TIOL-DDT 351 · the untouched capture
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<p><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT
351</font></b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><br>
28 04 2006<br>
Friday</b></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Is
multi-level marketing (MLM) like Amway illegal?</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is very difficult to avoid the messengers
of Multi Level Marketing who feel very sorry for your inability to understand
that you can make a couple of lakhs a month by selling three bottles of an Amway
product instead of struggling not knowing what to write in DDT. Success stories
are fed into eager ears where ordinary clerks who could not afford a bicycle
are now going round in imported cars all because they were and are able to sell
three packets of detergent or three tins of those protein powders. How much
does a packet of detergent cost? Rs. 600/-! But is it not 20 times more than
your normal packet?. But don't grumble; you are going to make your lakhs. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The whole idea is, you find three unsuspecting
victims who will buy that washing soap for Rs. 600/- each. And assume you get
a commission of 10% - you get Rs. 60/-. But where do you get the lakhs from?
Before you can say MLM, those three will sell to three each and each of those
nine will sell to three each and by the time you finish hearing the talk, the
whole world is selling that 600 rupee soap and your cash registers are jingling
with lakhs of rupees. What are you waiting for? Jump into the MLM circuit –
it is multi level money making. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Who are into the fray? Unsuspecting housewives
who are lured into making those millions sitting at home. The underpaid government
employee who has connections with the public and can use it to sell those three
pieces of soap to make millions. Well – paid government officers who can influence
people into buying the initial kit for Rs. 4000/- so that millions come rolling
in. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But do they really make all the money? Studies
have proved that the average income of the MLM players is Rs. 1000/- a year!
If you take into consideration the number of soaps they themselves use, on an
average almost every one ends up in a loss. Of course the initial players do
make some money – they are the classic exception. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have nothing about people making millions
or losing their valuable time and hard earned money in these schemes, but the
important point is, the whole scheme is illegal. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
India , money circulation schemes are banned under the <strong>Prize Chits
and Money Circulation Schemes (Banning) Act, 1978.
</strong>Section 2 (c) of the Act defines a money circulation scheme as, </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>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. </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But can making quick money be an offence? The
Supreme Court considered this issue in <em>State of West Bengal Vs Swapan Kumar
AIR 1982 SC 949 </em>and reproduced the definition without adding or deleting
a comma or word but in a different shape to make the meaning clear:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">‘money circulation scheme' means any scheme
by whatever name called, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) for the making of quick or easy money, or
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) for the receipt of any money or valuable
thing as the consideration for a promise to pay money, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 member of such scheme or periodical
subscriptions; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But is it not unconstitutional to restrict freedom
of occupation? The Supreme Court considered this issue in <i>Srinivasa Enterprises
Vs Union of India</i> and observed, <strong>"Can you save moths from the
fire except by putting out the fatal glow?” </strong>That explains everything!
The <st1:Street w:st="on">Apex Court further observed that these schemes are
prejudicial to the public interest and also adversely affect the efficacy of
fiscal and monetary policy. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Then what are the consequences? </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• The offences are cognizable. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• A police officer can enter premises, search,
seize and arrest. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Imprisonment up to three years or fine or
both </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Minimum imprisonment of one year </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Who are liable? Any person who </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Promotes or conducts any money circulation
scheme </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
• Enrolls as a member to any such scheme </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">•
participates in it otherwise </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">•
receives or remits any money in pursuance of such scheme </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In spite of such grave risks why and how do
these schemes continue? That's what money is all about. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">How are we interested in all this? A recent
judgement of the Karnataka High Court which we are carrying today again considered
the issue. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There was a time when a smuggler who was caught
by Customs could claim the loss as business loss under Income Tax. But later
the law was amended to bar deduction for an activity which was illegal. The
Karnataka High Court held that <strong>Deposit linked incentive scheme is “money
circulation scheme” </strong>and is illegal under the 1978 Act. </font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Third degree methods
- are they effective? </font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is easy to obtain a statement by thrashing
the deponent, especially in Customs matters as the statement has a lot of validity.
Police officers are notorious for beating up any one who is called to a station,
but premier investigation agencies like DRI are accused of routinely using third
degree to extract a statement. It is true that you can get a statement far more
easily by a few slaps rather than polite questioning. But who has given you
the power to beat another human being? If the man whom you beat has committed
an offence, are you not committing an offence by beating him?. So ultimately
it is one criminal beating another. If the smuggler has to go to jail for smuggling,
the officer who beats him also has to go to jail for physical assault. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But why should perfectly normal lovable human
beings suddenly start beating up people once they join organizations like DRI?
Is it an urge to perform? Is it an expression of the sadistic side of his life?
Or is it the belief that nothing will happen to <strong>ME</strong>! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But once in a way something does happen - like
somebody dies in custody after a brutal interrogation. All hell is let loose.
The department gets a very bad name and some officers will spend a few traumatic
years. Is it worth it? Our super sleuths in DRI and other agencies should ponder
over this. </font></p>
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<TD><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><B><I><strong><b><font color="#000099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ACTUS
CURIE NEMINEM </strong></font><i>- </i></b></strong></I>an
act of a court shall prejudice none</B></font></TD>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By
applying this principle, the High Court of Kerala in <em>Gopala Vijayan v.
Raveendran </em>(1999 (2) KLT 47) held that “inherent powers of the court
can be exercised where a party is injured by the Act of court and further
held that the court is justified in the interest of justice to invoke inherent
powers under S. 151.</font> </p>
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<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend. </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com"><b>vijaywrite@taxindiaonline.com</b></a></font></p>
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