The department of financial services
has proposed modifying the Prize Chits and Money Circulation Schemes (Banning)
Act, 1978 to make inducement to individuals for signing up with MLM
pyramid, Ponzi or cumulative investment schemes an offence to plug loopholes in
money churning tasks of business.
The division under the finance
ministry has proposed to place a brand-new section 3A in the Act with a change
Bill for this function.
The existing provisions of the Act
ban various deceitful schemes and anyone breaching the provision is liable to
be put on trial and penalized. However, it is possible that marketers of an
illegal fund can take up a stand that the scheme is of a business entity which
they are simple teams, who are exempt for the acts of the entity.
To plug this loophole, the new
section will ensure that individuals who are marketers in such schemes are individually
prosecuted and punished if they fraudulently or dishonestly cause persons to
register for or participate in such schemes.
Besides Chits Act and Sebi Act,
these schemes are presently covered under the RBI Act, 1934, the Companies Act,
1956, and state laws for protection of interest of depositors in the financial
facility.
The Chits Act covers prize chits and
money circulation schemes, but there is no particular reference to multi-level marketing
(mlm) schemes for items and services in the Act.
There are particular company
entities, which introduce schemes for appointing selling representatives for
their items and collect registration charges from them with a more requirement
that such agents have to designate even more representatives gathering registration
charges from them. The reimbursement paid to the offering agents includes a
share in the registration costs gathered from the new selling agents joining
the scheme. Such schemes are referred to as pyramid, Ponzi or multi-level
advertising and marketing schemes.
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