The Ministry of Consumers Affairs has taken a right decision in preparing an advisory issuing the model framework to prepare guidelines by the State governments and Union Territories to expose the illegal activities of the direct selling companies which are in fact indulging in illegal money circulation schemes in the guise of selling products and services. It exposed the true colours of the direct selling companies in general and Amway in particular. With the help of the model framework, now it is easier to pinpoint the illegal activities of these companies.
It has prohibited entry fee/registration fee charged by the companies to enroll members and also collection of renewal fee every year. It may be recalled that the AP High Court pointed out that the Amway has been illegally lining its pockets by charging registration fee and renewal fee from the members which is nothing but easy and quick money. Though the new set of guidelines is almost similar to the guidelines issued earlier, there are only thin differences.
The pyramid scheme is clearly defined in the model framework. Moreover, it prohibits compulsion of these companies to purchase huge quantities of goods which is detriment to the interest of the consumers. These companies encourage the members to stock in large quantities offering commission of 40 per cent or more. They are also compelled to take back the products if the consumer is dissatisfied. However, it should have been made clear that the companies should directly take back the products instead of the present practice of returning through the upline members.
The companies also need to provide a grievance redressal mechanism to solve the grievances in a time-bound manner. In view of the framework, it would be easier for the aggrieved consumers to file criminal cases against these fraudulent direct selling companies.
Some members, who are very senior in the upline, claim huge income after selling products. In fact, they do not pay any sales tax to the commercial tax department. With the condition of compulsory of PAN, they would be compelled to disclose their income if at all they get. Most of the income they claim is on the products purchased by the downline members as if they actually sold them. Now they cannot escape the tax liability. It may be noted here that the Supreme Court held that the income from the purchase of downline members is also easy and quick money.
Some direct selling companies are euphoric over the framework issued by the Ministry of Consumers Affairs. In fact, this is only the model framework as an advisory to the State governments and Union territories to prepare guidelines in their respective states and union territories. Whenever there is a clash between the guidelines and the legislation, it is not necessary to mention that the legislation prevails over the guidelines. Even the state governments form guidelines, the Kerala experience would recur if the guidelines were ignored by these companies. These companies cannot do business without misrepresenting the facts to the new members and naturally they would come under fire.
The big loss to these companies would be removal of entry fee and renewal fee. This is the main source of income particularly where these companies make easy and quick money.