EAS Sarma, former power and finance secretary in his letter to the MCA secretary appealed to set up an inter-departmental group to collectively tackle MLM and pyramid schemes without any delay
EAS Sarma, former secretary to the Government of India (GoI) has appealed the ministry of corporate affairs (MCA) to set up an inter-departmental group to identify and curb pyramid or multi-level marketing (MLM) companies and schemes.
Mr Sarma, in a letter to Naved Masood, secretary of MCA, 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.
Earlier, in February, Mr Sarma wrote a letter to prime minister Manmohan Singh requesting to set up the inter-departmental group for prohibiting MLM and pyramid money circulation companies from operating in the country.
According to the former secretary of power and finance, the inter-departmental group should quickly identify the existing companies who are in this unethical business and proceed against them in a systematic manner. “The group should lay down the criteria for identifying such companies at an early stage so that they may not be allowed to get registered as companies under the Companies Act. If necessary, the existing laws should be suitably strengthened and the penalties sufficiently deterrent,” he added.
In several states, public-spirited officers have gathered fairly comprehensive data on such (MLM and pyramid) companies, investigated them thoroughly and brought them to book. Some of these states have enacted their own laws to pre-empt the activities of such companies. “MCA should take inputs from them and proceed effectively against the business of MLM and pyramid money circulation companies,” Mr Sarma said in the letter.
The MCA, in a recent study, said that such (MLM and pyramid) schemes are inherently money circulation schemes and sale of products is only a camouflage... (and) voilative of the Prize Chits and Money Circulation Schemes (Banning Act), 1978.
According to the study, the products by multi-level marketing companies are “over-priced” to pay huge commissions to people sitting at the top of pyramid and earn exorbitant profits for the company.
“Such schemes enrich the company and the top of the pyramid participants at the cost of 90% of the participants who are at the bottom two levels,” it said.
In a reply to Mr Sarma, the MCA admitted that another strategy adopted by these (MLM) companies is to use sale of ‘goods’ only as a camouflage whereas the real aim is to cheat the people lower down the chain. Unwary subscribers are lured to join such selling expeditions. They make deposits in the hope of getting huge returns. They are ultimately left high and dry,” the MCA admitted.
Even the study added that in the pyramid or multi-level marketing schemes ‘product’ “is only a way to disguise the real intention” and such schemes are primarily “a variant of the earlier money circulation schemes” without any products.
The main difference, it added, between direct sales ad pyramid sales is that in direct sales the person making the sales gets the maximum commission, while in pyramidal scheme the person at the top of the pyramid gets maximum commission.
“Such a compensation plan rewards enrolling more members down line rather than give incentives to sell directly to the consumers who are not interested in becoming members. The deceptive and fraudulent nature of such scheme is because very soon saturation is reached and more members cannot be enrolled,” it said.
Earlier, in April, corporate affairs minister Veerappa Moily had said he has suggested to the home ministry to set up an SFIO-type special body to probe frauds by the multi-level marketing companies and chit funds in a time-bound manner.
The maximum retail price is supposed to make consumers better off. However, we learn that using fine prints of the law, retailers are selling above MRP and getting away
The laws related to maximum retail price (MRP) have been carelessly drafted that even shops which sell above MRP cannot be punished. It would seem that legal experts and bureaucrats who draft legislations are ignorant of the basics. More pertinently, it would seem that not printing the MRP on a packaged commodity would attract punishment, but selling above MRP would be allowed! Most people believe that the MRP printed on packaged commodities is beneficial to the consumers, as they cannot be sold above the MRP. It prevents exploitation of consumers. However, defective drafting of the laws has made MRP a meaningless number.
A recent judgment by the National Consumer Commission (NCC) has upheld the order of Bharuch (Gujarat) District Forum imposing a fine on Hotel Nyay Mandir for charging more than the MRP on some soft drinks. In another case, the Delhi State Consumer Commission imposed huge punitive damages of Rs50,000 on a restaurant serving mineral water to its customers at three times the MRP. While these decisions are welcome from the point of view of the consumer, unfortunately it goes against an order of the Supreme Court and is liable to be struck down.
The Supreme Court order (State of Himachal Pradesh Vs Associated Hotels of India, AIR 1972 SC 1131) given in 1972 makes MRP applicable only to retail sales, i.e. goods sold in shops. The Supreme Court held that such food and drinks can not be considered retail sales since they are always accompanied by service. So food and drinks consumed in hotels, restaurants or airplanes may be sold at prices above the MRP. However, it is different for shops, kirana stores, etc. They could charge more than MRP and still get away with it! Let us explore how and why.
The Standards of Weights and Measures Act, 1976, (the Act) only mandates that the price be printed on the package whereas the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (the Rules) go impermissibly further by stipulating that price charged can not exceed the printed price. The Act always supersedes the rules, and thus the latter would not have any bearing on the former, no matter how sensible or valid. The Act does not forbid selling packaged commodities for a price higher than the printed price much less specify the penalty for selling above the printed price.
According to the Section 39 of The Act, “No person shall—
(a) make, manufacture, pack, sell, or cause to be packed or sold; or
(b) distribute, deliver, or cause to be distributed or delivered; or
(c) offer, expose or possess for sale, any commodity in packaged form
to which this Part applies unless such package bears thereon or a label securely attached thereto a definite, plain and conspicuous declaration, as prescribed, of –
(i) the identity of the commodity in the package;
(ii) the net quantity, in terms of the standard unit of weight or measure, or the commodity in the package; (iii) where the commodity is packaged or sold by number, the accurate number of the commodity contained in the package;
(iv) the Unit sale price of the package;
(v) the sale price of the package.”
According to Section 23(2) of the rules, the retail sale of any packaged commodity at a price higher than the printed MRP is prohibited. It says, “No dealer or other person including manufacturer, packer, and wholesale dealer shall make any sale of any commodity in packed form at a price exceeding the retail sale price thereof.”
Thus it is clear that while the rules state that anything cannot be sold above MRP, sadly it cannot be enforced since the Act supersedes rules. Violation of the Act, I an MRP, would attract a fine of Rs5,000 or a prison term of five years with a fine. Section 63 of the Act states, “Whoever, in the course of inter-state trade or commerce, sells, distributes, delivers or otherwise transfers, or causes to be sold, distributed , delivered or otherwise transferred any commodity in a packaged form which does not conform to the provisions of this Act or any rule made there under, shall be punished with fine which may extend to Rs5,000, and, for the second or subsequent offence, with imprisonment for a term which may extend to five years and also with fine.”
One would expect that legal experts and bureaucrats would notice this and make the change accordingly. However, it seems they haven’t learnt anything and have just simply drafted a new act and rules without bothering to take cognizance of this glaring loophole.
The central government enacted the Legal Metrology Act 2009 (the New Act), which came into force on 1 April 2011 and replaced The Standards of Weights and Measures Act, 1976. The new act rationalizes the units for measurement to be used in India. The Act also specifies the metric system (metre, kilogram, etc.) to be used. It regulates the manufacture, sale and use of standard weights and measures.
According to Chapter V, of the Legal Metrology Act 2009, it appears that the non-conformity refers only to weight, number, etc. and not to the price. So there is no explicit prohibition of sale above the MRP. Several sections in this chapter devote to ‘weight’ or ‘number’ but not price. The only difference in this Act is the quantum of fine is much higher, at Rs25,000 instead of Rs5,000. Section 36 of the Legal Metrology Act states, “Whoever manufactures, packs, imports, sells, distributes, delivers or otherwise transfers, offers, exposes or possesses for sale, or causes to be sold, distributed, delivered or otherwise transferred, offered, exposed for sale any pre-packaged commodity which does not conform to the declarations on the package as provided in this Act, shall be punished with fine which may extend to twenty-five thousand rupees, for the second offence, with fine which may extend to Rs50,000 and for the subsequent offence, with fine which shall not be less than Rs50,000 but which may extend to Rs1 lakh or with imprisonment for a term which may extend to one year or with both.”
Similarly, according to Section 18(2) of The Legal Metrology (Packaged Commodities) Rules, 2011 (which replaced the Standards of Weights and Measures (Packaged Commodities Rules, 1977), it states that, “No retail dealer or other person including manufacturer, packer, importer and wholesale dealer shall make any sale of any commodity in packed form at a price exceeding the retail sale price thereof.”
Basically, the old and the new acts and rules are the more or less the same! It would seem that MRP is just a fiction. Anybody would be able to sell it above MRP.
In fact, there are several Supreme Court orders which prescribe the limits of rules made under an Act. They all say that Rules cannot extend the boundaries of the Act under which they have been made (e.g. Bharathidasan University Vs All-India Council for Technical Education, (2001) 8 SCC 767). They should have included the prohibition of charging a price higher than the printed price in the Act itself and not just in the rules. Unless parliament fixes this lacuna, MRP will continue to remain a paper tiger and not benefit any consumer.
A tourist on tour with Cox & Kings' European Whirl was asked to pay more and still could not visit many places as the guided tour was “panoramic view only”. Is it due to cost cutting or cutting corners by operators to cope with the rupee depreciation?
The sharp depreciation of the Indian rupee over past several months may have started taking its toll on overseas travelling. To cope with the fall in rupee against the US dollar, several tour operators are either asking tourists to pay more or cutting costs by keeping the packaged tour limited.
YN Bhattacharya, a senior government official, recently witnessed this phenomenon. Mr Bhattacharya booked a packaged tour "European Whirl" with Cox & Kings India (C&K), which offered 48% cash back for travelling ex-Mumbai. The package cost was Rs1.28 lakh per person for 11 days and 10 nights. The cost was inclusive of main tour price post cash back, compulsory supplements and compulsory tips. Mr Bhattacharya, on 22nd April booked tickets for himself and three of his family members by paying Rs12,000 as advance. His tour date was fixed as 1st June.
Later, on 27th April, he paid additional Rs1.5 lakh and handed over the required documents to C&K's Vashi office. However, C&K told them that their tour date was being rescheduled to 3rd June as it could not accommodate them in the earlier tours. The tour operator also assured them that there would not be any change in the charges agreed upon.
Suddenly, on 17th May, C&K asked Mr Bhattacharya to pay additional Rs29,164. He was told to pay the additional money during his visit on 26th May to C&K's Vashi office. Mr Bhattacharya paid the money under protest, but again on 29th May, C&K asked him to pay additional Rs3,000 citing as human error in calculations. To avoid any further controversy and ending up paying more money, Mr Bhattacharya, finally paid full amount to C&K.
In an email reply, C&K, however maintained that the additional charges were collected from passengers due to increase in taxes charged by airlines, government and airports. "The UDF charges for departing international passengers was increased by Rs675 per passenger effective 1 May 2012. The government increased the service tax effective April 2012 and airlines increased the charges and we passed it on to the passenger. The airlines also hiked their taxes and surcharges. In our brochure page 67 (of which you have a copy), it is clearly mentioned under 'What Your Tour Price Does Not Include'. Any increase in the airfare, taxes will have to be borne by the passenger," the tour operator said.
After reaching Europe, Mr Bhattacharya found that the list of hotels for check-in at different locations was not what he expected and they were accommodated in sub-standard hotels outside city limits.
C&K, however, denied this. It said, "We have provided hotels as mentioned in our brochure or hotels of similar category. This is clearly mentioned on page 88 of our brochure. Secondly, it is mentioned in the brochure that the hotel location for Super Saver Tours will be away from the city centre. This information is very much in the brochure which the customer is provided with when he books the tour. Please see page 11 of the brochure."
The tour operator may be right in saying that we had mentioned everything in the brochure, but usually nobody bothers to read the fine print. In addition, according to Mr Bhattacharya, the tour operator did not provide any brochure to him. Moneylife received a copy of the brochure from C&K, but we also have difficulty in locating the exact reference mentioned above on that particular page. But more about that later.
Mr Bhattacharya also alleged that as per the itinerary provided to them during booking and before departure, all the places as committed were not covered in the tour. He said, "We were not taken close to the Buckingham Palace Gate, Big Ben, Westminster Abbey and palace, St Paul's Cathedral at London, and were not allowed to come out of the bus as it was always on move. Even it did not have any photo stop at these attractions."
C&K, however, said visiting these places on foot or disembarking from the bus was not part of the tour package. "According to the European Whirl itinerary, the London tour was a guided panoramic guided tour of London, where you get to view the sights/monuments as you drive past in your coach. A panoramic tour means that you will see the places while driving past and not on foot. This is mentioned on page 12 under Pearls of Wisdom. Secondly, they disembarked at the Tower of London for a photo stop. However, as the Queen's Diamond Jubilee Celebrations were in full swing on that day, the vehicle could not be parked on busy streets," the tour operator said.
However, Mr Bhattacharya feels that "the definition of panoramic view of C&K is innovative" and the operator is just trying to defend its stand under the pretext of some clauses in its brochure, which was never give to him.
During the tour, one exclusive visit was cancelled and all the tourists in this package tour had to spend time either on the streets or in the bus. "Exclusive half day excursion to Parc Asterix at Paris was not undertaken, for which the tour manager Ms Marina Coutino assured to refund 15 euro per person without any regret. As a result we were on the streets throughout the day, confined in the bus without any visits to any of the museums or places of interest. We were not taken to the famous museum of Louvre or its pyramid, even for a photo stop. Moreover, the committed Illumination tour, driving past spectacularly lit landmarks of Paris, was not undertaken," Mr Bhattacharya alleged.
While admitting that the Parc Asterix was closed, C&K said it is in the process of refunding the ticket cost of 15 euro to all passengers. It said, "We would also like to state that as Parc Asterix was closed, Cox & Kings as goodwill gesture took all the passengers to the Fragonard Perfume factory, even though it was not part of the itinerary. As for Louvre, it is not part of the tour itinerary. See page 64, Louvre is part of the orientation tour, i.e. see Louvre while on the bus... Finally, the illumination tour was part of an 'Optional Gala Evening' in Paris and this was provided to all who paid for the particular Optional. It may be mentioned that Mr YN Bhattacharya's wife and daughter opted to take the Optional tour, while he stayed back."
However, the tourist categorically said Parc Asterix was open on the day of their visit but the tour operator avoided it to save on expenditure for which all passengers had made payments in advance. He said, "It was not our intention to get refund of a meagre 15 euros but to visit the land mark location. Moreover, the entry fee was 44 euros which was already paid while C&K proposed for refund of only 15 euros apart from the cost of travel of 35 km which it had to incur."
Mr Bhattacharya said, in Switzerland, on Glacier 3000, Alpine Coaster ride was not facilitated to them. "C&K was aware that Alpine Coasters was not operational and yet they included this in the itinerary to mislead travellers," he said.
C&K said the Alpine Coaster was not operational as it was under maintenance. "However, all the passengers were taken to the snow fun park in lieu of the Alpine Coaster. This was communicated to the passengers and that's the reason why an alternate attraction which is similar was offered," it added.
While visiting Golden Roof, Imperial Church in Innsbruck and Doge's Palace in Venice and Duomo in Florence, the passengers were no allowed to see these places from inside, Mr Bhattacharya alleged. Denying the allegation, C&K said visiting these places from inside was not part of the tour package. "In Innsbruck the viewing of the Golden Roof and the visit to the church was part of the orientation tour and the same was facilitated. The visit inside the Imperial Church, Doge's palace in Venice and Duomo in Florence are not part of the itinerary," it said.
Coming back to reading all points and fine print in any user guide or manual is very tedious process. We tried locating the particular references mentioned by C&K in its brochure they sent to us, but could not find particular references easily.
In addition, Mr Bhattacharya said while booking tickets for a tour, the passengers are supposed to sign on about two dozen documents across the table. There is no time to read all fine prints and each and every point in these documents. So most of the time, the tourist signs on all papers in good faith and then pays the price later.
Just for information, since early March the Indian rupee has depreciated over 15%. Continuing its downslide for the fifth day in a row, the Indian rupee on Friday breached psychological 57-mark and logged its intra-day record low of 57.31 for the second day in a row and also registered its new closing low of 57.15 against the greenback, recording biggest fall of the current calendar of a whopping 85 paise.
Looking at the experience of Mr Bhattacharya and his fellow passengers, we would advise everyone to read each and every word mentioned by your tour operator in their brochure or tour package. Also do not use the verbal mode, instead opt for written communication and keep all copies safe and intact till your tour gets over. And don't forget to check (if possible take it in writing from the tour operator) if the fluctuation in the currency rates would adversely affect your tour cost.