The querist, a private limited company, has sought a opinion regarding a scheme which is floated by it in the market, particularly whether the scheme contravenes the penal provisions of the ‘Prize Chits and Money Circulation Scheme (Banning) Act, 1978’ (hereinafter for the sake of brevity referred to as the PCMC Act).

          The Querist is essentially in the business of net work marketing or what is also known as multilevel marketing which involves customers participating in the business of the Querist by selling its product to other members of the public and receiving a commission for such sale. The product of the Querist consists of 10 MB Web Space and in addition the customer/associate also gets other incentives as per the policy of the Querist.

          For these facilities the Querist charges Rs. 3,500/- Out of this Rs. 3000/- is earmarked or the above mentioned facilities and a sum of Rs. 500/- is charged from a customer/associate by way of service charge. From the point of view of the opinion sought by the Querist there are three salient features of the scheme:-

          The price of 10 MB Space has a much higher market price than that being charged by the Querist.

          In addition the purchaser gets a web page and other facilities.

          That the amount paid by the customer is refundable on certain terms and conditions which are specified I the enrolment form.
The PCMC Act prohibits the promotion of prize chit and money circulation schemes. The Querist’s business plan, can by no stretch of imagination be categorized as prize chit. The scheme of the Querist does not envisage the giving of any prize for money realized through the investment of money received from subscribers. Indeed persons who participate in the business scheme of the Querist are purchasers and not subscribers. They receive a viable product which is good value for the money paid. Nor do the business activities of the Querist constitute a money circulation scheme.

          A money circulation scheme is defined by Sec.2 ( C ) of the PCMC Act as under.

          2 ( C ): Money Circulation Scheme means any scheme by whatever name called for the making of quick or easy money or for the receipt of any money or valuable thing as the consideration for a promise to pay money on any event or contingency 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 the members of such scheme or periodical subscription.”

          The business venture of the Querist does not consist of a scheme for making quick or easy money. Moreover, the Querist’s business consists of two distinct activities :-

          1. The first and predominant part of his business consists of the sale of a product mix consisting primarily of a 10 MB space on server.

          2.The second aspect enables customers to contribute towards the growth of the company by marketing the product of the company to other members of the public and in doing so, earning for themselves financial gains as per the various incentive schemes of the Querist.

          In other words the customers are encouraged to become sales associate of the company and earn commission on their sales. This does not constitute a scheme for making quick or easy money nor is it a scheme for receipt of money as a consideration for a promise to pay money on any event or contingency, relative or applicable to enrolment of members to the scheme.

          Customers receive money from the Querist if they market the product of the Querist. The difference between normal marketing and net work marketing is that in the latter case, each purchaser of a product is not merely a purchaser but a potential sales associate of the Seller, if he so chooses to be. Network marketing which is the essence of the Querist’s business is unambiguously not a money circulation scheme.

          The provision of the PCMC Act, accordingly are wholly inapplicable to the business scheme of the Querist.