Kerala MLM act can useful to the companies?

Kochi: The ambitious plan of the Kerala government to come out with a Multi-Level Marketing Regulation Act seems to have become redundant with the Union government amending the Indian Companies Act 2013 to make sure that any kind of corporate fraud is investigated by the Serious Fraud Investigation Office (SFIO) of the ministry of corporate affairs.

One of the main purposes of the SFIO is to curb fraudulent schemes such as Sarad Chits and Speak Asia that take people for a ride in the name of multi-level marketing companies.

The amended act, which covers investigation procedures, establishment of a special court and the punishment to be given in detail, is expected to bring to an end fraudulent schemes that cheat people in the name of multi-level marketing companies and also clear uncertainties in Kerala over direct selling companies and MLM firms.

The amended act (section 447) states, “fraud in relation to affairs of a company includes any act, omissions, concealment of any facts or abuse of position committed by any person or any other persons with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of the company or its shareholders or its creditors or any other person, whether or not for any wrongful gain or wrongful loss.” Experts note that the amendment makes it easier for the law enforcement agencies to book offenders.

Police action

The Kerala police took strong action against the Multi Level Marketing firms and several direct selling firms in 2011, booking several top officials and distributors under the Prize Chits and Money Circulation Banning Act 1978 and filing hundreds of criminal cases.

A Government Order was later issued on September 12, 2011 giving guidelines for companies involved in Direct Selling in Kerala and based on these many restarted their operations.

But the direct selling companies alleged that the police continued to take action against them even afterwards under the Prize Chits and Money Circulation Banning Act 1978.

With the police failing to file even one chargesheet on these cases even after two years, the marketing firms now allege it had no case against them.

State’s own Multi Level Marketing Regulation Act

Considering the gravity of the situation Chief Minister Oommen Chandy held a meeting on February 19 this year with senior officials of various departments and a committee was constituted to draw up a draft bill for regulating the MLM business.

But the draft bill to curb illegalities in the name of direct selling or direct marketing has provisions very similar to the amended Central amended Companies Act 2013, which has sufficient provisions for preventing and punishing any type of fraud in business.

This makes the effort of the state government to come out with a law of its own to curb the activities of the MLM and direct selling companies redundant, claim experts.

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