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Multi-level marketing schemes illegal: High Court

By Our Staff Reporter

CHENNAI, JAN. 25. The Madras High Court has ruled that the multi-level marketing (MLM) scheme, by whatever attractive name it is called, is illegal, and that the Director-General of Police and other law enforcing authorities must have "a watchful eye on all such activities and take timely action."

Justice A.K. Rajan (who has since retired), dismissing a writ petition filed by Apple FMCG Marketing (Pvt.) Limited, seeking to declare its "network marketing system" legal and not in contravention of the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, said: "This scheme creates a chain of customers and the long and unbroken chain ensures a larger amount of easy money. The shorter and missed links in the chain result in earning lesser commission. Secondly, the person concerned does not get the value of money he pays. Thirdly, the companies collect service charges on the sale of goods. No service charge can be collected while the goods are sold. Apart from that, the MLM results in exploitation of personal influence of each and every distributor or his close relative. If a superior officer or his ward is involved in MLM, the subordinates are forced to become members in the chain."

Police not `interfering'

In its petition, the company complained that the police interfered with their business activities, such as organising seminars. There was no promise of easy money in the business and no complaints had been filed against it. While the Home Secretary said he had been "unnecessarily impleaded" as a party, the DGP denied that the police were disturbing the company's seminars and meetings.

"Persons are lured to become distributors only on the hope or expectation that he may get more money by way of commission if he sells the products. At one point of time, the progress of the chain will stop. Persons who buy the product may not find any further distributor to purchase from them. But by that time, the company would have earned enormous profit. A large number of persons, lakhs or even millions, would be left cheated," Mr. Justice Rajan said.

Successful distributors fail to get themselves registered under the TNGST Act. "The system exploits the personal influence an individual has in the society. The `distributors' are found to influence their subordinates or friends."

Declining to grant any "blanket or omnibus" order in favour of the company, Mr. Justice Rajan said, "there are other comparatively bigger associations or institutions or companies which adopt similar schemes."

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