The truth about prize chits & money circulation schemes

The lure of easy money and ignorance draw the gullible into this trap time and again — I refer to prize chit schemes and money circulation schemes. In 1977, a woman in Tiruchi started a simple scheme. You pay her Rs 1,000 and, after 21 days, collect goods worth Rs 3,000. This is given from the money collected from others, hoping the chain would go on. Police ignored complaints, saying she had not cheated anyone. She had a host of admirers till she ran away with the money. R K Narayan’s novel ‘The Financial Expert’ dealt with the same theme. When the same woman reappeared in 1986 and re-started the same scheme, the Consumer Protection Council of Tamil Nadu lodged a complaint. This time, we were armed with the Prize Chits and Money Circulation Schemes (Banning) Act of 1978. We convinced the police that there was no need to find a victim and the mere running of the business was a cognisable offence. Luckily, the then police DIG had her arrested. This Act defines a money circulation scheme as any scheme by whatever name called for the making of quick or easy money or for the receipt of any money or valuable thing as the consideration for a promise to pay money on enrolment of members into the scheme. Prize chit means any transaction in which a person collects money in a lump sum or installments by way of subscription or in any other manner. In return, it gives, periodically, a specified number of prizes or refund of subscription. Several prize chit schemes run by jewellery shops come under this category. In other words, except the chits registered with Registrar of Chits and schemes run by Non-Banking Finance Companies registered with Reserve Bank of India, all are illegal. Under this Act, the penalty for promoting or conducting such schemes or prize chits or participating is imprisonment for a term up to three years. Anyone who prints, sells, distributes or advertises tickets or coupons for such schemes is punishable with imprisonment up to two years. The same applies to those in possession of such material and anyone who induces or invites any person to send any ticket or coupon. The penalty is the same for renting out premises for such schemes. Again, in 1993, the council complained against Green Glory Finance Scheme and got the promoters arrested. This scheme required a member to send demand drafts for Rs 4,000 to four people and enroll four other members who in turn would enroll another four members. As the chain grew in geometric proportions, the first member would get DDs for Rs 4,000 from the four in the first round, and for a lesser amount from 16 in the second round; in round seven, the member is expected to get Rs 45 lakh. A defamation case filed in Egmore court in Chennai against me and the magazines that carried my statement was withdrawn after the Madras high court called it a fraudulent scheme. The recent Gold Quest scheme is another variation. More than 12,000 people were duped in a Rs 300 crore scam. In another variation involving sale of products, housewives are targeted. Again, canvassing for members and receipt of easy money as the chain grows are the elements. Whichever way you look at it, it is illegal. The internet is being used increasingly for such schemes now. Two years ago, the Madurai Bench of the Madras high court declared multi-level marketing (MLM) unlawful as it attracted provisions of this Act. Such schemes must be reported to the economic wing of the police. Copies of this Act and the high court judgment on MLM can be sent if you send a self-addressed Rs 10 stamped envelope to Consumer Protection Council of Tamil Nadu, Tiruchi-18.

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