I reported a couple of weeks ago about Amway India’s legal challenges, with two states (Andhra Pradesh and Kerala) and an Indian federal body, “The Enforcement Directorate” investigating them. As I noted I thought the claims against Amway were frankly bizarre, but nevertheless Amway can’t afford to do anything but take such cases seriously. Well, now they’ve made a move that they hope will put a stop to the investigations – they’ve removed all registration fees, it’s now free to join with Amway in India. A similar move was made in the United Kingdom during the BERR vs Amway UK case.
The allegations against Amway in India revolved around a law called The Prize Chits & Money Circulation Schemes Banning Act (1978). Like many laws the text is unfortunately almost indecipherable, even for experts, but the claims against Amway revolve around allegations it is a “Money Circulation Scheme”, which is defined in the act in this way -
(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 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;
The act then goes on to ban such schemes -
3. Banning of prize chit 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.
Breaking down the definition, a money circulation scheme is thus either of the following -
- a scheme “for the making of quick or easy money”
- receiving money or something of value for promising to pay money for enrolling people in to a scheme (whether from entry fees or subscriptions)
These are both clearly very broad definitions
. For example, if I say to you “I’ll give you 50 rupee if you pop down the corner and post this letter for me
“. Quick and easy money! Is it a “scheme
” though? What about if I add “and do this every time I have a letter to send”
– that’s a “systematic plan of action”, a scheme, and under this law is a “money circulation scheme” and, if you consider it “quick and easy”, it’s illegal! Absolutely ridiculous.
What’s even more ridiculous is that “quick and easy” is entirely subjective, nowhere defined in the act. In an early case, brought by Amway against the State of Andhra Pradesh a few years ago, the court was of the opinion that money a Diamond earned after many many years of effort building a business asset
was “quick and easy money”.
By this definition virtually any income in India that is not straight trading of “rupees for hours” is illegal. Income from a business, Bollywood royalties, share market dividends, heck even inheritance! All illegal “money circulation schemes”! Ridiculous, I’m sure you’d agree. Do people actually bother to read these laws they write before they enact them? Sometimes I think it’s all just a plot … or should I say scheme … by lawyers to ensure they have a lot of profitable work! Hopefully not quickly or easily.
It’s possible that somewhere along the line there is some case law that has been created by Indian courts that refine this ridiculous “definition”. If there is, let me know!
The second part of the definition, as I’ve interpreted it above, is a bit more akin to normal illegal pyramid scheme definitions around the world. It’s illegal to receive money (or something of value) for promising to pay people for enrolling them in a “scheme” where you (and they) will earn money by enrolling others. A classic pyramid scam in other words.
But wait …. in India it’s not that simple. That’s not all the definition says. It says it’s illegal to collect money for promising to pay money not only for enrolling others, but also “on any event or contingency relative or applicable to the enrolment of members into the scheme”. What exactly does that mean? Well, “contingency” can be interpreted as any related future event, or it can be a future event dependent on the current event. Think about standard multi-level marketing – using the first defintion, a downline purchasing products might be considered a “contingency relative or applicable to the enrolment”, and (assuming you qualify) you might get paid for it. That could therefore be illegal. In the same Andhra Pradesh case I mentioned earlier, the Supreme Court suggested this may be their view. I’d argue that the second definition of “contingency” is what is meant, that an event dependent on enrolling is what is necessary to satisfy the definition. You don’t need to enroll anyone to earn money selling Amway products, and you don’t need to enroll to buy Amway products, so earning an income from sales of products is not contingent on enrolling people. It can happen with or without it.
Still, it’s pretty much at the whim of whatever judge(s) you may have, so it’s prudent of Amway to completely clear this second definition of “money circulation scheme” off the table. With the removal of registration fees, no money (or item of value) is received for promising to pay people for enrolling others - or anything related. That issue is now gone.
I can’t imagine that anyone (apart from the diehard anti-Amway zealots) would pursue the ridiculously broad “quick and easy money” definition, so Amway India should now be free to continue with, as the US State Department recently described it -
“building up the business acumen and human capital of independent distributors; fostering entrepreneurship; recruiting locally, investing in building its workforce abilities, promoting its management staff from within; and fostering an environment of volunteerism.”