EBIZ.COM's Multi-Level Marketing Scheme Deemed Pyramid Scheme; Assets Attachment Upheld: Appellate Tribunal

eBIZ.COM's Multi-Level Marketing Scheme Deemed Pyramid Scheme; Assets Attachment Upheld

New Delhi, March 20, 2025 - The Appellate Tribunal under SAFEMA has dismissed a batch of appeals filed by M/s eBIZ.com Pvt. Ltd. and its directors, upholding orders confirming the provisional attachment of their movable properties. The Tribunal, comprising Chairman Justice Munishwar Nath Bhandari and Member Shri V. Anandarajan, ruled that eBIZ.COM's business model, presented as a direct selling company, was in reality a pyramid scheme designed to lure individuals under the guise of selling educational packages.

Background of the Case

The case originated from multiple FIRs registered by the Telangana Police in 2019 against eBIZ.COM and its directors, including Pawan Malhan, Hitik Malhan, and Anita Malhan, under sections 406, 420, and 506 of the Indian Penal Code (IPC) and the Prize, Chits and Money Circulation Scheme (Banning) Act. The Directorate of Enforcement (ED) subsequently initiated an investigation under the Prevention of Money Laundering Act (PMLA), 2002, leading to the provisional attachment of assets, which was later confirmed by the Adjudicating Authority.

Arguments Presented

Appellants' Arguments: Counsel for eBIZ.COM argued that the company was legitimately selling online computer courses and offered a refund policy. They cited previous exonerations and closure reports in similar cases involving related entities, suggesting no criminal intent or activity. They contended that complaints were few and the alleged 'proceeds of crime' were vastly overstated compared to actual grievances.

Respondent's Arguments: The ED countered that eBIZ.COM was operating a pyramid scheme disguised as multi-level marketing. They highlighted the company's incentive structure, which prioritized recruitment over genuine product sales, violating Direct Selling Guidelines. The ED presented statements from complainants who described being lured by promises of high commissions through recruitment, with educational packages being merely a front. Investigation revealed proceeds of crime amounting to a staggering ₹1064 crores.

Tribunal's Observations and Reasoning

The Tribunal meticulously examined the business model of eBIZ.COM, noting its resemblance to the “Skybiz” model and its emphasis on a "Group Incentive Scheme." The judgment highlighted key aspects of the scheme, including:

Mandatory Purchase: Joining as a ‘Representative’ required purchasing an educational package for approximately ₹16,000.

Incentive Structure: Commissions were heavily reliant on recruiting new members and achieving business volumes (BV) through downlines, structured in a 2:1 or 1:2 ratio.

Worthless Products: Complainants testified that the online computer courses were basic, readily available for free online, and not recognized by any institution. The suit lengths and other retail products offered were also deemed of poor quality and overpriced.

Focus on Recruitment: Seminars and promotional activities focused on earning potential through recruitment rather than product value.

The Tribunal emphasized that eBIZ.COM was not merely selling educational programs but promoting a "multi-level marketing structured with pyramid scheme." It explicitly stated, "The purpose of the appellant was to attract the people to get maximum number of persons to join the scheme so as to earn the amount."

Addressing the appellant's reliance on past exonerations, the Tribunal clarified that those orders pertained to different entities and earlier periods, often under the Foreign Exchange Management Act (FEMA), and were irrelevant to the current PMLA case. The Tribunal dismissed the argument that the investigation was disproportionate to the number of complaints, asserting that the ED had the jurisdiction to investigate the magnitude of the alleged offense and trace the proceeds of crime, even beyond the immediate complainants.

Regarding the refund policy, the Tribunal found it to be a superficial measure that did not negate the inherent pyramid nature of the scheme, which violated consumer affairs guidelines by offering incentives for recruitment.

Final Verdict and Implications

The Appellate Tribunal concluded that there was no merit in the appeals and upheld the orders confirming the provisional attachment of assets. This judgment reinforces the view that eBIZ.COM's operations constituted a pyramid scheme under the guise of multi-level marketing, justifying the ED's actions under the PMLA. The decision underscores the stringent regulatory scrutiny of MLM schemes in India and the serious consequences for companies found engaging in deceptive and unlawful practices.