However, it is not yet clear whether pyramid structures would include multi-level marketing firms like Amway, too.
An association of direct-selling firms distanced itself from pyramid marketing structures, saying multi-level marketing companies did not incentivise the direct-selling distributors on recruitment of another distributor in the network, unlike in pyramid marketing schemes.
According to people in the know, following inter-ministerial meetings over plugging the loopholes in the current legal structure that governs multi-level marketing schemes, Ponzi schemes and pyramid marketing, the department, under the finance ministry, has proposed that pyramid marketing schemes be banned and necessary changes in the existing Act be accordingly made.
The proposal, which has been sent to various central ministries and all state governments, says the words ‘Pyramid Marketing Schemes’ and ‘For Matters Connected Therewith’ should be added in the very title of the Act.
The confusion over whether multi-level marketing firms are included in the pyramid marketing structures has arisen because the background to the proposal says: “. . . in view of such ambiguities in existing law, it is felt that there is a need to amend the provisions of the Act to extend the same to pyramid or multi-level marketing schemes”.
When contacted, an India Direct-Selling Association official said: “Multi-level marketing is just a compensation structure used to incentivise the direct-selling distributors on the sale of goods and services -- and not recruitment of other distributors in the network.”
However, the proposal’s background note refutes this argument. It says pyramid marketing or Ponzi schemes are justified (by supporters of multi-level marketing firms) on the ground that these are for selling goods and not for money circulation and hence the provisions of the Act do not apply to such marketing schemes.
To a query on this, Abhimanyu Bhandari, managing partner, Axon Partners, a law firm, said: “My reading is that the proposal is talking about banning pyramid marketing structure and not multi-level
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