Amway India chief, directors get conditional bail: All you need to know

The India CEO and two directors of controversial multilevel marketing company Amway had been arrested in Kerala on charges of fraud yesterday.A local court today granted conditional bail to them who were earlier remanded to 14 days judicial custody.

The Kalpetta Judicial first Class Magistrate N Ravishankar, who remanded the three to judicial custody yesterday, granted them bail with conditions including that the accused should report to the investigating official as and when directed.

Here is all you need to know about the company and the cases:

What the company does: It sells fast moving consumer goods using a direct selling model. In this model, customers are made the company’s agents who sell the products to other people directly. In other words, the agent-turned-customer will not get a commission directly. He has to rope in others through sales. So the network will keep growing at the expense of the customer. There is no clear difference between such a model and pyramid schemes. The company has a points system to give bonuses and rewards. “Giving you a chance to build your own business at your pace & achieve the rewards and recognition linked to the plan and at the same time helping other people do the same,” the company’s website says.

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What Indian laws say: Indian laws do not allow direct selling or multilevel marketing models. This comes under the purview of Prize Chits and Money Circulation Schemes (Banning) Act 1978.

What are the charges against the company: There are three cases against the company in Kerala. In the one of the cases, filed by Visalakshi in Kozhikode, the CEO has got an anticipatory bail. The arrest is in connection with a case filed in Wayanad district. All the cases and charges are similar: overpricing products and fraudulent practices, according to a Mint report.

The report said Visalakshi had alleged that the company did not return her money as she failed in selling the products to next level of consumers. The company’s offices and go-downs were raided and products worth Rs 2.14 crore seized in November 2012.

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This is not the first time that Amway India has come under scrutiny. In 2006, Amway offices in Andhra Pradesh were shut on allegations that the company was running a pyramid scheme. The Andhra Pradesh High Court also observed that company’s business model was identical to money circulation schemes and termed its operation as illegal. The case is pending before the Supreme Court now.

What the company said: Amway India Enterprises said that they always co-operated with Kerala Police in a case relating to financial irregularities by the firm.

“Our management represented by Pinckney, Anshu Budhraja and Sanjay Malhotra have always been present to answer any queries that the Crime Branch has had,” said a statement from Amway Monday night.

“With respect to the Wayanad case of 2011, for which it is believed that arrest warrants have been issued, the company or its officials were not issued any summons to join the investigation, nor was any information sought… The company management would have been happy to cooperate with the Wayanad Police… as we always have as a law abiding corporate citizens, following all laid down laws of the land,” added the release.

What is the global experience: Amway came under judicial scrutiny first in the US in 1974. According to this article, the US court looked at three issues: “the scheme of multi-level marketing; the manner in which the scheme and its functioning was presented to the general public; and ancillary issues associated with the implementation of the multi-level marketing”. The court, however, was of the opinion that the business structure was no illegal but certain practices if the company were. Ever since this verdict, such companies have been viewed cautiously in the US.

In China, the company claims to have reinvented its business model to suit to the laws there. “After the Chinese government outlawed direct selling, Amway repeatedly revised its business model to build a reputation as an honorable corporate citizen. In 2006 it received a new license, and China is now its largest market,” Amway’s President says in an article in Harvard Business Review.