Citizens' Issues
Justice Katju poses six questions to former Chief Justice Lahoti

Justice Katju, who heads the Press Council has asked six questions to former Chief Justice RC Lahoti through his blog post on allowing a judge under corruption cloud to continue in office


Markandey Katju, former Judge at the Supreme Court, who alleged that three Chief Justices of India (CJI) made 'improper compromises' during the Congress-led United Progressive Alliance (UPA) rule in allowing a judge under corruption cloud to continue in office, on Tuesday posed six questions to one of them—Justice RC Lahoti—on the issue.


Katju asked if after receiving an adverse report from the Intelligence Bureau (IB) against the Additional Judge, Lahoti, who was then CJI, called a meeting of the three-Judge Supreme Court Collegium, consisting of himself, Justice YK Sabharwal and Justice Ruma Pal. The Collegium, having perused the IB report recommended to the Government of India not to extend the 2-year-term of that Additional Judge, he said.


Katju, Chairman of the Press Council of India, put the posers to Lahoti on his blog.


On timing of his statement on Monday, he said, “Some people have commented about the timing of my statement. What happened was that some Tamilians had commented on Facebook that I am posting several matters on my Facebook post, so I should also post some of my experiences in Madras High Court.


“Then I started posting about my experiences there, and it was at that time I remembered this experience too, and posted it,” he said.


Katju asked, “Is it, or is it not, correct that after that recommendation of the three-Judge Collegium of the Supreme Court was sent to the Government, he (Justice Lahoti), on his own, without consulting his two other Supreme Court Collegium colleagues, wrote a letter asking the Government to give another one year term as Additional Judge to the Judge concerned?”


The allegation on how an unnamed additional judge of Madras High Court was given extension at the instance of UPA-I government owing to pressure from an ally, a “Tamil Nadu party”, apparently Dravida Munnettra Kazhagam (DMK), and then confirmed as a permanent judge led to an uproar in Parliament on Monday members from the All India Anna Dravida Munnetra Kazhagam (AIADMK) even as questions were raised by parties like Congress on its timing.


Katju further said on his blog, “If indeed the IB reported, after an enquiry, that the Judge was indulging in corruption, why did he (Justice Lahoti) recommend to the Government of India to give that corrupt Judge another term of one year as Additional Judge in the High Court?”


Katju, who became the Chief Justice of Madras High Court in November 2004, on Monday told TV channels, “These three former CJIs made improper compromises. Justice Lahoti who started it, then Justice Sabharwal and then Justice Balakrishnan. These are CJIs who can surrender. Is a CJI going to surrender to political pressure or not going to surrender to political pressure?”


Balakrishnan rejected the allegations as “completely baseless and not factually correct".


Katju, who was a Supreme Court judge from 2006 to 2011, was appointed as the PCI Chairman on 5 October 2011 and is due to retire on 4th October this year.


He started his blog posting today by saying Lahoti, when contacted by some media people about his statement, which was published on my blog and in a daily yesterday, generally remarked that he has never done anything wrong in his life.


Katju said he (Lahoti) has not gone into any specifics, “so let me put him some specific questions:


“Is it, or is it not, correct that I first wrote him a letter from Chennai, stating that there were serious allegations of corruption about an Additional Judge of Madras High Court, and therefore he (Justice Lahoti) should get a secret intelligence enquiry held against that Additional Judge, and thereafter I personally met Justice Lahoti at Delhi and again requested for a secret IB enquiry against the Additional Judge about whom I had received several complaints, and from several sources, that he was indulging in corruption?


“Is it, or is it not, correct that on my request Justice Lahoti ordered a secret IB enquiry against that Judge?


“Is it, or is it not correct, that a few weeks after I personally met him in Delhi and then returned to Chennai, he telephoned me from Delhi (while I was at Chennai) and told me that the IB, after thorough enquiry, gave a report that indeed the Judge was indulging in corruption?”  



Vaibhav Dhoka

3 years ago

A month back I wrte thro'this column about my experience withjudicial corrution at lower judiciary.Mr Bapu Malcom thought it to be derogatory and advised editor to delete same.But J.Katju's outburst shows truth of my write up then.The institution of Judiciary is decayed one due to corruption.


3 years ago

Whether delayed or not, the Questain is whether Judiciary was under pressure from UPA govt. NDA should investigate and issue white paper.

Six more airlines to take the sky!

The domestic airline industry in India is operating at a loss and their combined loss is estimated to be at $1.7 billion in 2014. This may increase further if the price war continues and expenses are not reduced


It is reported in the press that Ashok Gajapathi Raju, Civil Aviation Minister, in the last four weeks has cleared and given no objection certificates (NOCs) to Air One Aviations Pvt Ltd, Zexus Air and Premier Air (who plan to operate nationally) while Turbo-Megha, Air Carnival and Zav Airways plan regional operations.

More than a week a ago, Moneylife carried news on Air Carnival and Zav Airways.
All these airlines are now expected to approach the Director General of Civil Aviation (DGCA) to start the process of getting an air licence, which may take about three months.
The other airlines that are already operating in the country are Air India, Jet Airways, IndiGo, Spice Jet, Go Air and Air Costa. It may recalled that Air Asia started its operations recently.
Although Air Asia started its operations with Chennai has its hub, it shifted to Bangalore as they consider it more suitable for the areas they plan to cover. Their inaugural service to Goa from Bangalore went off well; Kochi started this week and Chennai would be included shortly. Subject to their getting the delivery of aircraft every month, Air Asia expect to be break even by the end of this year. Already, it has been reported that their trips to Goa are "profitable".
The existing group of airlines, through their Federation has been trying to stop Air Asia's operations without much success. Most of the domestic airlines have been operating at a loss and with a heavy burden of loans to replay for their aircraft purchase/ lease. And yet, they have constantly engaged in cut-throat fare price wars which has resulted in passenger benefit.
In the next few months, Tata-SIA, a full service airline is likely to commence its operations and give a tough competition to others in the field.
Among the new airlines, most will be operating in known territories, it is Zav Airways that would begin its operations in virgin territory like the North East. This would be a boon to travellers visiting this region.
The domestic airline industry is operating at a loss and the combined loss is estimated to be at $1.7 billion in 2014. This may increase further if the price war continues and expenses are not reduced.
Air Costa, operating from Hyderabad, hopes to secure one aircraft every quarter while Air Asia may be able to get one every month till their needs are met. Competition in terms of price and service are going to be the key factors which would decide survival of the fittest in this airline business.
Thankfully, the Civil Aviation Minister has shown interest  in seriously considering the issue of state taxes on aviation turbine fuel (ATF). Some like Goa, Telegana, Andhra Pradesh and Chhatisgarh have made announcements relating to reduction in taxes, but whether this will become a uniform structure in all the States remains to be seen.
Minister Raju has shown interest in the 5/20 rule that is in force in the country. Unless the airline had five years experience and has a minimum of 20 aircrafts they are not permitted to operate overseas. In a press interview, he has stated that he is not aware of any country following or insisting on such a rule! It is therefore, most likely that, in the next few months this rule may be revisited and changed. It is possible that he may tweak the rules and permit overseas operations when any airline is able to provide sufficient proof that they are working "profitably"! At the same time, loss making airlines may not be permitted to go in for "expansion".
Such a rule or move would make many of our loss making airlines to wake up. Expansion is welcome, but not at a loss!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


Illegality in MLMs and recommendations for law enforcement
An open letter from MLM expert Robert L FitzPatrick of Pyramid Scheme Alert to the US FTC exposes illegality of multi-level marketing (MLM) schemes and how law enforcement agencies can curb it. The same applies for India where thousands of pyramid or network marketing schemes are duping gullible savers everyday and also lobbying for legitimacy 
In an 'open letter' to the US Federal Trade Commission (FTC), pyramid scheme expert Robert L FitzPatrick, co-author of the book, 'False Profits', president of Pyramid Scheme Alert and co-founder of the International Coalition of Consumer Advocates, has provided a set of recommendations to the FTC on how to identify illegal multi-level marketing (MLM) schemes and to enforce consumer protection laws on pyramids disguised as 'direct selling'. The paper was sent following a conference call with officials of the FTC Consumer Protection Bureau in which an invitation for suggestions and recommendations was made by FTC officials.
The FTC recently prosecuted one of the larger MLMs, Fortune High Tech Marketing, but only after it had scammed more than 300,000 households and operated openly for nearly 12 years. Currently, the FTC is investigating one of the largest of all MLMs, Herbalife that has operated for more than 30 years.
Bright Lines of Illegality:
The paper submitted by FitzPatrick, entitled, Identifying 'Bright Lines' for Determining Illegality of Any Multi-Level Marketing Company under Section 5 of the FTC Act, lists telltale signs of illegality (unfair and deceptive trade practices):
1. Endless Chain Structure - The sales management chain has no sector of sales people that is focused directly and only on end-users. The sales chain expansion is without limit and without geographic restriction. All new participants, upon payment, are awarded the right and offered financial incentives to recruit more salespeople and extend the chain to multiple levels, usually six to infinity. This reward plan and structure indicate the use of the inherently deceptive“endless chain”, infinity factor” and “unlimited” income claim to induce purchases and fees.
2. Pay-to-Play – Despite providing no territorial protection or even historical saturation data provided to new salespeople, sales/ purchase quotas are imposed with specific dollar volumes of product purchases (either by the distributor personally or his/her recruitment chain). In some cases, there are structural recruiting requirements also imposed in order to maintain a position in the endless chain payment plan. These volume and recruiting quotas are signs of “pay-to-play” factors that operate in tandem with an endless chain structure and recruiting-based rewards to drive purchases and fee payments.
3. Money Transfer - The MLM employs a reward formula that overwhelmingly rewards chain extension activity that is recruiting-based over personal retail sales activity that is market-based. Evidence includes formulas that allocate higher aggregate rewards, per transaction, to those at the upper end of the chain, over those at the base and allocate total commission payout to recruiters in excess of total verified retail profits. Special bonuses and rates on total “group” volume are based on position on the endless chain. They money transfer formulas directly result in an extreme concentration of payments – 50% to 80% – of total payouts to those at the extreme upper end of the recruiting chain. As an example, the report referenced hard data on Nu Skin’s payment of 82% of all its commissions to the top 1.29% of its “active” sales force, which is 0.5% of the entire sales network.
4. Recruitment-Driven  - The actual activity of the business is characterised by relentless recruiting, churning and transferring funds from later participants to earlier ones.
5. Little Evidence of Market-based Retail Selling - Little evidence, gained from an examination of marketing materials, website, and reports from participants or researchers, of market-based retail sales, per salesperson, and little evidence of retail profit gains among the sales force.
6. No Income Opportunity for Nearly All Participants -  Large-scale losses are evident in the sales force, even among those in the upper one-third of sales chain.
Law Enforcement Guidelines
For law enforcement, the report offered specific reforms that would put any MLM on the legal side.
1. Limit the number of levels that any individual salesperson can personally recruit and gain override commissions to one or several. In combination with other reforms, this measure would eliminate the infinity factor.
2. Require that commissions be awarded only on consummated retail sales, that is to persons who are not signers of the company’s sales contract and are not eligible for recruiting-based rewards. 
3. Allow no commissions to be paid on any purchases made by other salespeople or on the salesperson’s own account. This reform eliminates a major incentive for recruiting and for making personal purchases. It would also clearly indicate that all purchases made by the sales force are market-based. 
4. Eliminate all purchase/ sales volume or recruiting requirements in order to maintain sales and recruiting authorization. With no geographic limitations or protections placed on MLM salespeople, and no information available on market saturation factors, volume and recruiting requirements serve no other purpose than as recruiting inducements. 
5. Establish limited territories for distributors who want to develop sales teams with authorisation based upon management selection. The current practice of open-ended, even global territories and escalation on the sales chain being based purely on volume/ recruiting performance is a telltale indicator of the “endless chain” inducement and the lack of a real-world market basis for sales. 
Principles of FTC Law Enforcement and Consumer Protection from Illegal MLMs
1. The establishment of an understandable and consistent “bright line” requires that the FTC take a clearly stated legal stand against the groundless and nonsensical claim of MLM promoters that purchasing products by the participants in multi-level marketing exempts the enterprise from an illegal pyramid definition. The bogus identity of “direct selling” by pyramid selling schemes and the claim of exemption from a pyramid scheme definition based on product purchases have confused and misled millions of consumers (“If the MLM sells a product, it’s can’t be a pyramid!”). 
MLM lobbyists have claimed that pyramid scheme definitions must exempt enterprises in which rewards are gained through product sales “to participants.” They have lobbied for this “product exemption” in state laws and tried to get a federal law passed in 2003. In fact, in case after case of MLMs prosecuted by the FTC, the selling products was the disguise of choice, and “direct selling” turned out to be a false identity.
2. FTC must establish and publish a set of recognizable actors indicative of the use of the endless chain as a marketing device, once the endless structure is identified as part of that MLM’s business model.
The evidence of the use of endless chain marketing to induce purchases and fee payments is found in the MLM’s pay formula and in the statement of policies and procedures, both of which are generally published.
Additional evidence can be found in income disclosure documents, website, webinars and in SEC filings.
Evidence of the use of the endless chain is manifested in verifiable loss and churn rates and absence of profitable retail selling. Referencing these classic elements of a pyramid disguised as a sales company can be done in a matter of hours or days. Pyramid fraud is frequently in plain sight.
Mandate for Action Now
By offering bright lines and recommendations for law enforcement, the “Open Letter” supports the message of urgency that the International Coalition of Consumer Advocates delivered to the FTC in October, 2013 with it White Paper and petitions.
Currently, the FTC lacks a consistent or understandable standard for determining illegality of any MLM, rendering effective FTC prosecution and law enforcement in MLM sector essentially impossible and, indeed, virtually non-existent.
By any standard, this position for a law enforcement agency is intolerable. It leaves millions of people in America and around the world without any means of distinguishing legitimate direct selling opportunities from pyramid swindles. In recent years, these schemes have begun targeting the most vulnerable sectors of the public, students and immigrants. The FTC’s untenable position has also generated a dangerous uncertainty in the securities markets, putting pension funds at risk that are invested in MLM enterprises that are being openly challenged for operating illegally.
The scenario in India 
Coming back to home, Moneylife has been continuously writing about the inaction by government and regulators regarding MLM companies, money circulation schemes, pyramid-marketing schemes and other similar companies that swindle the unwary public by offering them misleading inducements and depriving them of their hard-earned savings.
In April 2013, after the collapse of Saradha group, the ministry of corporate affairs (MCA) in a face saving measure has decided to hand over probe of such chit-fund, MLM, Ponzi and pyramid scheme operators to a Special Task Force under the Serious Fraud Investigations Office (SFIO). The ministry said the probe has been ordered in view of a larger public interest involved in the issues, although the state governments are the appropriate authorities for regulation of such chit fund companies and schemes under the Chit Fund Act, 1982.
Here are some of the important stories written and representations made by Moneylife over the years…
In May 2011, following the exposé by Moneylife on Speak Asia Online Pte Ltd and its MLM scheme, Moneylife Foundation sent a representation to prime minister Dr Manmohan Singh, (the then) finance minister Pranab Mukherjee, finance secretary Sushama Nath and Reserve Bank of India (RBI) governor D Subbarao urging them to ban all MLM companies and their schemes in the country, or to bring all MLM companies under the regulation of either the RBI or the Securities and Exchange Board of India (SEBI), to stop them ensnaring gullible people.
The massive money, which is raised surely shows somewhere on the balance sheet of the company, filed regularly with the MCA. The primary recipient of the information about these companies is the MCA, and surprisingly the MCA is the least proactive in the entire process of bringing these perpetrators to regulatory focus, sooner before tonnes of money vanish.
Dubious pyramid schemes or money-circulation schemes are looting Indians across economic strata, finds Sucheta Dalal. This will continue since Central and state governments seem unconcerned.
Pyramid marketing companies are looting the public easily, while the government watches. Many countries have banned them outright.
A strange deposit scheme that is proliferating in the states of Orissa, Chhattisgarh, Karnataka and Maharashtra has already collected almost Rs1,000 crore and is expanding virtually unchecked. The scam has elements of money-laundering and possibly the use of fake and forged currency as well; however, the banking regulator would like to pass off the investigation to the respective state governments for investigation under the antiquated Prize Chits and Money Circulation Schemes (Banning) Act.
An international network marketing scheme hawking expensive limited edition coins is attracting a huge following. Sucheta Dalal examines this strange quest.
Moneylife readers know how MLM schemes ensnare lakhs of people by promising extraordinary returns. We learn from the ministry of consumer affairs that the government is now waking up to the need for better regulation of MLMs and ponzis. At the same time, the powerful Direct Selling Association of the US is lobbying hard for an amendment.
Pyramids are pure fraud. Their business is unsustainable-they promise payment for goods or services of dubious value. The hallmark of these schemes is the promise of sky-high returns in a short period of time, for doing nothing other than simply handing over your money to them, and getting others to do the same.
Even as India bans pyramid schemes under a statute called the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, the country continues to be a happy hunting ground for pyramids because our legislation is deliberately unworkable.
Investors losing money, or falling for dubious Ponzi schemes, is not a recent phenomenon; this has been happening for decades and it is not restricted only to India. Why is it that people repeatedly fall prey to such schemes in spite of being aware of the frauds perpetrated by conmen under different guises?
EAS Sarma, former power and finance secretary, said the ministry of finance, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and the investigating agencies should collectively tackle this problem without any delay, as every day of procrastination will only result in thousands of hapless families cheated by the promoters of these schemes.
Spokespersons and dealers of multi-level marketing (MLM) schemes or network marketing schemes respond to questions about their legitimacy by brandishing a 2003 letter issued by the then secretary, ministry of corporate affairs (MCA). What they omit to mention is that the letter was subsequently annulled following complaints about its misuse. This means, the letter used by these scamsters is no more valid.
While there are existing laws such as Indian Penal Code (IPC), the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS Act) and others under which concerned agencies could prosecute the culprits, there is no effective mechanism in place to ensure a coordinated approach to identify the fraudulent operators in advance and book them well before they destroy the livelihoods of thousands of households and launder the ill-gotten funds to unknown destinations.
A set of powerful MLMs, which are part of an exclusive closed club, called the Indian Direct Selling Association or IDSA (on the lines of the Direct Selling Association of the US) has been lobbying hard to make a distinction between their operations and those of others, who they call, fly-by-night operators such as SpeakAsia and Ad Magnet.
QNet, the controversial Hong Kong-based multi-level marketing (MLM) operator with multiple names (GoldQuest, QuestNet, QNet, QI Ltd and QI group are the better known names) refused to answer simple questions like how much money their independent representative (IR) earns on an average every month and why their products are priced so highly. Instead, it sent us a threatening and defamatory mail that raises more questions as to their real motive.
If 2010 was the year of great Indian scams, 2011 was rather of ponzi and multi-level marketing (MLM) frauds. SpeakAsia managed to top the chart, but soon many others joined the bandwagon, duping gullible investors for several thousand crores.
Nothing comes free in this world, especially money. The universal truth is you need to earn your money by hard labour all the time and there are no shortcuts to double it in the shortest span of time. Therefore, even if your near and dear ones tell you he/she will double, triple, quadruple your money within a few days/months, politely reply to them that it is not possible and what they are advocating is a pure 'get-rich-quick' type of scam.
Herbalife, a global MLM scheme also prevalent in India, is believed to be worthless according to hedge fund manager Bill Ackman, who made a detailed presentation on why consumers should avoid buying the company’s products and stay away from the MLM.




3 years ago

The problem isn't nearly as complicated as FitzPatrick describes it. There are only 2 things that need to be done:
1. Enforce high levels (at least 50%) of retail sales, and
2. Get rid of tool scams.

Also, the "unending chain" theory has been thoroughly debunked. There is MUCH damage being done without saturation.

For the details how these scams work, see

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