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G. Chandrashekhar

MUMBAI, Dec. 31

IN matters that engage different ministries and departments of the Government, it has often been said, not without justification, that one arm of the Government does not know what the other is doing.

One more glaring instance of two arms of the same Government taking two different and apparently conflicting views has now come to notice. The question engaging the attention of the Government is whether direct selling or network marketing of consumer products is violative of a law called `Prize Chits and Money Circulation Scheme (Banning) Act, 1978'.

Amway India Enterprises operates a scheme aimed at creating a chain of distributors for its household consumption products. After examining the Amway scheme in March 2001 and May 2002, the Reserve Bank of India (RBI) took the view that "the said scheme appears to be a prize chit or money circulation scheme as defined and prohibited under Prize Chits and Money Circulation Scheme (Banning) Act, 1978".

The offences under the said Act are cognisable and the police authorities of the concerned State Governments have to investigate and take a view whether the scheme of Amway India attracts the prohibition under the said Act.

Through its US headquarters, Amway had made a 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 had advised the Embassy that "Amway's activities appear to attract the provisions of the Prize Chits and Money Circulation (Banning) Act, 1978". Giving facts of the case, Mr. Anandrao V. Adsul, Minister of State in the Union Ministry of Finance, informed the Lok Sabha that RBI has forwarded a report in this regard to the police authorities who are empowered under the Act to take necessary action.

Rather interestingly, in the same house (Lok Sabha) on the same day (December 20), Mr. V. Sreenivasa Prasad, Minister of Sate in the Union Ministry of Consumer Affairs, Food and Public Distribution, answered a question on a similar matter.

Admitting that the Government had received proposals from the Indian Direct Selling Association (as well as some private parties) requesting the enactment of a separate legislation to cover direct selling/multi-level marketing/network marketing, the Minister said the main contention of the representation was that members of the Association were being targeted due to the vagueness of the Prize Chits and Money Circulation (Banning) Act, 1978 in distinguishing between prize chits funds and genuine agencies involved in direct marketing.

He went on to clarify the position by stating that the matter had been examined in detail in consultation with the ministries concerned. "The need for a separate legislation was not felt in view of the fact that there are adequate provisions available in the Sale of Goods Act, 1930 (for regulating the sale of goods); and the Consumer Protection Act, 1986 (to promote and protect the rights of consumers)," he said.

"The provisions of the Prize Chits and Money Circulation Scheme (Banning), 1978 seek to ban the promotion or conduct of prize chits and money circulation schemes. The provisions of the Act had come up for scrutiny before the Supreme Court of India which ruled that the `Network Marketing Plan' and direct sale of goods and services by the direct selling companies do not fall within the mischief of the aforesaid Act," the Minister added.

The two apparently conflicting replies from two different ministries on the same subject of direct marketing has left many confused. The key question is whether or not the ratio laid down by the Supreme Court is applicable to the functioning of Amway.

The RBI may find itself on a sticky wicket following its findings. How it will respond to the two varying views remains to be seen. Will the RBI stick to its stand or relent? If it is the former, the RBI will have to distinguish its perception of Amway's working from the issues on which the highest court ruled.

The law as it stands has the potential to create very funny situations. Assume RBI sticks to its stand and holds that Amway's working is indeed violative of the law. What happens then to the ratio laid down by the Supreme Court?

Another possibility. 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.

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