Certification of business Direct Selling/Multi Level Marketing/ Pyramid Schemes by CA/CS
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The Honorable Prime Minister
Subject: Application to introduce amendment in the Acts dealing for Direct Selling/Multi Level Marketing/ Ponzi / Chits and provide provision for certification of business plan and compliance check on the modalities and functionalities of business by Chartered Accountant / Company Secretary.
We convey our greetings to you as members on behalf of the Institute of Chartered Accountant of India and Institute of Company Secretaries of India. We would also like to express our heartfelt gratitude to you for the ample improvements already extended by you in Indian Legal system and laws.
There is no separate law for starting MLM company in India except few acts of India constitutions.
Interpretations coming out of previous laws which is already banned , It should not be a only head count commission modal which falls in Pyramid Scheme which is banned in India, covers MRTP Act alias Money Rotation Trade Practice Banning ACT 1969 and It should not be only money involved investment return format which falls in PCMC Act alias Prize Chit and Money Circulation banning Act 1978.
MLM is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation.
Pyramid Schemes have Only One Purpose to cheat. The big difference between multilevel marketing and a pyramid scheme is in the way the business operates.
The entire purpose of a pyramid scheme is to get your money and then use you to recruit other distributors. The entire purpose of MLM is to move product which should be alligned with direct marketing.
Binary concept in the MLM networking is illegal in India
Both Ponzi schemes and pyramids are quite seductive because they may be able to deliver a high rate of return to a few early investors for a short period of time. Yet, both pyramid and Ponzi schemes are illegal because they inevitably must fall apart. No program can recruit new members forever.
Pyramid schemes are doomed to fail because their success depends on the ability to recruit more and more investors.
Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid.
We would like to draw your kind attention to the point that the most of youth are trapping and got cheated under this schemes which are functioning under conditions of inadequate compliance check or financial check, non maintenance of accounts and proper records.
However some minimal number of people who are getting benefit, are finding themselves under habbit of easy income .
I would like to quote a data here, more than 10000 businesses/Firms are running these schemes considering the rules of Multi level marketing and direct network marketing but actually most of them are running binary plan as well as pyramid structures and non complying the guidelines required for direct selling.
Under the model guidelines on direct selling issued by Government of India, Ministry of consumer affairs, Department of consumer affairs, on 9th September 2016, Definitions has been prescribed for direct selling and pyramid schemes.
These guidelines also prescribe rules for conduct and setting up direct selling business but nobody till now is following those as there was no compliance and financial check adopted in the guidelines.
In the absence of a proper policy towards keeping a check on the financial as well as operations from legal and compliance prospective, this trend is likely to continue unabated.
It is therefore arguably necessary that the government should evolve a policy of Compliance, business model check and Financial check for the businesses running Direct Marketing/ Multi level marketing scheme/Ponzi scheme/ Pyramid structure type business models.
One time certification for existing businesses and annual certification for new businesses and existing businesses required to run such type of model would ensure curb the malpractices conducting currently.
In this connection, we propose that government should set up committee to look into matter with the representatives from Institute of Chartered accountants of India as well as Institute of company secretaries of India.
In your earlier speeches, you had quoted CA;s to be financial gatekeeper and CS’s to be Compliance custodian. Now is the time, the CA and CS fraternity would like to take up the responsibility in collaboration with government to improve legal system.
We request you to introduce more nomination of Institute of Company Secretaries and Institute of Chartered accounts of India at government board looking over review of legal system and acts.
Also introduce participation of professionals at operational and independent decision making level with in the such organizations say all such type of business models require mandatory to appoint company secretary and chartered accountant in their team. Same the way of Independent directors on board of the listed company make them strict disciplined more organized in terms of corporate governance.
At least some code is required for governance of those Multi level marketing and direct marketing business models too and that mostly feel now.
Apart from this, we further request you to personally and kindly extend your good office for this matter to be taken up with all necessary concerned departments in view of the necessity of the situation.
We firmly believe that this is a sector or an area from which we can bring about progress and development for society as a whole.
We, therefore, earnestly request you to take the necessary steps in this direction, for which we shall remain grateful.
CA Paras Mittal Mb: 8506916129 Email: email@example.com
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