The Ministry of Corporate Affairs has initiated a probe into the activities of all multi-level marketing companies registered abroad but with business operations in India.A preliminary report on such MLM companies and others was given to the ministry by the Registrar of Companies, Delhi, on Tuesday.
The list includes Singapore-based SpeakAsia, though the company claimed it was not engaged in MLM activities.
The ministry has ordered a closer scrutiny into the affairs of six companies that were covered in the report. RoC is expected to give its second report on the firms soon.
Declining to provide details of the companies under scanner, a senior ministry official said MLM companies registered abroad will be scrutinised for possible violation of the provisions under section 591 of the Companies Act, 1956.
Section 591 prescribes a lengthy list of mandatory procedures that needs to be followed by the representatives and agents of companies that are registered outside the country, but with operations in India.
RoC will investigate if requisite documents have been submitted by the companies within a month of starting business operations in India. This includes certified copy of the charter, statues, memorandum and articles of the company.
Address
of the Indian offices, details of company directors, nature and details of the business are all required to be furnished to the RoC.
The inquiry against MLM firms was triggered after complaints were registered against SpeakAsia over its business practices.
SpeakAsia, which charges an annual membership fee of Rs. 11,000, pays back its members for conducting online surveys for their clients.
The company had refused to disclose the names of the clients to whom it sells the survey results.
After controversy erupted in May this year about the company's operations, an investors' protection group filed a public interest litigation before the Bombay High Court.
The court issued summons to five top officials of SpeakAsia. The MCA probe was initiated in the backdrop of these allegations.
According to MCA officials, legal cases can be initiated against the agents or representatives of SpeakAsia and other MLM companies if instances of violations (of the Companies Act) are found by RoCs.
However, the company said its model was not properly understood by many and it was not a multi-level marketing company, but a precision marketing firm.
At a press conference, the company had said it will open a brand in Mumbai, the first outside Singapore and will apply to RoC, the Reserve Bank of India and the Foreign Investment Promotion Board.
