Will a New Law To Check Pyramid Schemes Work?
In September 2015, the standing committee of parliament for finance came up with a hard-hitting report on illegal chain-money schemes and the use of multi-state cooperative societies to launder money (Moneylife, issue 26thNovember 2015). The committee’s report came in the wake major chit fund scandals across Bengal, Orissa, Rajasthan and Maharashtra. Its conclusion was exactly what the direct selling industry has been lobbying for, over the years: To create a regulatory framework and compulsory registration process for all direct selling businesses, to provide an oversight mechanism and clarity on whether they are legitimate direct sellers or Ponzi/pyramid schemes. The parliamentary standing committee sought three things:
 
1. A comprehensive Central legislation to replace multiple laws, which allow dubious money-collection schemes to slip through the cracks of existing laws, with mandatory registration of businesses.
 
2. Capital adequacy requirements for money-pooling companies, capping commissions for garnering deposits at 2% and a deposit-linked insurance cover.
 
3. Extension of the scope of special courts provided for in the recently enacted Securities Laws (Amendment) Act, 2014, to deal with Ponzis and money-circulation schemes.
 

Latching on to these recommendations, direct sellers, along with the Indian Institute of Corporate Affairs (IICA), Federation of Indian Chambers of Commerce of India (FICCI) and consulting firm KPMG, have produced an industry report, a White Paper and even a draft legislation called the “The Regulation of Direct Selling and Pyramid Schemes Prohibition Bill, 201X”.The White Paper is an excellent elucidation of issues and the difficulty in distinguishing between the ‘good guys’ running legitimate direct selling companies, and the ‘bad guys’, running fraudulent Ponzi and pyramid companies that are destroying peoples’ lives and savings. But does the draft legislation proposed by IICA meet its own objective of legitimising direct sellers and prohibiting Ponzi schemes? 
 
The White Paper says that the direct selling industry, estimated at Rs7,200 crore (in 2012-13, according to a KMPG report), was growing at 20%pa (per annum) until 2013-14 after which growth dipped to 4.3%. While the report provides no details of how it arrived at the numbers, we know that this was the period when the Securities & Exchange Board of India (SEBI) cracked down on scores of collective investment schemes (Saradha, Alchemist, Rose Valley, MPS Greenery, PACL/Pearls were the prominent ones). It was in 2012 that a landmark Supreme Court (SC) judgement trigged a series of events that landed Subrata Roy, chairman of Sahara Pariwar, in jail. This was also when the country-head of Amway faced arrest after a crackdown by the Andhra Pradesh police while systematic action was initiated against the QNet group in Mumbai and elsewhere. Many of them claimed to be multi-level marketing (MLM) schemes with dubious products or chit funds. Pearls, for instance, sold units of land which, apparently, was just a dream. 
 
The IICA paper makes a strong pitch for direct sellers on the grounds that it provides self-employment opportunities and empowers women. It also wants the government to put them categorically outside the ambit of the Prize Chits and Money Circulation Schemes (Banning) Act of 1978 which envisages a total ban on schemes that involve recruitment of new members. According to the White Paper, the ‘key identifier’ between a legitimate direct seller and an illegal Ponzi is that the latter “depends on mere recruitment (of distributors) for revenue.” It says, if “members are incentivised to make product sales (in addition to recruitment) the business model will defy classification as a pyramid scheme.” The Paper goes on to describe various ways in which pyramids pass themselves off as direct sellers and ‘cloak revenue’ by collecting deposits in the form of joining fees, renewal of membership charges, etc. The question is: Who will take on the job of studying the nature and intent of each scheme and breaking up its sales numbers to weed out illegitimate Ponzis? 
 
Unfortunately, a government-funded organisation, like the IICA, is happy to endorse the many obfuscating commission plus recruitment models (binary, forced matrix, uni-level and stair-step plans, etc) which are at the root of the false claims and fraudulent practices adopted by distributors to ensnare new recruits. In a country with low financial literacy, like India, a single, upfront commission model should be the first bit of reform that we require. The draft legislation proposes the creation of a new independent regulator called the ‘Controller of Direct Selling’, who will have the power to grant registration (it recommends mandatory registration of all direct sellers), cancel registrations, impose restrictions on business, address consumer complaints, oversee operations of direct selling companies and also take on the job of consumer education and awareness. In short, it will be an independent regulator that will work under the ministry of consumer affairs which has hardly covered itself in glory for its regulatory abilities.
 
Firstly, the Controller will be tasked with the responsibility of studying the structure and nature of each direct selling company to weed out pyramid schemes masquerading as direct sellers. This will create another sprawling regulatory bureaucracy. Secondly, it will require a huge inspection and enforcement machinery to monitor whether all the pious rules of doing business, fixing fees and remuneration, redressing grievances and eschewing prohibited practices spelt out by the draft law are, indeed, implemented. Otherwise, the new law will be largely toothless like the Prize Chits statute where the police begin investigations only after consumers are cheated and the complaints against a particular entity mount considerably. 
 
Thirdly, the legislation wants the Controller to have the powers of a civil court under the code of civil procedure. More importantly, it seeks the exclusion of jurisdiction of civil courts on hearing, or granting an injunction on, all issues that are under the Controller’s regulatory ambit. It is hard to see how this will fly in the current economic environment, especially when the draft Act also says that the new legislation “shall be in addition to and not in derogation of the provisions of any other law for the time being in force.” Moreover, the parliamentary committee had suggested the extension of special courts to cover this business and not a concentration of powers under a regulator. Fourthly, there is no mention of capital adequacy requirements on comprehensive deposit-insurance cover that was specifically suggested by the parliamentary committee. Surely, this is too important to be left to the rules framed by the Controller. Capital adequacy requirements have to be met at the time of registration of the new business; but the draft legislation is not very serious about registration either. The punishment for doing business ‘without registration’, or after registration is cancelled, is a mere monetary penalty! 
 
The White Paper has plenty of information on regulation and regulatory regimes around the world. But there is not even a line of analysis on the large-scale misrepresentation, lack of transparency and litany of complaints against large operators, such as QNet and others, that had led to a crackdown by the economic offences wing of the police in several parts of the country. Over the past many years, Moneylife has been the repository of the activities of a variety of pyramid operators. The White Paper would have added to its credibility if it had studied at least 25 reported cases and explained which among them is a direct selling model that requires legitimate protection to do business and which ones would be classified as illegal pyramid structures. If the White Paper cannot provide real-life examples or benchmarks for the Controller to ‘grant registration’ to direct sellers, then it means that the proposed new legislation and regulatory structure is just a façade to protect powerful, multi-national operators without really eliminating any of the shady practices that cheat gullible customers.
Comments
Agyat Vyakti
6 years ago
atul gupta
6 years ago

Be ready to fight against QNET/VIHAAN and all your uplines including friend.
Find QNET REFUND PROCESS and COMPLAINT AGAINST QNET procedure as below.
1st Option
If your purchase on product receipts is in INR rupees then with in 30 days of purchase or if your purchase is in USD dollar then with in 7 days you can send email to Qnet customer support for refund otherwise Qnet will deny you refund. Then go to 2nd option which all need to go for even after you get refund to get QNET banned from India and to save our brothers & sisters.
1. Get your IR ID and products receipts first. Both will come to your mail box once your upline register your email id on portal. If email id is given wrong by your friend/upline then first send email to Qnet customer support with copy of Pan Card and ask them to update your email id first. Qnet will confirm you updation of your email id. Then call Qnet support and ask your product purchase details.
2. Send a cancellation mail for both products and IR ID to the support team of QNET with a subject line as "REFUND IN****" provinding all details of transactions and product details.Usually IR number will be like IN4444 and all. Attach scanned PAN CARD and product receipts in the mail to them.
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
3.Once this mail is sent, the support team will create a CRF number and send to Hong Kong team for approvals for the refund request. It will take 20-30 working days for the refund to be processed by Qnet.
4.Meanwhile, mail them or call them on every alternative days for an update. QNET Numbers are :
9900060061,62,64,68-Veronika
9900060605,9148149320Jasvinder
5.Once Refund request is completed ,they ask for the mode of payment. Better go for Money transfer to your account, then you have to send a scanned copy of your cancelled account cheque leaf or bank statement.
6.After 20 working days, you will get your money refunded of the product to your bank account.
7.Rest of money left , you collect from your upline by filing complaint in local police station.

2nd Option
pls all go for 2nd option even if you get money refunded as per option 1 by QNET to ban QNET and save indians.
File written complaint/FIR against your friend and all uplines at local police station and write in complaint that QNET is running money circulation scheme which is banned in india as per prize ,chit and money circulation scheme ,1978. Your uplines will be called by police and they will return you money through QNET or themselves as you can not get refund from Qnet after 30 days are over if products purchased through indian portal and after 7 days if purchased through world portal. Warn your uplines that you are going to file complaint/FIR against them. Besides above process kindly by post or by hand send your complaint to THE DCP, ECONOMIC OFFENSES WING, MANDIR MARG, DELHI also to ban QNET by using format of complaint given below.
https://drive.google.com/file/d/0ByQ-yz2wwceEX3BEV3kxZlNkbDg/view?usp=drivesdk
In your complaint attach uplines photos, mobile numbers, your bank account statement if you transferred money from your account to upline account or cash/DD deposit receipt, pan card, address proof, purchase receipts. Mention in your complaint that meeting took place nearby your home or office otherwise local police will ask you to lodge complaint at police station where actual meeting took place. File complaint at your nearby police station and EOW DELHI both to fight against QNET. Do not sign any affidavit asked by your uplines to give back your money.
Agyat Vyakti
Replied to atul gupta comment 6 years ago
atul gupta
6 years ago
Madras High Court in 2005 declared MLM as illegal business. Qnet previously known as Goldquest and Questnet have been declared fraudulent companies by SFIO and Parliament of India. Qnet founder Vijay Eswaran is an accused in fraud Goldquest case filed by Chennai police in 2008. MPID Act have been imposed on Qnet and Bombay High Court has declared it as nothing but money circulation as per PCMS Act. Enforcement Directorate has registered a case and Economic Offenses Wing Mumbai has arrested few leaders like Ram Singh of Qnet Infiniti group. Lookout circular issued against Infiniti leaders like Sachin Gupta, Kavita, Sharfun Shaikh, who have fled to places like Dubai. CERT has blocked Qnet websites under Court’s order. CB-CBI of Andhra Pradesh shut down Questnet and case is going on in court. Govt of Andhra Pradesh has passed order for attachment of properties of Questnet. Questnet MD Pushpam Appalanaidu has been arrested. Michael Ferriera of Team Faith and shareholder of Vihaan Direct Selling, a franchise of Qnet have been denied anticipatory bail by High Court. Maharashtra CM has assured enquiry into Qnet operations.

Ram Chaudhary
6 years ago
It seem member in this committee from IICA, FICCI and KPMG are like Rahul Gandhi always talking of Women empowerment while they have been empowered (paid) by big Direct Marketing companies who have looted thousands of crores to legitimize their cheating business in India.
Agyat Vyakti
Replied to Ram Chaudhary comment 6 years ago
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