The arrest of the top brass of Amway India by the Kerala police, which attracted the wrath of India Inc and drew criticism from Union Corporate Affairs Minister Sachin Pilot, has once again triggered a pubic debate on the business model followed by the network marketing companies.

Amway India’s CEO William Scott Pinckney and two of his directors were arrested by the economic offences wing of the Crime Branch on May 27, to be let out on bail the following day, under the Prize Chits and Money Circulation Schemes (Banning) Act 1978. Several Amway customers and distributors in Kozhikode and Wayanad districts had sued the multinational company for alleged cheating.

Corporate India, terming the Act out-of-sync with current economic realities, has called for its overhaul. Industry bodies such as FICCI are worried that the arrests would send a wrong signal to global investors. The Indian Direct Selling Association has called for a separate law and policy framework to protect the interests of direct selling firms, consumers and distributors.

The political class frowned on the arrests. Pilot publicly criticised the Kerala police’s handling of the issue. On a cue, Kerala Home Minister Thiruvanchoor Radhakrishnan on Friday asked an additional director-general of police to investigate if the police had erred in arresting the Amway executives. The Minister reportedly was sore with the superintendent of police who had made the arrests.

However, a very senior police officer claimed on Saturday that the police had not erred. “The police made the arrests on a court warrant,” the officer who did not want to be quoted by name, told Business Line.

“Just go through the Andhra Pradesh High Court’s verdict against the network marketing company’s operations. It clearly says that the company violated the provisions of the Act; and the Supreme Court has upheld the verdict.” He claimed that the police had just followed the law.

‘Unethical’ business model

However, the business model and values of Amway (short for ‘American Way’) have been questioned in many of the nearly 100 countries it operates. Its pyramid-like distributor network, overpriced products and alleged fleecing of consumers and distributors have frequently been assailed.

The company’s support of extra-conservative Christian ideology, anti-gay and anti-abortion campaigns, and the Republican Party political leaning have been flayed within the US and outside.

In India, the networking and multi-level marketing companies, particularly Amway, have increasingly been criticised for their business model.

The resistance to Amway’s operations have been strong in Kerala and Andhra Pradesh. Following public complaints, the police in Andhra Pradesh carried out a series of raids on Amway-associated buildings in 2006 and had got several of them shut down.

In July 2007, the Andhra High Court declared that Amway operations attracted the provisions of the Prize Chits and Money Circulation Schemes Act.

In Kerala, there has been a spate of protests against money chain businesses. Two years ago, the police sealed Amway offices in half a dozen cities across the State. Last year, Amway’s godowns in three cities were closed down. A company official was arrested, too.

Police claimed that Amway products were sold at exorbitant prices. Consumers were roped in by their own friends and relatives who had turned distributors. Socio-cultural organisations, citing the ‘unethical’ business practices, called for a ban on the company.

However, the public debate in the country in the wake of the arrests has focussed on putting in place a regulation regime for the network marketing companies so that consumers’ interest could be protected. A general ban perhaps is not a way out, the debate seems to indicate.

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