The ministry of corporate affairs (MCA) and the department of consumer affairs under the ministry of consumer affairs, food & public distribution have initiated the filing of a winding up petition against Vihaan Direct Selling (India) Pvt Ltd, a franchise of controversial multi-level marketing (MLM) operator QNet. It has also issued a lookout notice against several persons including former world billiards champion Michael Ferreira. 

 

The registrar of companies (RoC) in Karnataka had inspected the books of Vihaan, which allegedly revealed fraudulent activities of the company with an intention to dupe investors. Based on this report, the RoC has filed a winding up petition against Vihaan Direct Selling under Section 271 of the Companies Act before the National Company Law Tribunal (NCLT)'s Bengaluru bench.

 

Further, the MCA has also issued lookout circulars (LOCs) against 12 persons associated with the company, including Guhan Ramachandran, MN Gunasheela, Subha Thulasiram, Vanka Srinivasa Rao, Balaji Magaral Veeravalli, Premdas Ramunni Kurup, Kantha Vijaya Sarathi, Muhammad Imthiaaz, Malcolm Nozer Desai and Michael Joseph Ferreira.

 

In a release, VC Sajjanar, commissioner of police at Cyberabad, says, "Promoters of QNet or Vihaan target software employees, unemployed youth, and homemakers stating that there is a business project which will yield huge profits to them. They give motivational speeches to the people whoever comes to the meeting and make them believe it is a good opportunity to earn quick money."

 

 

"So far about 70 persons have been arrested in about 38 cases, which were registered against Vihaan Direct Selling (QNet) in different police stations of Cyberabad Commissionerate. Apart from above, several cases were also lodged against Vihaan Direct Selling (QNet) and its promoters in different states in India," he added.

 

During the investigation, the Cyberabad police had issued notices to several Bollywood actors including Anil Kapoor, Shahrukh Khan, Boman Irani, Jackie Shroff, Vivek Oberoi, Pooja Hegde and Allu Sirish for participating in QNet programmes. Mr Sajjanar says, so far three actors, Mr Kapoor, Mr Khan and Mr Irani have responded to their notices through their lawyers and the police are awaiting response from other celebrities. He says, "The response of the three celebrities also is being studied. Notices were also given to top 500 promoters of the scheme and replies are yet to be received from them."

 

 

Separately, the department of consumer affairs has published the inspection report in the Vihaan Direct Selling case on its website. 

 

The inspection report states: "The products in these schemes have become merely a means of disguising or laundering investments in the pyramid schemes while the dynamics of the chain promotion system are essentially same. In fact, money from sales must go through the company's infrastructure and only a portion of payout is rebated to participants. But most of it goes to top level IRs and rest of the amount is spread amongst tens of thousands of participants, most of whom loss money."

 

"The company is using greater amount of deception for recruitment and selling of the products at exorbitant prices. Thus the inspecting officers are of opinion that this company and its directors should also have been examined under section 420 and 120B of Indian Penal Code (IPC) and various provisions of the Prize, Chits and Money Circulation (Banning) Act,1978 by the concerned agency and department at their end. In addition, the company has also grossly violated the provisions of the Consumer Protection Act, 1986 and Direct Selling Guidelines, 2016 and collected huge amount from gullible public promising high returns," the inspection report on Vihaan Direct Selling says.

 

 

The inspection also found that Vihaan Direct was selling products at different prices to various IRs. For example, the report says, the company sold the Chairos Amore couples watch to one Himansu Mahaling at Rs83517, while it was sold at Rs88,517 to Arun Sriram. 

 

Interestingly, Vihaan Direct had bought the products at much lower prices and sold it to IRs at exorbitantly higher prices. The above-mentioned watch had a purchase price of Rs27,004, including all taxes. However, it was sold for as much as Rs1.05 lakh, a profit of 290%! Similarly, Chairos racer watch was sold at Rs56,049 against a purchase price of Rs10,856, a whopping profit of 416%, the inspection report revealed.

 

Quoting from the balance sheet of Vihaan Direct Selling, the inspection report says, total cost of purchase for FY16-17 was Rs47.26 crore, while as per note 18 of the balance sheet, the company paid a commission of Rs302.12 crore. "This is highly disproportionate to normal business transaction. It clearly shows that the products sold by the company are immaterial and the company is running illegal product based pyramid scheme and offering huge commission to its IRs. Therefore it seems that the company is in the business of offering spurious goods for sale and adopts deceptive practices in the provision of services."

 

The inspection also found violation by Vihaan Direct Selling while using trademark of QNet. The report says, "The inspection reveals that the company has violated this provision as the trademark of QNET registered with Transview Enterprises India Pvt Ltd instead of Vihaan Direct Selling. Hence, it seems that the company violated the provisions of clause3(1) of Direct Selling Guidelines, 2016."  

 

As reported by Moneylife in October 2013 Suresh Thimiri, who was often touted as QNet India's chief executive and had denied any relationship with QNet or any of its representatives, owns the 'QNet' trademark in India through his company Transview Enterprises.

 

Earlier in July this year, ministry of consumer affairs, which had issued guidelines on direct selling, has said the money circulation or Ponzi scheme operated by QNet and its associates in India are concerns of the ministry of finance and it has a limited role in the matter. (Read: QNet: Ministry of Consumer Affairs says the Ponzi Scheme is Concern of the Finance Ministry)

 

AK Pandey, under secretary from the Ministry, in an affidavit submitted before the Supreme Court, stated, "...the money circulation scheme or Ponzi scheme operated by the private respondents in violation of the provisions of Prize Chits and Money Circulation Schemes (Banning) Act 1978 have concerns with the department of financial services, ministry of finance, government of India."

 

Responding to the notice issued by the apex court, Mr Pandey said the consumer affairs ministry had limited role in the case filed by Financial Frauds Victims Welfare Association and its name was added only because it had issued guidelines on direct selling.

 

The Association had filed a criminal petition against various ministries of Indian government as well as against promoters and directors of Vihaan Direct Selling, GoldQuest International, and QuestNet Enterprises. The petition also names agencies like Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) and various state governments where victims have filed a first information report (FIR) against the illegal money circulation schemes operated by the QNet group companies.

The Enforcement Directorate on Friday said it has attached properties to the tune of Rs 299 crore of Nowhera Sheikh of Heera Group including 96 immovable properties spread across several states in its probe into the ponzi scam.

 

An ED official said here that the agency has attached properties to the tune of Rs 299.99 crore under the provisions of money laundering act. The official said that it has attached properties of Sheikh consisting of 96 immovable properties located in Telangana, Kerala, Maharashtra, Delhi and Andhra Pradesh worth Rs 277.29 crore in the form of agricultural lands, commercial plots, residential buildings, commercial complexes and balances in bank accounts worth Rs 22.69 crore.

 

The ED has filed a case of money laundering on the basis of FIRs registered by Central Crime Station, Hyderabad, Telangana and Andhra Pradesh Police against Sheikh of Heera Group of Companies and others on the allegation of illegally collecting deposits from lakhs of investors under the guise of high returns.

 

The official said there are multiple FIRs registered across the country against Heera Group of Companies. He said during probe it was found that Sheikh incorporated multiple companies under Heera Group of Companies and collected an amount of approximately Rs 5,600 crore as unauthorized deposits from around 1,72,000 investors (IBG Members) across the country by engaging a network of marketing executives and direct selling agents with a false promise of paying high rate of returns i.e. 3 per cent per month (36 per cent per annum).

 

"She floated multiple schemes and extensively advertised the schemes to lure the victims. For this purpose, Sheikh started 24 firms or entities under Heera Group and 182 bank accounts were opened in different banks at different parts of the countries in the name of these 24 entities," the official said.

 

Further 10 bank accounts were also opened in foreign countries such as UAE, Saudi Arabia etc. For collecting these deposits, Sheikh does not possess any valid permission either under Banking Regulation Act, Companies Act, RBI Act or from any other government agency such as SEBI for collecting deposits.

 

He said Sheikh started gold, food and textile trading businesses only to create the impression that she was earning legitimate profits, but in reality, the payouts to the new members were simply being funded from the cash flows generated from new members/investments.

 

"The volume of business in her gold, textile and food marts was miniscule and not sufficient to justify the high returns promised by her," he said. The official pointed out that during the probe it was also found that Sheikh along with her family members and close associates diverted the depositors' money to their personal accounts and amassed huge movable and immovable assets for wrongful personal gain.

 

"The diverted funds were further layered into various shell companies and in the form of 'benami' assets so as to ultimately cheat lakhs of innocent victims and to launder these crime proceeds for personal benefit," he said.

 

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