PROHIBITION OF PYRAMID SCHEMES AND REGULATION OF DIRECT SALES IN INDIA

Authors: Shruthi Saravanan & Maanas Manoj Menon, Students of Symbiosis Law School, Hyderabad

Best Citation – Shruthi Saravanan & Maanas Manoj Menon, PROHIBITION OF PYRAMID SCHEMES AND REGULATION OF DIRECT SALES IN INDIA, Indian Journal of Legal Review (IJLR), 3 (1) of 2023, Pg. 348-355, ISSN – 2583-2344

ABSTRACT

Pyramid schemes will progress and not cease to exist as long as new participants continue join at the bottom level to keep expanding the pyramid’s foundation. The overall structure starts to collapse when the number of viable and willing participants recedes. Pyramid schemes cannot survive for a substantial duration, as the design/structure solely depends on the perpetual recruitment by the participants. Further, due to the delay in payments made by the new recruits, at times, even the top-level members tend to incur heavy financial loss. This nature of the pyramid scheme threatens to destabilize the financial assets of individuals and as a result, pose as a threat to the economy.  The paper analyses the Consumer Protection (Direct Selling) Rules, 2021 (herein, referred to as the ‘2021 guidelines’) to widen the difference between illegal pyramid schemes and legal direct selling entities. Additionally, the paper analyses the improvements brought by the 2021 guidelines compared to the Direct Selling Guidelines, 2016 (herein, referred to as the ‘2016’ guidelines’).   The paper has also objectively studied the 2021 guidelines and the Consumer Protection Act, 2019 side by side to derive express and implied liabilities of direct sellers and entities. Finally, a comparative analysis of the laws of Singapore and India pertaining to the subject matter to figure out the scope for development of the provisions laid down by the Central government has been comprehensively discussed in the paper.