Press Information Bureau

Government of India

Ministry of Corporate Affairs

27-August-2012 17:46 IST

Multi-Level Marketing Companies

On the basis of specific complaints received in the Ministry, Regional Directors (RDs) and Registrar of Companies (RoCs) have been directed to Scrutinize the Balance Sheets and Inspect the books of accounts and other records under sections 234 and 209A respectively of the Companies Act, 1956 in respect of 87 companies, alleged to be carrying on the activities relating to prize chit fund and money circulation in the garb of multi-level marketing.

The Serious Fraud Investigation Office (SFIO) had recommended for setting up of a specific central regulatory agency for the implementation of the Prize Chit and Money Circulation Scheme (Banning) Act, 1978. This Act is administered by the Department of Financial Services, who has constituted an Inter-Ministerial Group consisting of the representatives from Department of Financial Services, Ministry of Corporate Affairs, Reserve Bank of India, Securities Exchange Board of India, Department of Consumers Affairs and Central Economic Intelligence Bureau (CEIB) to -

(i) Draft Model Rules on the Multi Level Marketing Companies and on the prohibited schemes under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978;

(ii) Frame clarificatory guidelines on how to distinguish between genuine direct sales from disguised money circulation Schemes.

This information was given by Minister of State for Corporate Affairs Shri R.P.N. Singh in reply to a written question in the Rajya Sabha today.

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ST

Multi-level marketing regulation: scrutiny and model rules to distinguish legitimate direct sales from disguised money circulation schemes. Allegations that companies are conducting prize chit and money circulation schemes disguised as multi level marketing have led to directed scrutiny of balance sheets and statutory inspections of books of account to determine whether activities amount to prohibited money circulation. An inter ministerial group is drafting model rules for multi level marketing and issuing guidelines to distinguish genuine direct sales from disguised circulation schemes.