Govt to revisit direct selling rules

Says Corporate Affairs Ministry will work with other ministries to remove ambiguity in lawA While we take strong actions against ponzi schemes, we need to be careful not to create a vitiating atmosphere for reputed and law abiding companies - Sachin Pilot New Delhi (PTI): In the backdrop of police action against global direct selling major Amway Corporation in Kerala, the government is now looking to remove the legal ambiguities to differentiate between fraudulent ponzi schemes and genuine businesses run by "reputed and law-abiding" entities.

"We (corporate affairs ministry) will work closely with concerned ministries and industries to remove the ambiguity in the law (related to tackling ponzi and other fraudulent schemes) as soon as possible," corporate affairs minister Sachin Pilot said. "While steps should be taken to crack down on fraudulent companies running dubious investment schemes, companies that are reputed and abiding by the law must be delineated," the minister said. Pilot's comments come against the backdrop of Amway's India chairman William Scott Pinckney and two company directors being arrested by the Kerala police earlier this week over allegations of fraud. They were later released on bail. Commenting on the Amway incident, he said that "it is disappointing that such an eventuality came about. Such events (like Amway) might negatively affect the prospects of our country as an attractive investment destination". "While we take strong actions against ponzi schemes, we need to be careful not to create a vitiating atmosphere for reputed and law abiding companies," Pilot said. Amway's business model involves direct selling of various consumer products to their customers, who in turn get incentives for bringing more clients and further expanding the network. While ponzi schemes also follow a kind of network marketing model, generally these businesses are totally focused on incentives from multi-level marketing without the presence of any real products in many cases. Pinckney, Sanjay Malhotra and Anshu Budhraja, who have been given conditional bail, were arrested by the Wayanad Crime Branch (Economic Offences) wing from Kozhikode in connection with three alleged fraud cases registered in Wayanad district. They were booked under the Prize Chits and Money Circulation Schemes (Banning) Act based on complaints filed by distributors in 2011. Industry chambers such as Ficci have said that actions were inappropriate and unwarranted since there is no criminality involved and the Amway case should have been handled as a consumer redressal. In the wake of Saradha fiasco which led to duping of investors in West Bengal, government has initiated a multi-pronged crackdown on companies running ponzi and fraudulent investment schemes. Pilot also emphasised the government would leave no stone unturned in cracking down on companies running ponzi schemes. While chit funds laws are implemented by state governments, collective investments, except for certain classes, come under capital market regulator Securities and Exchange Board of India (Sebi). Non-banking financial companies are governed by the Reserve Bank of India.