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1. Whether the business activities being carried on by the petitioners attract the provisions of Prize Chits and Money Circulation Schemes (Banning) Act 1978 (for short "the Act") and whether the action of respondents 3 to 6 in interfering with the activities of the petitioners by invoking the provisions of the Act is arbitrary, are the questions which fall for consideration in these two writ petitions.

The resume of facts in W.P.Nos.20470 and 20471 of 2006:

2. Petitioner No.1 is a private company with unlimited liability registered under the Companies Act 1956 having its registered office at C-3, Quatab Institutional Area, New Delhi. It is the wholly owned subsidiary of Amway Corporation, United States of America and is engaged in manufacture/marketing of its various products through a network of distributors. Petitioner No.2 in W.P.No.20470 of 2006 and all the three petitioners in W.P.No.20471 of 2006 are distributors of the 1st petitioner. The 1st petitioner approached Government of India, Ministry of Industry, Department of Industrial Development with an application dated 2-6-1994 to convey approval of Government of India for setting up a wholly owned subsidiary of Amway Corporation of United States of America in India for the purpose of establishing and developing a direct selling business of products. The Government of India, Ministry of Industry, Department of Industrial Development, Secretariat for Industrial Approval, Foreign Collaboration-II Section conveyed to the Amway Corporation, its approval of the said proposal, namely, to set up the wholly owned subsidiary in India, to establish and develop a direct selling business of products which shall be sourced from local independent Indian manufacturers particularly small scale units by providing technology support to products of international standard, vide its letter dated 26-8-1994. The approval was subject to certain conditions which inter alia include the condition that the proposed Indian subsidiary does not envisage any manufacture by itself and that if it decides to take up the manufacturing also, it shall obtain prior approval from Government of India as per the prescribed policy and procedure and a further condition that the approval is made a part of the foreign collaboration agreement to be executed between the Amway Corporation of USA and the Indian Company and that the approval is valid for a period of two years from the date of issue within which period Amway Corporation was required to file agreement with the Reserve Bank of India/Authorised Foreign Exchange dealer. Condition No.13 of the approval stipulated that the company shall not manufacture the items reserved in the small scale sector without prior approval of the Government.

It is further stated in the complaint:
The Amway India Enterprises is luring the public including me to introduce new distributors by showing the bait in the name of commission on sale of products to make quick money. The Amway India Enterprises is instigating the distributors like Padmavathi and Ramu to join the new distributors to sell the products in a large way, which is causing mental agony. It is nothing but money circulation which is illegal and also cheated me on the premise that they will return the money and commission according to company Multi-level Scheme (pyramid). I came to know that Amway India Enterprises, Hyderabad opened its branches all over Andhra Pradesh and exploiting youth like me and their families for their further gains.

5. The CID police registered a case for the offences under Section 385 and 480 of the Indian Penal Code and Sections 4, 5, and 6 of the Act on 24-9-2006. Within three days of registration of the crime, the petitioners filed these two writ petitions for issue of a writ of Mandamus to declare that the provisions of the Act have no application to the scheme run by petitioner No.1 and to restrain the respondents from interfering with the business carried by the petitioners.

Contentions:

6. Sri B. Adinarayana Rao, assisted by Sri C. Sudesh Anand, appearing for the petitioners in W.P. No. 20470 of 2006 contended that the 1st petitioner company has been carrying on its business activity in India with the approval of Government of India and that the Government of India had neither withdrawn the approval nor interdicted the petitioners' business activities which are being carried on in accordance with the approved scheme. He further submitted that the registration of criminal case by the CID police and their interference with the petitioners' business on the ground that it is hit by the provisions of the Act is highly illegal, arbitrary and unconstitutional. He argued that none of the ingredients of Section 2(c) of the Act exists in the business carried on by the petitioners as there is neither quick or easy money nor payments received by the promoter on promise of payment of money on the contingency relative or applicable to the enrollment of new members into the scheme. Learned Counsel further argued that the registration of the crime and interference with the petitioners' business activities by the State and its authorities is patently illegal, highhanded, arbitrary and unauthorized. According to the learned Counsel, the first petitioners' holding company, namely, Amway Corporation, USA is carrying on the direct selling business of products by avoiding middlemen (wholesale and retail traders) in more than 80 countries all over the world and that the petitioner which is incorporated as a wholly owned company of the Amway Corporation of USA has introduced the said method in India like many other companies and that since the money is payable on the basis of the skill and business turnover of the distributors, the prohibition contained in Section 3 of the Act is not attracted. In support of his contention, the learned Counsel relied upon the judgment of the Supreme Court in State of West Bengal v. Swapan Kumar Guha . The learned Counsel while making copious reference to various portions of the said judgment explained the scheme under which the petitioners are carrying on business and submitted that the ratio laid down therein is squarely attracted to the cases on hand.

(b) The terms and conditions of "Distribution Renewal form", supplied by "Amway" shown as Annexure-3 read as follows:
Condition No.3: The distributorship agreement if not renewed by Amway shall stand terminated on 31 December or on expiry of one year from the date of distributorship, as the case may be.
Condition No.12: The Renewal of subscription fee including Block Renewal subscription fee is non-refundable.
Condition No. 14: Renewal of subscription fee is mandatory to continue with business and maintain your position in line of sponsorship Thus, from 4,50,000/- distributors the company would get a sum of Rs. 45,00,00,000/- (rupees forty five crores) (4,50,000 x 995) per annum on completion of every year which can only be stated to be "easy/quick money" sans any service to the distributors/ members.