According to the information available with the Ministry of Corporate Affairs, companies resorting to Multi-Level Marketing Schemes are doing so in contravention of either the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 or by floating unauthorized ‘Collective Investment Schemes’ in contravention of Section 11AA of the Security and Exchange Board of India (SEBI) Act, 1992. Giving this information in written reply to a question in the Rajya Sabha, Shri Sachin Pilot, Minister for Corporate Affairs, said that none of these companies also appear to be registered as Non-Banking Finance Companies (NBFC). As part of its drive to identify and weed out such companies, Ministry of Corporate Affairs has shared the particulars of around 34,000 companies with objectives of carrying on financial business with the Reserve Bank of India (RBI). RBI has taken up verification of such companies.

Multi-Level marketing schemes flagged as illegal under prize chits and collective investment rules, prompting regulatory verification. Companies operating Multi-Level Marketing schemes are being treated as contravening the Prize Chits and Money Circulation Schemes framework or operating as unauthorised Collective Investment Schemes while not being registered as Non-Banking Finance Companies. The corporate regulator has shared particulars of a large set of such companies with the banking regulator for verification to enable cross-regulatory scrutiny of unauthorised financial business.