Magic mattress: Vasant Pandit comes clean

A few weeks ago, CNBC-TV18 exposed the bitter truth over a product called the Magic Mattress, which was sold at Rs 1 lakh a piece by a multi-level marketing firm called Frontier Trading. Thousands of distributors claimed they had been duped. They alleged they had not got incentives and many claimed they had not even got the product.

The background

In its investigative show Uncovered, CNBC-TV18 had reported that thousands of customers had not received their mattresses for close to three years. And that there were close to 50 cases pending against the company in consumer courts across the country. All this, while 1,800 mattresses were lying undelivered with the customs because of non-payment of duty.

The trouble began when Customs decided to clamp down on the Frontier Trading, as it was availing lower customs duty by classifying the mattress as a medicinal product. The customs levied differential duty of Rs 22 crore on the company, claiming that the mattress could not be classified as "medicinal".

The mattress was not the only thing that Frontier Trading had been selling. The company also sold herbal products and insurance policies. Insurance policies were sold through an arm of the company called Pan Insurance Brokerage Ltd.

The story now...

In an email to CNBC-TV18, the founder of Frontier Trading, Vasant Pandit, says, "I have been informed by my distributors that your channel is planning another 'special' on my company and have been interviewing some current and ex-distributors in Delhi. If you and your channel are really interested in uncovering the truth about my company and why I am unable to pay my debts, it would be necessary to ask why an extremely successful company was targeted in the manner we were. Unless your story gives the full picture, it will succeed in finishing me, and the main losers will be those that I have to repay."

Having decided to speak up for himself and to those for whom he's really accountable Pandit explained why things went wrong with his company, one that had been earning over Rs 400 crore.

Pandit explained, "Here was a law that was passed in the 70's called the Prize Chit & Money Circulating Act. There were many chit funds and that was our problem, at that time and a lot of them were illegal. So a law was framed, to stop the money circulating schemes and chit funds that were cheating people. MLM has no say in this country, however, the prize chit category is applied to a lot of MLM companies wrongly, and I believe, it is a legitimate business."

His woes began in 2002, according to Pandit. "From April 2002, we were the target of 23 first information reports, FIRS, under the Prize Chit & Money Circulating (Act). If you look at it, there was a pattern to target us by bureaucrats, policemen and who knows, who else. (During this period) we grew from Rs 40 lakhs to Rs 400 crore in five years. It's abnormal growth for any company except an MLM company," he said.

Pandit refuted that his mattress was any magical product but said that "acupressure is an extremely old therapeutic practice" and that he was first to bring it into the country. He claimed, "we were the pioneers in mattresses and MLM. We were the first MLM company in India. We pioneered both these things and we grew very successfully." He said, that the product was pegged as being good for health and not something that cures diseases.

He continued, "Let me explain what our business model was. We had to give them something healthy but the product was expensive. We had no control over pricing, which was dictated by the parent company in Japan. It is still cheaper than anywhere else in the world. We wanted to target the middle class but we can't expect them to purchase a product that costs Rs 85,000. So, we have to give them the means by which they can afford the product."

These mattresses were imported from South Korea and he had signed a MoU to follow their marketing practices. He said, "I have an MoU with them that dictates pricing, the method of marketing but it is completely owned by me. So we were forced to sell in a particular manner and I have no qualms about that. There is nothing wrong with the way we sell it. The government doesn't like what it doesn't understand and we were targeted. Why we were targeted I leave to you to try and figure out." He was unable to conduct his business and pay his distributors because he said, "they froze my bank accounts more than three times. We couldn't do anything."

Making mistakes and avarice had a lot to do with it too. As Pandit puts in wryly, "Some of them (his distributors) worshipped money a little more than they worshipped me. We started this company with nothing. In hindsight, it is easy to say that there were problems but the growth was such that the only mistakes we can be accused of, is that we took working capital and utilized it for capital expansion. We made showrooms like it was going out of style."

The biggest mistake, according to his detractors is that he brought the mattresses into the country under the under the therapeutic classification. Pandit said, "We were importing under 90.19. If they had told us that no that it is not 90.19, it is 94:00 we would have re-priced the product. If we are charging Rs 85,000, we can charge Rs 95,000. There is no big deal. It's a matter of justice and the fight cost me a lot. It's not a question of Rs 10,000 here and there and a tax like this is not something that comes out of my pocket. It's something that I collect from the customer and pay to the government. But you can't tell me that 10 years ago, you imported this product, now give me Rs 10,000 for this. Where am I going to go to 1,00,000 people for a mistake that the customs made, why should I take it out of my pocket?

He does promise to make good the money he owes to people. He said he would "either revive this company or get into another business." The new company is called Japan Life Enterprises Ltd or just JLI Enterprises Ltd. As Pandit explained, "It's now become an acronym. It doesn't stand for anything. It's just very dear to me." The company will sell a "mattress and some other products as well. We are now currently negotiating", with the same Korean company, that he did business with earlier.

Pandit added, "Left alone, by which I mean if there is no endeavour to shut me down, I think within two years, I would be able to pay everybody and retire into a forest."

Distributors talk...
Manav was once one of the senior distributors of Frontier Trading and had been involved from the very beginning in this fight for justice and tells CNBC-TV18 what happened to customers and the distributors of Frontier Trading.
 
He said, "Actually in January 2000, we received a memo from Mr Pandit, stating that he will increase the price of the product from April 2000 - the next financial year. He said that the price will increase by Rs 10,000, so people started enlisting more customers and more distributors started joining the company. So the average sales which would have been 300 mattresses per month increased to 875."

"Approximately, the company got a turnover of Rs 9 crore in Chandigarh itself. Afterwards, the people who bought the bed at that time did not get the product for a year or so and neither of us received our payment. We kept on working for the company. They said, they will pay us next month, just work. For one year we worked but after that, when we knew that Pandit had some malafide intentions we eventually resigned, but he also terminated us. A few of the distributors had a press conference but we got no response so far and we are still fighting."

He added, "The office was established in March 2000. The problem started when the company made a roaring profit in March 2002, when we earned a turnover of Rs 1,000 crore in a single month. When the money accumulated, the problem started. We didn't receive the payment that we usually did on the 25th of every month. The payment didn't come in April, May and June. For three months, we were working day and night for the company and payments were not coming on one pretext or another. So ultimately, he started giving the signal that because of you people, I am running a loss in the company. whereas the company was making roaring profits.

Manav elaborated, "He started sacking senior distributors on one pretext or another, maybe because the profit was being shared with the distributors and he didn't want to do that. So we came to know of his malafide intentions when he didn't give us the money for 4-5 months. Then everyone was penniless and distributors were in a bad shape motionally, physically and moneywise. I wrote to him asking for an explanation."

"Instead of clarifying my queries, he sacked me and barred me from entering the office. Maybe he was smelling protest on our side, when I went to the office, he called the police and after the police found that I was not at fault, they allowed me to enter and instructed them to release my dues. We visited all the authorities. We met the IG, EOW, the police but we couldn't come up with any action against that fellow."

Meanwhile, Vasant Pandit has very irate dealers of his magic mattress in Indore as well, who want their concerns redressed or they threaten to take legal action and raise their voice for justice in the Consumer Court.