” means the plan provided in the
2.1.5 “Amway Amway Business Starter Guide detailing Amway’s performance incentive
systems, sponsoring procedures and guidelines, requirements, systems,
Sales and procedures and policies regarding the presentation of Amway Products,
Marketing Plan” the Amway business and the management of an Amway organisation, as
amended from time to time by Amway and of which these Rules are a part.

2.1.18 “Line of 2.1.18 “Line of Sponsorship” shall include in an ascending manner the
Sponsor of a Distributor, the Sponsor’s Sponsor, and so forth and shall end at
Sponsorship” Amway.

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

8.5 No Obligation to Purchase: No Distributor shall represent that there is any

8.5 No obligation to purchase products and/or services under the Amway Sales &
Marketing Plan, nor shall he/she represent, purposely allow or gain from any
Obligation to representation or implication that benefits may be derived solely from the purchase
Purchase of Amway products or services in conformity with the Amway Sale and Marketing
Plan.

To be entitled to earn a Performance Bonus on downline volume during a

given month, an Amway Business Owner who qualifies at any performance
level in a month must have at least 50 PV of personal purchases of Amway
products for retailing in that month. If such ABO fails in any month to make
4.19 Retail effort
such purchase he will be denied the applicable Bonuses & Commissions for
that month on downline volume which will then pass up and shall be paid
to the next eligible upline ABO who has done the requisite 50 PV of personal
purchase in that month for retailing.
 Promise of commissions by Amway 25

Distributors buy Amway products at Distributor

Acquisition Price (DAP) and may resell products at
(a) Retail Profit a retail price, not to exceed the maximum retail
Margin: price, as published. In this case, the Distributor’s
income would be the difference between the DAP
and retail price.

In accordance with Amway’s Performance Bonus

(b) Commission Schedule (6% - 21%) a Distributor may earn
Commission/
on Personal commission on the volume of the Distributor’s
Incentives individual purchases of Amway products during
Purchases:
the month.

A Distributor may recruit a sales group and based

(c) Commission on the success and productivity (as defined by
on Group Sales: product sales) of the sales group, a Distributor may
earn commissions.

If you along with your Group sell Amway Your Group Total Points would be Point This purchase of Amway products for
products equivalent to Business Volume Value (PV) for Amway products sale will make you and your Group
(BV) (Business Volume (BV) is equal to purchased. (Point Value (PV): Every entitled to volume based
the Distributor Acquisition price (DAP) of Amway product has denominated discount/commission on Business
Amway products minus Taxes). points which you get upon purchasing Volume.
Amway products for sale).
22,800 300 6%
76,000 1,000 9%
1,52,000 2,000 12%
3,04,000 4,000 15%
5,32,000 7,000 18%
7,60,000 10,000 21%
Current PV:BV ratio is 1 PV = 76 BV and is subject to change.
*50 Personal PV required to become eligible for commission on group sale. (Refer rule 4.19).
Is there no joining fee in Amway scheme? 26

Enrolment application form of Amway

 Ban on advertisement relating to efficacy of products 27
FOOD SAFETY AND STANDARD ACT 2006
24. Restrictions of advertisement and prohibition as to
unfair trade practices.
(1) No advertisement shall be made of any food which is
misleading or deceiving or contravenes the provisions of
this Act, the rules and regulations made thereunder.
(2) No person shall engage himself in any unfair trade
practice for purpose of promoting the sale, supply, use
and consumption of articles of food or adopt any unfair
or deceptive practice including the practice of making
any statement, whether orally or in writing or by visible
representation which -
(a) falsely represents that the foods are of a particular
standard, quality, quantity or grade-composition;
(b) makes a false or misleading representation
concerning the need for, or the usefulness;
(c) gives to the public any guarantee of the efficacy that
is not based on an adequate or scientific justification
thereof:
Provided that where a defence is raised to the effect that
such guarantee is based on adequate or scientific
justification, the burden of proof of such defence shall lie
on the person raising such defence.
The Drugs and Magic Remedies (Objectionable
Advertisements) Act, 1954
3. Prohibition of Advertisement of Certain Drugs for
Treatment of Certain Diseases and Disorders……..
4. Prohibition of Misleading Advertisements Relating to
Drugs.–
Subject to the provisions of this Act, no person shall take
any part in the publication of any advertisement relating
to a drug if the advertisement contains any matter which –
a) directly or indirectly gives a false impression regarding
the true character of the drug; or
b) makes a false claim for the drug; or
c) is otherwise false or misleading in any material
particular.
5. Prohibition of Advertisement of Magic Remedies for
Treatment of Certain Diseases and Disorders.– No person
carrying on or purporting to carry on the profession of
administering magic remedies shall take any part in the
publication of any advertisement referring to any magic
remedy which directly or indirectly claims to be efficacious
for any of the purposes specified in section 3.
Amway Products 28
1. State Food Laboratory, Nacharam, Hyderabad,
Telangana after analyzing products opined that,
nearly 24 products of Amway are not food,
misbranded and some are adulterated. Amway is
facing criminal trial in Criminal Court, Hyderabad
in this regard.
2. District Consumer Forum of Vijayawada, Andhra
Pradesh after enquiry fined Amway and in turn on
appeal State Consumer Forum AP Hyderabad
upheld the same. Now the matter is in National
Commission.
3. Union of India issued a Circular prohibiting sale of
dietary supplements as food.

Lr. No. P-15015/6/2003

Director General of health services, New Delhi
Nirman Bhavan
Dated 12th January, 2004
All State/UTs. Food (health) Authorities.
Sub: Sale of food supplements under PFA Rules 1995 – Licensing – Regarding.
***
Madam/Sir,
A number of food supplements / dietary supplements / herbal
foods are being marketed with or without medicinal claims. These products are
mostly in capsure or Tablet form with dosage level given on the label.
The Department of Indian System of Medicines & Homeopathy in
the Ministry of Health and Family Welfare is formulating a legislation ‘Draft Health
Food Supplement Bill’ to regulate manufacture, sale / distribution of dietary
supplements / health food supplements, neutraceutical and herbaceuticals which
do not fall under the definition of ‘food; as defined under PFA Act, 1954.
Hence, you may inform all PFA Licensing Authroities under your
control to take action accordingly.
The receipt of letter may please be acknowledged.
Yours
faithfully,
Sd/-
(Dr. B.K. Mahajan)
Assistant Director General (PFA)
Copy to: All Central Food Laboratories / All Public Analysts
 Claim of Central Govt. permissions 29

GOVERNMENT OF INDIA
MINISTRY OF FINANCE & COMPANY AFFAIRS 1994 – FIPB Permission was given to develop
DEPARTMENT OF ECONOMIC AFFAIRS, BANKING DIVISION direct selling. But not to create chain of
LOK SABHA distributors.
UNSTARRED QUESTION NO. 4889
TO BE ANSWERED ON THE 20TH DECEMBER, 2002/AGRAHAYANA 29, 1924 (SAKA)
RBI ACTION AGAINST AMWAY INDIA
QUESTION
4889. SHRI RAVINDRA KUMAR PANDEY: 2002 – RBI filed Criminal Case against
DR. S. VENUGOPAL: Amway for promoting illegal money
DR. M.V.V.S MURTHI: circulation scheme.
SHRI RAM MOHAN GADDE:
Will the MINISTER OF FINANCE AND COMPANY AFFAIRS be please to state:-
a) Whether any observations has been passed by RBI against AMWAY India and its 2002 – Honourable Minster for Finance
promoter’s company. and Company Affairs Minister made
b) if so, the details of observation passed by the RBI against this company; statement in Parliament that the
whether the said company is involved in violation of various rules; scheme of Amway is creating chain of
if so, the details thereof; distributors falls under the mischief of
whether some members of parliament and investors Association brought to the notice of PCMCS Act, 1978.
RBI and Government regarding the violations committed by the said company; and
if so, the details of action taken by the Government against this company?
ANSWER 2003 – On the letter of CEIB, the Ministry
MINISTER OF STATE IN THE MINISTRY OF FINANCE & COMPANY AFFAIRS of Consumer Affairs clarifies that their
(SHRI ANANDRAO V. ADSUL) letter saying network marketing does not
(a),(b),(c)&(d): Reserve Bank of India (RBI) has reported that it had examined the scheme fall under PCMCS Act, 1978 and further
of M/s. Amway India Enterprises (AMWAY) in March 2001 and again in May
their letter does not cover pyramidal
2002 aiming at creating a chain of distributors and taken a views that the said
structure marketing.
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. 2007 – In Rajya Sabha it was informed by
The offences under the said Act are cognizable and the police authorities of the
Central Govt. that AP Police are
concerned State Governments have to investigate and take a view whether the
scheme of Amway India attract the prohibition under the said Act.
investigating Cases against Amway.
(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.
 What's the way for Amway? Conflicting laws about 30
direct selling cos - G. Chandrashekhar MUMBAI, Dec. 31, 2002
……………………………………………………………………… The State police authorities have to investigate and take a view whether the
scheme of Amway India attracts the prohibition under the Act. What if the police decide that direct selling is not
violative of the law?
In that case what is the sanctity of RBI's findings? Ironically, police in different States can take different views. How
will the company Amway function? Wait for the answer.
MISUSE OF LETTER ISSUED BY CONSUMER SECRETARY BY MLM COS SUBSEQUENT CLARIFICATION LETTER ISSUED BY CONSUMER SECRETARY

Wajahat Habibullah Government of India F. NO. 21/(22)/IT/2001

SECRETARY MINISTRY OF CONSUMER AFFAIRS, FOOD AND
Phone : 23782807 PUBLIC DISTRIBUTION
Department of consumer Affairs
Fax : 23384716
KRISHI BHAWAN, NEW DELHI-110001
March 31, 2003
Subject: Inapplicability of the provisions of the Prize
Chits and Money Circulation Scheme (Banning) Act, 1978
to direct/net work/multi level marketing.
…..
A number of representations have been received by this
Department regarding alleged harassment of companies dealing with direct/net
work/multi level marketing by the Police authorities in various States/Union
Territories. Very often the provisions of the Prize Chits and Money Circulation
Scheme (Banning) Act, 1978 are invoked against these companies. We have
examined these issues in detail, including consulting the Ministry of law, regarding
the applicability of the said Act to these companies. It is our considered view that
the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978
are not applicable to companies dealing with distribution of goods including multi
level/net work marketing companies. Interpretation of various judgments by the
Hon’ble Supreme Court [(a) State of West Bengal Vs. Swapan Kumar Guha (1982) 1
SCC 561; (b) Srinivasa Enterprise Vs. UOI. (1980) 4 SCC 507; and (c) Reserve Bank of
India Vs. Peerless Co. (1987), 1 SCC 499)] implies that activities of direct/net
work/multi level marketing do not fall within the provisions of the aforesaid Act.
In light of the above, I would request you to kindly instruct the
officials concerned to distinguish between Companies dealing with activities
coming strictly under the purview of the above Act and those such as direct/net
work/multi level marketing dealing in distribution of goods so as to avoid
harassment and commercial losses to bonafide investors.
With regards. Yours sincerely, Sd/-xxxxxxx
Chief Secretaries of All States & UTs
(Wajahat Habibullah)
Copy for information to:- Shri N. Gopalaswami, Secretary, Ministry of Home Affairs,
North Block, New Delhi.
Sd/-xxxxx (C.K.G. Nair) Director.
Government of India
Ministry of Consumer Affairs, Food & Public Distribution
Deptt. of Consumer Affairs
Shastri Bhavan, New Delhi.
Dated: 23.9.2003.
To
MS. Sunitha Kalla,
Dy. Director General & Joint Secretary,
Ministry of Finance, Department of Revenue,
Central Economic Intelligence Bureau
6th Floor, ‘B’ Wing, Janpath Bhavan,
Janpath, New Delhi 110 001.
Subject: Applicability of the Provisions of the Prize Chits and Money Circulation Schemes
(Banning) Act, 1978 to pyramid marketing structures/schemes – Regarding.
…..
Madam,
I am directed to refer to your D.O. Letter No. 301/15/200-CEIB (Pt-II) dated
the 22nd September, 2003 addressed to Shri Wajahat Habibbullah, Secretary (Consumer
Affairs) on the subject mentioned above and to say that this Department was considering the
issue of direct selling/network/multi-level, marketing as an alternative form of marketing of
goods and the entire issue was looked from that angle. However, subsequent feed
back/response have showed that companies using pyramid structured marketing
techniques too sell their products putting forth their schemes based on the
clarification issued vide D.O. letter of even no dated the 31st March, 2003
claiming that their activities also do not fall within the provisions of the Prize Chits
and Money Circulation Schemes (Banning) Act, 1978. It is clarified that this
Department’s clarification of even number dated 31st March, 2003 does not cover
pyramid structured marketing schemes. That area also does not fall within the
purview of this Department.
This issues with the approval of Secretary (CA).
Yours faithfully, Sd/-xxxxxxx (Alice Chacko) Under Secretary to the Government of India.
Copy to: Chief Secretaries of all States and UTs.

Source: http://www.thehindubusinessline.in/2003/01/01/stories/2003010102040600.htm
 Is Amway doing direct selling? 31
“Direct selling” means no middle man in between Company and End consumer.

Referred as
Indian laws Retailer
Direct seller

Amway A.B.O.
•Sells products to •Sells to consumer End consumer
ABO <20% of MRP with 20% retail profit

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

The above clearly indicates that AMWAY has not been indulging in direct selling due to involvement of
middlemen i.e. ABOs/IBOs
 Truth in Amway Claims…. 32
No Joining Fee Direct selling Co.
100% Return of
(to be paid in 60 days) (Amway is not direct
Products
Amway says there is selling Co.)
(It is not true)
no joining fees, but
term No.9 of Non-member can not
This is subject to be allowed to purchase
Application says
deduction of Taxes directly from Amway.
within 60 days, have
and PVs. Apart from Sales will be through
to make 50 PVs. This ABOs. In direct selling
the approval of
is nothing but what is role of
upline members.
entrance fees. ABOs(middle men).

Collected Collected
Investment-Rs.18 Cr Recruitment Fee Renewal Fee 40 Cr –
450 Cr. Siphoned of 8K Cr.
As per RBI, from
1/1/1991 to Taken away Rs.450 Getting Rs. 40 cr
30/11/2006, Amway Crore only on initial every year on
brought only 18 recruitment of Renewals. This is in
Crore from Amway members addition to
Mauritius Develop
(Rs.4500 entrance x recruitment of
company, Mauritius.
10 lakh members) members.

Employment
(This is not Business
and employees are
not necessary)
. Huge amount is
Employees are only in 100s
while members are more
than 10 lakhs. These
members are not
employees but consumers
as per Amway.
Illegal Payments to
Foreigners without
RBI Registration.
siphoned out to foreign
countries in the name of
commissions to upline
members without RBI
Registration of these
persons.
Stubborn Attitude
Amway req. for rules
and even after
guidelines by Kerala
State Govt., Amway
did not change its
business model.
 Is Amway facing problem in AP only?... 33
Kolkata High Court
- WP 229/2011
Amway secured police protection from high court
against disturbances being caused by victims of
RBI gave complaint in Amway
Chandigarh
Sector 26 PS
Delhi resident lodges police complaint against
Amway India

A Delhi resident has lodged a police complaint

Delhi Police registered FIR
Ramji Ramachandra wrote
AMWAY Bengaluru an article against Amway
on behalf of victims.
accusing Amway India of being involved in a scam
allegedly worth over Rs.2000 crores.
According to the complainant, Kiran Pal, key officials of
Amway India, including Pinckney and Chief Marketing
Officer Sundeep Shah, allegedly adopted restrictive
trade practices that resulted in misrepresentation, and
the sale of inferior quality health, beauty and nutritional
products.
…Business Standard – 16/3/2014

Madras High Court

Several cases were booked
• In Radhakrishnan Alias R.K. vs The State And Anr.-HC
Kerala against Amway and CEO,
Amway was arrested suo moto ordered to register case against Amway
and MLM companies - 2003 CriLJ 4167

• In Gold quest case CRL.O.P.

No.2347 of 2003 -
During Trial in Gold Quest Nalini Chidambaram requested HC to register
Case Mrs. Nalini
Chidambaram asked case against Amway based on her affidavit.
Chennai Madras High Court to
register FIR against Amway Kerala State
based on her affidavit.
• All Amway offices were seized by Police and
also arrested CEO and two directors of Amway.

These are some of examples…… • Further Amway even violated the guidelines
framed by the Kerala Govt.
 34
Is it possible permanent employment with MLM ?

Amway CEO confessed before Kurnool Police that, 50% of

members dropout every year from the scheme.

After analysis of criminal cases, it emerged that one person will

get benefit with the loss of 4 persons.

Getting commissions based on enrollment of members in the

name of business is illegal as per Sale of Goods Act.

Nearly 200 MLM companies are vanishing every year after

cheating the public.

The Supreme Court also held in Kuriachan Chacko Case (2008)

that, this is nothing but “Rob Paul to pay Peter” Schemes.

Thus employment in MLM is nothing but a mirage……

 Is there any ambiguity in PCMCS Act ? 35

Kuriachan Chacko
Supreme Court, Upheld action
Case & Amway
India under PCMCS Act
Case

Gold Quest, Apple

Upheld action
Madras High Court FMCG, V-Can
under PCMCS Act
Network, etc.,

Amway, Speak Uphled action

High Court of AP
Asia, N Mart, etc., under PCMCS Act

PCMCS Act, 1978

Delhi High Court Uphled action under PCMCS Act

Karnataka High
Uphled action under PCMCS Act
Court

Jaipur High Court Uphled action under PCMCS Act

When Most of High Courts in India and Hon’ble Supreme Court of India did not find
ambiguity in the Act, where is the question of ambiguity in PCMCS Act, 1978……

AP State Gazette restraining Amway from issuing Ads
GOVERNMENT OF ANDHRA PRADESH
ABSTRACT 36
Investigation of case against M/s Amway India Enterprises – Issue of Notification under Section 8 of the
Prize Chits and Money Circulation Schemes (Banning) Act, 1978 – Orders- Issued
-------------------------------------------------------------------------------------------------------
HOME (GENERAL-B) DEPARTMENT
GO Ms No. 178 Dated:15-09-2008
Read: Letter Rc. No.121/A2/2008, dated: 26-05-2008 of the Director General of Police, Andhra
Pradesh, Hyderabad.
***
ORDER:
Whereas the Director General of Police, Andhra Pradesh, Hyderabad, in the reference read above has
informed that investigation in the case of M/s. Amway India Enterprises has been finalized and charge
sheet has been filed on 24-01-2008, in the Court of Hon’ble Chief Metropolitan Magistrate, Hyderabad,
vide C.C.No.125/2008, and requested the Government, to issue Notification under Section 8 of the
Prize Chits and Money Circulation Schemes (Banning) Act, 1978, in the official Gazette declaring every
copy of the Newspaper and every copy of the publication / websites containing such material or the
advertisement connected with any prize chit or money circulation scheme promoted or conducted in
contravention of the provisions of this Act or any advertisement or in relation thereto, to be forfeited to
the Government of Andhra Pradesh.
2. And whereas, the Government have carefully examined the proposal of the Director General of
Police, Andhra Pradesh, Hyderabad, and after careful consideration have decided to issue a Notification
in the Official Gazette of Andhra Pradesh, to declare every copy of the Newspaper and every copy of
the Publication / containing such material to be forfeited to the Government of Andhra Pradesh which is
connected with the propagation or otherwise under the Prize Chits & Money Circulation Schemes
(Banning) Act, 1978.
3. Accordingly the following notification shall be published in the next Extraordinary issue of the Andhra
Pradesh Gazette.
NOTIFICATION
In exercise of the powers conferred under section 8 of the Prize Chits and
Money Circulation Schemes (Banning) Act, 1978 (Central Act No.43 of 1978),
the Government of Andhra Pradesh hereby notifies that the “Amway India
Enterprises” is hereby restrained from publishing any material /
advertisements containing such material connected with any Prize Chit or
Money Circulation Scheme, promoted or conducted in contravention of the
provisions of the Act, and declare every copy of the Newspaper and every copy
of the publication containing such material or the advertisement to be forfeited
to the State Government of Andhra Pradesh
(BY ORDER AND IN THE NAME OF THE GOVERNOR OF ANDHRA PRADESH)
AJOYENDRA PYAL,
PRINCIPAL SECRETARY TO GOVERNMENT
To
The Commissioner of Printing, Stationery & Stores Purchase,
Andhra Pradesh, Hyderabad (with a request to publish the Gazette Notification and to furnish 500
copies of the Gazette to the Government immediately)
Copy to:
The Director General of Police, Andhra Pradesh, Hyderabad
The Additional Director General of Police, CID, A.P, Hyderabad
The Law (E) Department
//FORWARDED::BY ORDER//
SECTION OFFICER
 37
Does MLM members come under Consumer
Protection Act ?
Company
• MLM Companies enroll members as their
distributors
Consumer Distributor
• In the case of Amway, All the members of
Amway are its distributors.

• Amway sells products to ABOs for Consumer Civil Court

Case
retailing as ABOs are retail distributors.
Thus ABOs i.e. members of Amway are
not end-consumers but they sell for retail
profit. Being distributor
Amway
Member = not eligible to
Business
Distributor approach
owner
• As per Consumer Protection Act, only Consumer Court.

end-consumers will get protection under

the Act not the retailers/distributors.

Thus members of MLM company being distributors of the company does not cover under
Consumer Protection Act.
38