The main legal point established in the judgment is that the network marketing scheme fell within the definition of 'Money Circulation Scheme' under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and was prohibited by the Act.

The first petitioner is a company registered under the Companies Act. It is marketing various products including shampoo, tea, coffee powder, after-shave lotion etc. under the brand-name 'Joy Eternal' through "network marketing". This method of marketing differs from the conventional sale through a distributor and the retail network; any person could take up the marketing and sale, and make an earning; it is done by several reputed companies like Hindustan Lever and Indian Express. Several unemployed youth have taken up the marketing of these products and have earned satisfactory incomes depending on their talents and efforts.

(i) No complaints have been received from any consumer about the quality of the goods sold. Under the scheme of network marketing the company sells products to the customers and the consumers in turn can sell the products to their peers and earn commission out of the sale. In fact it avoids many middlemen, and cost of advertisement, etc. The marketing process is carried out directly by recruiting the customers themselves as distributors of the products and services; the company regularly organises business development meetings and seminars, distributors meetings, etc.,. The participants of the meetings are encouraged to take up the distributorship of the products and are suitably registered if they so desire. There is no service fee for registration as distributor. Any person who is interested is given a product for the price fixed. The distributors are encouraged to en-roll more distributors. The commissions are given only as per the volume of sales made by the individual distributor and his team. This system ensures that intermediate distributors are not like a chain leading to the customer and the company.

(ii) There are only two stages, viz. stockist and distributor. The distributor can introduce another person as a distributor and he will also get commission. The distributor has to put in his effort in selling the products and then only he will get the commission. The company also takes care of the risks involved in the trading activities; there is no deposit of money by the consumers and the products are given to the person who pays the money for the same. The distributors are paying the price for the products they purchase. Thus, the possibility of the principal company or its Directors making use of any funds of others is avoided. Except service charges, no charges or deposits are levied to enroll as a distributor. There is no risk of non-recovery of the funds due to the consumer since the products are given out only on receipt of payment. Thus, the process of network marketing is a foolproof and beneficial mechanism for the conduct of trade and commerce. The pricing of the products is always a contentious issue. The product is not exorbitantly priced. But, some others, who are inimical towards the company, are trying to overturn the trading activity of the company by resorting to various crooked means and methods. They maligned the name of the company by publishing reports in a magazine and consequently the company is faced with roving enquiries by the police and the company promotion seminars and meetings are also being disturbed by the police. Stockists and distributors of the company have also faced similar harassment. It is an infringement of the fundamental right conferred under Article 19(1)(a) of the Constitution. No complaint has been registered against the company in any of the police stations. The Union of India has also examined the issue of the network marketing and has come to the conclusion that there is no illegality in the said system. The Union of India has also stated that the system of network marketing will not come under the purview of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The labour of a person in selling goods is rewarded by payment of commission. Several companies have launched similar network marketing system. Therefore, it is qui