Money Circulation Scheme or Money Cheating Scheme
Money Circulation Schemesthroughout the nation is mushrooming under different guises and nomenclature,eating away monies of the gullible public by luring them to become richovernight through money circulation schemes. This kind of cheating under variousattractive captions have taken a major section of people from different walksof life to fall prey benefiting a section of people and huge loss of money tolarger section of people. It is said that people are being cheated of Crores ofRupees by these companies all over India. This menace committed against thesociety is going unchecked.
Many small companies havemushroomed themselves in every nook and corner of the country. The promoters ofthe money circulation schemes through high profile campaign have entrappedlower middle class people eagar to become rich overnight. By enrollment intosuch scheme one would be getting back the initial paid investment and keepgaining financially by enrolling new members. So also, the second set ofenrollers keep multiplying and gain financially, fascinating every onlooker toget engrossed into such dubious money circulation schemes. Such a system ofchain to work endlessly to provide profit to everyone concerned wouldultimately breakdown at some stage, resulting the financial benefit to some whojoined the scheme at initial stages (they will be none other than the promotersof the scheme), resulting in big financial loss to those who joined at a laterstage. When a person fails to get his required clients or enrollers, thepromoters of the scheme does not tell about the non-viability of the scheme butblame it as one personal failure.
The gullible people are takenunaware when the real picture of the money circulation schemes emerges. By the time the people realize that they were taken for a ride and cheated, itwould be too late.
The Hon’ble Supreme Court in KuriachanChacko and Ors. Vs. State of Kerla JT2008(7)SC614 has rightly observed asunder:
The promoters of the schemevery well knew that it is certain that the scheme was impracticable andunworkable making tall promises which the makers of the promises knew fullywell that it could not work successfully. It could work for some time in that`Paul can be robbed to pay Peter’ but ultimately when there is a large mass ofPeters, they will be left in the lurch without any remedy as they would by thenhave been deceived and deprived of their money.
Howthey operate- The Modus Operandi
The promoters of such schemesfloat companies with attractive names like viz. Wonder King Co. MiracleCo. Euro Life India Big way GoldenPlatinum Quest Herbal Life Merry Life Co. and the like to start with in aparticular area and keep shifting over to new 1key areas on attainingsaturation of member enrollments. The names of these companies itself speaksabout their mensrea (guilty intention). While promoting the schemes they inducethe Film stars, Politicians, Bureaucrats, Sportspersons, Engineers, Doctorsetc., and honor them by organizing indoor and outdoor parties/functions withbig fanfare to make the general public believe bona-fide of schemes, whileenrolling other members in the chain with attractive and stylish titles to theenrolled members as Silver member, Gold member, Diamond member, Platinummember, so on and so forth. They also call them as Master Distributor,Super Distributor, Double Super Distributor etc., etc. They also use attractiveslogans like Earn in rupees or dollars. Work from home Work four hours and earnRs.50,000 per month U R the boss of your business, so enroll immediately Earnup to Rs.35,000/- + Monthly by just working 2 hours at home Do u want to earnextra by sitting at Home? Then contact us Do u want to lose your weight, thencontact us Your pathway to Heaven Enroll with us for Healthy and Wealthy lifeDo u want to travel in Benz Car within one year then enroll with us Sky is thelimit with us, so enroll immediately, before u miss the bus Earn whileyou earn etc. Many of these companies are taking promotional trips to Bangkok,Singapore, Srilanka, Malaysia and other countries in the name of Conferences,Meetings etc. Locally also they conduct meetings, conferences in 5 star hotels.These dubious companies do whatever possible to attract gullible public. Ultimatelythe easy prey, the middle class building castles in the air, loses all theirsavings even at the cost of their blood relations, the kith and kin and arevictimized. Worst sufferers in such schemes are none other than poor middleclass women, retired persons, educated youth, unemployed men and women who losetheir health, wealth in the chase of wild goose and dreams. Such schemesultimately have destroyed the families and friendships
Do wehave legal provisions in place to deal with these dubious MLM SCHEMES?
In India, money circulationschemes are banned under the Prize Chits and Money Circulation Schemes(Banning) Act, 1978. Further, relevant sections under cheating Section 420of IPC, Drugs and Cosmetics Act 1940, Drugs and Magic Remedies Objectionable(Advertisement)â Act, 1954, are abundantly available to be invoked andeffectively check and prevent progress of such dubious floated companies.Section 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act,1978 defines a money circulation scheme as, any scheme, by whatever namecalled, for the making of quick or easy money, or for the receipt of any moneyor valuable thing as the consideration for a promise to pay money, on any eventor contingency relative or applicable to the enrolment of members into thescheme, whether or not such money or thing is derived from the entrance moneyof the members of such scheme or periodical subscriptions.
Andhra Pradesh was the firststate to Ban Money Circulation Schemes in the year 1965, much before theCentral Government bought the Central Act in the year 1978 banning Moneycirculation Schemes in India through Prize Chits and Money Circulation Schemes(Banning) Act 1978.
Brief overview of the Prize Chitsand Money Circulation Schemes (Banning) Act 1978
Section 2 is legislativedictionary and defines certain terms. The phrase `Money Circulation Scheme’ isdefined in Clause (c) of Section 2. Section 3 bans money circulation schemes orenrolment as member to any such scheme or participation in such scheme.Sections 4 and 5 are penal provisions and prescribe punishment. Section 6 dealswith offences committed by Companies. Section 7 authorizes Police Officer notbelow the rank of officer in charge of a police station to exercise power toenter and search premises and to seize things used for such scheme. Section 8provides for forfeiture of newspaper and publication containing moneycirculation scheme. Section 9 declares that no Court inferior to the Court ofChief Metropolitan Magistrate or Chief Judicial Magistrate shall try anyoffence punishable under the Act. All offences punishable under the Act havebeen made cognizable under Section 10. Section 11 grants exemption from theoperation of the Act to certain money circulation schemes. From the perusal ofthe above provisions, it is clear that the Act prohibits `money circulationscheme’. Further, the Preamble of 1978 Act declares that it has been enacted“to ban the promotion or conduct of prize chits and money circulation schemesand for matters connected therewith and incidental thereto”.
How the Offence of CheatingU/s 420 IPC is made out
For the application of penalprovision of Section 420 IPC, there must be heating as defined in Section 415IPC. The said Section reads thus:
415. Cheating
Whoever, by deceiving anyperson, fraudulently or dishonestly induces the person so deceived to deliverany property to any person, or to consent that any person shall retain anyproperty, or intentionally induces the person so deceived to do or omit to doanything which he would not do or omit if he were not so deceived, and whichact or omission causes or is likely to cause damage or harm to that person inbody, mind, reputation or property, is said to “cheat”.
Mere reading of the Sectionmakes it clear that it requires the following ingredients to be satisfied:
1. Deception of anyperson;
2. (a) Fraudulently ordishonestly inducing that person;
(i) To deliver any property toany person, or
(ii) To consent that anyperson shall retain any property, or
(b) Intentionally inducingthat person to do or omit to do anything which he would not do or omit if hewere not so deceived, and which act or omission causes or is likely to causedamage or harm to that person in body, mind, reputation or property. [HridayaRanjan Prasad Verma v. State of Bihar (2000) 4 SCC 168; S.W. Palamitkar v.State of Bihar].
There is an element ofcheating in such MLM Schemes inasmuch as in most of the promoters induce thecommon public to part with money on the lure of doubling the amount or quickmoney and but for such representation and the benefit sought to be given underthe scheme, the victims would not have acted on such representation. The Promotersof the scheme knew that the scheme was impracticable and unworkable. Therefore,the Section 415, IPC is squarely applicable and the promoters are liable to bepunished u/s 420 IPC.
The Supreme Court had examinedthis question in State of West Bengal Vs Swapan Kumar AIR 1982 SC 949.The Hon’ble Chief Justice Chandrachud, after taking note of legislativedrafting, reshaped and rearranged the definition of `Money Circulation Scheme’,for the sake of clarity as:
Aany scheme, (a) for themaking of quick or easy money or (b) for the receipt of any money or valuablething as the consideration for a promise to pay money, on any event orcontingency 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 themembers of such scheme or periodical subscriptions. The court has clearlyexplained the ingredients, which need to be fulfilled for a scheme to become amoney circulation scheme. Thus, any scheme for the making of quick or easymoney contingent upon the enrolment of members into the scheme is a moneycirculation scheme. Similarly, any scheme in which money or any valuable thingis received and a promise is made to return the money on the event of enrollingmembers into the scheme is also a money circulation scheme.
The Constitutional Validity ofthe constitutionality of the provision has already been examined and upheld bythe Apex Court in Srinivasa Enterprises Vs Union of India AIR 1981 504 SCJustice V.R. Krishna Iyer, observed: Can you save moths from the fire except byputting out the fatal glow.
The Supreme Court has furtherstated that these types of schemes are prejudicial to the public interest andalso adversely affect the efficacy of fiscal and monetary policy. Whileinterpreting the definition of money circulation scheme, one has to look at themischief, which the legislation has sought to remedy. The Study group headed byDr. J.S. Raj constituted by the Reserve Bank of India in the year 1974 proposedthe legislation. After studying the various schemes which were floated in thecountry during that time and taking into consideration the impact of suchschemes on the economy, the Committee after extensive research and analysishave suggested for a ban on Prize chit and other schemes which were causing agreat loss to the economy. A large amount of money that can be used forindustrial and developmental activities are wasted on such illegal schemes. TheStudy group further observed that prize chits or benefit schemes benefitprimarily the promoters and do not serve any social purpose. On the contrary,they are prejudicial to the public interest and also adversely affect theefficacy of fiscal and monetary policy. There has also been a public clamourfor banning of such schemes; this stems largely from the malpractices indulgedin by the promoters and also the possible exploitation of such schemes byunscrupulous elements to their own advantage. We are, therefore, of the viewthat the conduct of prize chits or benefit schemes by whatever name calledshould be totally banned in the larger interests of the public.
Recently, the Hon’ble High Court of Madrasdismissing the petition filed by FMCG Marketing Pvt. Ltd. v/s Union ofIndia, Chief Secretary and Director General of Police Govt. of Tamilnadu(Writ Petition) with reference to context observed in its landmarkjudgment that under promise or expectation of getting huge commission (easy orquick money) the public is lured to invest more money in such schemes and thatit is only an imaginary profit. The Hon’ble High Court further observed thatthe event is enrollment of new members; the commission received is linked tosuch enrollment of new members into the scheme. Thus the so-called Multi-levelmarketing, though called by a very attractive name squarely falls within thedefinition of Money Circulation Scheme under the Act. Hence it isprohibited by the Act. The Madras High Court further observed that this MLMscheme creates a chain of customers and the long and unbroken chain ensures alarge amount of easy money. The shorter and missing links in the chain resultsin earning lesser commission. Secondly, the person concerned does not getthe value of money he pays. Thirdly, the companies collect service charges onthe sale of goods. No service charge can be collected while the goods aresold. Apart from that, the MLM results in exploitation of personalinfluence of each and every distributor or his close relative. If aSuperior officer or his ward involved in MLM, the subordinates are forced tobecome members in the chain.
Casestudy of Fraud Money Circulation & Multilevel Marketing (Name of the accused and victims changed)
The Delhi Police EOW busted agang of cheats who were running a company in the name of M/s Kanchanjunga E-comMarketing Pvt. Ltd. having its office at North-West Delhi. The complainantShivani Mittal and other 39 victims have filed a complaint with the policewherein they alleged that the directors and promoters of the aforesaid companyhad cheated them of Rs. 5500/- against each membership by inducing them on thepretext that they will earn lacs of rupees as per the schemes of the companywithin a span of five years in installments starting from 6th months onward.The company did not fulfill the promises and did not make the payment to themembers/investors. All the 40 aggrieved persons had leveled allegations againstthe promoters and directors of M/s Kanchanjunga E-com Marketing Pvt. Ltd. forhaving committed cheating by inducing general public to invest in company. Onthis complaint a FIR u/s 406/409/420/422/120-B IPC & 3/4/5/6 Prize Chit MoneyCirculation (Banning) Act was registered and investigation was taken up by thepolice.
During the course of theinvestigation, it was learnt that the company was running a money circulationscheme under the name of Self Employment Yojana. The conditions of the schemewere:
1.If one becomes a member of the scheme after depositing an amount of Rs.5500/-, he will get Rs. 10,000/- in a span of five years in installmentsstarting from 6th months onwards, even if he makes no furthermember.
2. If the new member sponsors one subscriber within 30 days then the firstsuch subscriber who brings in another one would be entitled to Rs. 30,000/-
3. Similarly, if one gets three such subscribers within 30 days, he wouldbe entitled to Rs. 1 lac.
4. If one gets sixsubscribers within 30 days, he would earn Rs. 3 lacs. If one gets 12 suchsubscribers then he would get Rs. 10 lacs.
5.One can earn upto Rs. 10 lacs and commission from 10% to 46 % bysponsoring few members to the company.
6. The company was operatingin different parts of India.
The investigation by thepolice revealed that the scheme floated by the company is nothing but afraudulent pyramid style marketing scheme, which required endless stream ofrecruits to succeed. It involves an internal re-distribution of wealth from newto old entrants and no substantial trading in products or services takes place.The scheme of the company was not feasible as if one person enrolls six downline members and in turn each of them further enrolls six each, then at thetwelfth level the number of persons enrolled becomes 200 crores. The companywas not registered with Reserve Bank of India as a non-banking financialinstitution. The promoters and directors of the company induced the victims,collected money from them in the shake of membership fees, cheated them bymaking false promises and misappropriated the money of the investors and ranaway by closing down their offices. The company had collected crores of rupeesfrom the lacs of its members.
You should always rememberthat there is no free lunch and there is some catch when the money is claimedto be earned so easily and quickly. Therefore, they should be vigilant andshould not enroll themselves into Multi Level Marketing Companies, MoneyCirculation Schemes, Network Marketing Companies and other such Companies andsuch schemes and get cheated. The general public should not encourage thesetypes of schemes by enrolling themselves into the schemes and encouraging orenforcing others (mostly their friends & relatives) to join the scheme. Youcan play a very vital role and help the investigating agencies to curb suchmenace and nip it in the bud before it engulfs the gullible Public. In case youor any of your friend, relative is victim of such dubious MLM schemes, you maycomplaint against companies and promoters of such schemes to your nearestPolice Station. It is to be noted that all the offences under the Act areCognizable. Under Section 7 of the Act, a police officer not below the rank ofan officer in charge of a police station can enter, if necessary by force, byday or night, any premises which he has reason to suspect, are being used forpurposes of conducting or promoting any money circulation scheme. He can searchsuch premises and take into custody any person and produce before a JudicialMagistrate all such persons who have been concerned with the use of suchpremises connected with the promotion or conduct of any money circulationscheme. He can seize all things found in the premises, which are intended to beused, or reasonably suspected to have been used, in connection with any moneycirculation scheme. Under Section 8 of the Act the State Government can forfeitany newspaper or publication containing any material connected with thepromotion or conduct of money circulation scheme.
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