A Call To Ban Multi-Layered Marketing In India

Abstract

This article will explain the concept of multi-layered marketing and its widespread popularity in India. Furthermore, it will explain why Multi-Layered Marketing or MLMs in short have become a bane rather than a boom. It gives its explanation on how people who run MLMs give vague promises to people on making the latter rich. MLMs use registration fees as means to scam people. In the end, they receive the short end of the stick.

Introduction: Understanding the Concept of MLMs

In the post-Soviet world, capitalism is the dominant economic system in practically every country. In countries like India, the free market, private firms, and multinational business collaborations have boosted economies. However, there isn’t always sunshine and rainbows throughout the history of capitalism. Irony, hypocrisy, and avarice are all layered on top of it. Squid Game, a South Korean drama, was just launched on Netflix and has received worldwide acclaim. The show deconstructs modern-day capitalism and how it affects people’s lives. The message, however, rings hollow to me because a show critical of capitalism is broadcasted via one of the world’s most costly streaming sites.

Anyway, the ugliness of capitalism does not end there. The capitalists leech off the money from the general masses so that they could fill their own pockets. Video game companies use aggressive monetization systems like loot boxes and microtransactions, which resembles online gambling. They aim to make money from the wallets of children. YouTubers promote gambling apps to make their ends meet but at the expense of people’s hard-earned income. There is another group of people that promises the masses to become entrepreneurs when in reality, they make them work like salespeople. These are the pseudo entrepreneurs who run Multi-Layered Marketing schemes in India.

Let’s start this topic with a definition. An MLM is one of the strategies used by companies to gain more revenue and recruits. To sell their items, the MLM companies use their members for promotion, sales, recruitment. The members then recruit their distributors to sell their products, and their distributors hire more people in the scheme. It is like a pyramid or a family. The head stays on the top while the others are on the bottom list. The head runs the show while their minions play their roles. The distributors get their share of the money from getting more recruits. The more recruits they get, the more money they earn.

Some of the most popular MLMs as of now are Amway, Tupperware, Avon, etc. Amway has made about $8.8 billion in 100 countries as of 2018. Depending on the size of the operation, MLM can bring more than hundreds or thousands of recruits. Members of all levels from the Upper echelons to the lower distributors get some form of incentives unless the MLM operation ceases to exist.

Although this sounds profitable on paper, it has the opposite effect on the people who were involved. MLMs are some of the most controversial business practices out there. It has been reviled by students, YouTubers, people with financial instability, etc. People were disgusted to see entrepreneurial pretenders acting all high and mighty when they give fake promises of being rich to the masses, only to scam them, steal their money, and fill their pockets.

Legal Status of MLMs in India

The law in India sees MLM as a legal entity. Well, if they’re banned in India, Amway wouldn’t have set their businesses on Indian soil. However, at the same time, illegal MLMs are mentioned under Direct Selling Guidelines 2016 and Prize Chits & Money Circulation Schemes (Banning) Act 1978.

With the development of MLM scams in India, it’s important to remember that many MLMs have taken advantage of people’s ignorance of Indian regulations. Instead of a contract or written agreement that protects the employees’ safety, perks, shares, and remuneration, the top echelons merely make false promises when they recruit these people. Not only is this a breach of the Indian Contract Act, but it is also a violation of the Indian Penal Code and the Companies Act.

Sections 490 to 492 of the Indian Penal Code give provisions on criminal breach of contract. These sections imprison a person for 3 months and/or have to pay the fine of INR 200. Companies Act punishes a person under Section 447 through imprisonment, which could span from 6 months to 10 years. A person liable for a fraudulent offense might have to pay 3 times the amount involved in fraud. If the fraud committed was based on public interest, then the punishment would be imprisonment for 3 years.

The Indian Contract Act gives provision of fraud under Section 17. To add more spice to the contract cake, Section 73 talks about a breach of contract. It becomes apparent that lack of legal knowledge amongst the general audience has made MLMs not rely upon legal agreements but fake promises to get more recruits.

The Dark Side of MLMs

As stated above, students, YouTubers, people with financial instability, and even suits in the business world despise and revile MLMs. Some were the victims of the scams whereas others were rightfully skeptical of their business practices. Federal Trade Commission or FTC in short, is the independent agency of the United States Government. In their study, they found out that 99% of the MLM ventures end up in losses and only 1% like Tupperware are successful.

If the United States

Government is saying that MLMs would wind up in losses, then I don’t see the reason for its continuation. FTC also raises some questions regarding:-

  1. MLMs treatment of their recruits like salespeople.
  2. Availability of solid plans because convincing friends, family, and regular customers are a lot of hard work.
  3. Does an MLM venture provide better income for their fellow recruits because in most cases they earn little to no money? In some cases, they even lose money.
  4. Are the recruits willing to risk their time and money for the MLM ventures because of their egregious and tedious demands?

YouTuber Lakshay Choudhary expresses his distaste towards the MLM companies that prey on students and people with financial instability. He added that not only MLMs are stealing their money, but also their social and college lives. MLMs give fake promises of making people rich when in reality they make them work like salespeople and slaves. As of result of this, many college students don’t want to associate themselves with students from MLM. At the same time, they are presenting themselves to be rich, when all they do is wear suits and use rented cars. They take money from the aforementioned group to fill their own pockets. He also said that students don’t open up to their parents post-scam out of fear of facing consequences.

Other YouTubers like Domics, Dhruv Rathee, Mango Boi, etc. have expressed their concerns towards the MLMs. Mango Boi mentioned that the upper echelons of MLMs play with their audience by pretending to be rich. They constantly flex their wealth and rich lifestyle on others, while preying on their ambitions and insecurities. Domics who were scammed by one MLM venture stated that the people in charge boost the audiences’ ego, and they were the buyers disguised as investors because they’re buying their products instead of their inventories. They hyperbolize the masses’ potential to make it big through their half-baked seminars, but they don’t care.

Dhruv Rathee expressed that MLM schemes tell the masses that they would make them financially free and entrepreneurs. In reality, it leads to personal economic ruin. He further added that a person has more chance to win money from a casino than earn money from an MLM.

LuLaRoe an MLM company, had 50,000 distributors by 2017 and was focused on women’s clothing. However, the success they had since their inception in 2013 was merely a facade as they pressurized their distributors to buy their inventory through the profits the latter earned. They told them to max out their credit card and even told one distributor to sell her breast milk just to buy some products. Eventually, an army of lawsuits was filed against them and they were ordered to pay $475 million.

My Personal Experience with MLM

My first encounter with MLM occurred during my freshman year of college, as I was munching snacks in my hostel mess. A man named AB contacted me and told me about this company called RST Corporation. He told me about his job and asked if I wanted to be a part of this business initiative where individuals might make money. I was first fascinated by his proposal since I aspired to be financially self-sufficient.

However, my excitement quickly faded when he informed me of the INR 12,000 admission fee. “First and foremost, my family will not allow it, and second, isn’t it expensive?” I told him. He was pressuring me to join his business while simultaneously bringing up the generational divide. I informed him once more that they would not allow me to continue.

So he told me to attend this seminar, and I had to pay INR 100 for attendance. I relented and paid him 100 bucks because I wanted him to get off my back. Another red flag I had was the products he showed me were terrible and expensive. He wanted me to sell his products and behave like a salesman, earning little to no money. He wanted me to get more recruits if I want “to earn more.” Except it didn’t happen because I ditched the seminar plan at the last minute despite him calling me several times. Two days later, he called me again, and he told me to meet one of the echelons of RST. I complied, and when I did meet him, it was very dramatic. The guy dared to say that I leave my law course because the AI will take over shortly. My family would be livid if I told them I wanted to leave an overpriced course.

When he informed me of the fee, I almost went out, but the echelon stopped me, and he decided to “figure things out.” So, before leaving, I stayed for another 30 minutes. Something wasn’t quite right, I realised. Simultaneously, the “meeting” cost me my meal. When I’m with my pals, AB calls me almost every four days, continually bothering me. I finally had enough of his shenanigans one day. I sent him a note informing him of the situation “I’ve lost interest in your business. Don’t call me, and I’m not interested in meeting you.” He stopped bothering me after that. After a few days, I saw him making salty expressions when he saw me. That was my last encounter with him.

For me, the whole procedure was mentally and emotionally draining. I could have avoided all of this unnecessary fuss if I had simply declined AB when I first saw him. It was a waste of time and emotion to invest so much money in such a costly undertaking. It had the potential to destroy my relationships with my family and friends.

Conclusion: Should MLM be banned in India?

I’m well aware that banning is the most extreme kind of government action. When the US government prohibited alcohol across the country during the Prohibition era, the ban utterly backfired due to

  1. Ineffective authorities and corruption in the law enforcement and justice systems.
  2. With the likes of Al Capone, organized crime grew in popularity.
  3. The citizens openly disobeyed the law.
  4. Prohibition’s death knell was hammered home by the Great Depression.

In most cases, a ban would backfire. But at the same time, a ban would work well as well. In 2017, when the Star Wars Battlefront 2 Loot Box Scandal was at its height, the Belgian Government decided to ban the use of loot boxes in video games as it is exploitative towards children.

In June 2020, during the India-China standoff, India banned several Chinese Apps like TikTok as these apps could infringe on India’s sovereignty. It’s not like TikTok became notorious for selling users’ private data to Beijing.

In my opinion, MLMs should be banned in India, because what these ventures are doing is morally and legally wrong to the Indian masses. They’re looting their money while despite knowing their already vulnerable financial situation. They’re also giving a bad reputation to the real entrepreneurs. When we compare with a real entrepreneur like Elon Musk or a pseudo entrepreneur like AB, the former takes the risk because it’s a 50/50 chance that their product would either end up in profit or loss. The latter knows that their venture would fail, but they would still milk it like vultures eating carcasses. So I don’t see the reason for MLM even existing in India. MLM represents everything wrong with modern complacent capitalism.

Endnotes

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  • Tomar A, ‘Corporate Frauds: An Analysis – Criminal Law – India’ (Mondaq.com, 2021) accessed 12 November 2021
  • Section 490-492 (Chapter XIX) Of IPC – THE CRIMINAL BREACH OF CONTRACTS OF SERVICE’ (WritingLaw, 2021) accessed 12 November 2021
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  • Mango Boi, ‘MLM Scammed Me in College (STORYTIME) | Mango Boi’ (9 February 2021) accessed 13 November 2021
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  • —— ‘Watch Out for These MLM Scams & Pyramid Scheme Companies’ (Resources | Addition Financial Credit Union) accessed 13 November 2021
  • Bala A, ‘The MLMs are preying the youth for easy buck: They must be stopped’ (Times of India Blog) accessed 13 November 2021
  • —— ‘I Didn’t Attend An MLM Seminar And You Shouldn’t Too’ (Youth Ki Awaaz) accessed 13 November 2021
  • Bachchan A, ‘Current Issues that Plagued the Video Game Industry’ (Medium, 6 January 2021) accessed 13 November 2021
  • OverSimplified, ‘Prohibition – OverSimplified’ (16 December 2020) accessed 13 November 2021
  • BBC News, ‘India bans TikTok, WeChat and dozens more Chinese apps’ (BBC News, 29 June 2020) accessed 13 November 2021
  • Meehan T, ‘Chinese Government Takes Stake in TikTok, Raising Questions About National Security and Data Privacy’ (Loss Prevention Media) accessed 13 November 2021

About Author –

This article is written by Anish Bachchan, he is a 5th-year law student currently studying at Amity Law School, Noida. His writings have been published on various sites with the likes of Los Angles Times, LiveWire, Youth Ki Awaaz, Times of India Readers’ Blogs, Legal Service India, etc. He is the author of 2 books titled (1) Contempt of Court with Reference to Media Trials, (2) Patent 101 Level 1: The Patent in the Aggressive Monetization of Video Games.

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