Govt issues model guidelines for states on direct selling

To protect consumers from frauds, the government today issued new norms mandating direct sellers to maintain confidentiality of private information of buyers as well as maintain record of complaint redressal.

It also makes it mandatory for e-retailers and online marketplaces to get prior written consent of the direct selling entities like Amway before soliciting sales.

The model guidelines, which have been sent to states, also seek to define direct selling and direct sellers as well as pyramid schemes involving chain of subscribers wherein a buyer enrols one or more subscribers and the chain continues.

The norms also provided for direct selling companies for setting up a Grievance Redressal Committee to attend to consumer complaints that will necessarily have to carry a unique number through which they can be tracked for redressal.

Also, the guidelines mandate such firms to provide name of purchaser and seller, delivery date, procedure of returning goods and warranty.

The direct selling industry was pitching for a clearcut guidelines for the sector to remove legal ambiguities to differentiate between fraudulent ponzi schemes and genuine businesses run by them.

The process for framing proper guidelines was started in 2013 by the government after the police arrested the then Amway's India Chairman William S Pinckney and two company directors over allegations of fraud in Kerala under the Prize Chits and Money Circulation Schemes (Banning) Act.

The Ministry of Consumer Affairs issued the guidelines for states to regulate direct selling and multi-level marketing (MLM), that prohibited pyramid scheme as well as money circulation schemes under the garb of direct selling business.

The 'Direct Selling Guidelines 2016' framework was released by the Consumer Affairs Minister Ram Vilas Paswan and has been sent to the states/Union Territories for adoption.

The industry welcomed the move saying that it will bring clarity in the Rs 7,500 crore-sector and end regulatory conflicts, leading to future growth in direct selling segment.

The government has defined legitimate direct selling and differentiates it from pyramid and money circulation schemes to help investigating agencies identify fraudulent players.

"We are sending the model guidelines to all state governments. States can make some changes as per their localised requirements. The guidelines were necessary for better growth in the direct selling business," Consumer Affairs Secretary Hem Pande told reporters here.

Guidelines are always optional, he said when asked whether it would be mandatory for states to adopt these norms.

Indian Direct Selling Association (IDSA) President Jitendra Jagota said: "In the absence of proper policy or guidelines, numerous fraudulent players have been taking advantage of the situation. Now that the guidelines are out, it shall address the current concerns of the industry and provide much needed impetus".

The secretary said the norms will help protect consumers as direct sellers can now be identified.

The Centre asked state governments/UTs to implement the guidelines and also set up a mechanism to monitor the activities of direct sellers, direct selling entity regarding compliance of the guidelines.

Direct selling entity has been asked to comply these guidelines within 90 days and submit an undertaking to the Department of Consumer Affairs in this regard.

According to Amway CEO Anshu Budhraja said: "We also believe that legislation will help the industry actualise its potential. We, along with others in the industry plan to continue to engage with the central government in pursuit of appropriate regulations for the direct selling industry".

In the guidelines, direct selling has been defined as "marketing, distribution and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme".

Pyramid Scheme means "a multi layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, as a result of enrolment or action or performance of additional subscribers to the scheme".

Money Circulation Scheme has the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act.

Prohibiting pyramid and money circulation schemes, the guidelines said: "No person or entity shall promote a pyramid scheme as defined in Clause 1 (11) or enrol any such person to scheme or participate in such arrangement in any manner whatsover in the garb of direct selling business."

To conduct direct selling business, the guidelines have prescribed many conditions.

They bar direct selling companies from charging any entry fee from agents or compelling them to buy back unsold stocks. These entities will have to enter into an agreement with direct sellers or agents, and give full refund or buy-back guarantee for goods and services sold to them.

The norms have laid down remuneration system for person engaged by direct selling firms on sharing of incentives, profit and commission.

The guidelines have also made provision for appointment of monitoring authority at both Central and state level to deal with the issues related to direct selling.

The guidelines also prohibit direct selling firms from using misleading, deceptive or unfair recruitment practices.

A direct selling entity should not ask direct sellers "to provide any benefit including entry fees and renewable fees or to purchase any sales demonstration equipment or material in order to participate in direct selling operations".

The guidelines have also put conditions for contract between direct sellers and direct selling entity, saying that all such agreements should be in writing.

The agreement should not compel or induce the direct seller to purchase goods or services in an amount that exceeds an amount that can be expected to be sold to consumers within a reasonable period of time.

The contract should provide direct sellers a "reasonable cooling-off period" in which they can cancel it and receive a refund for goods and services purchased.

The guidelines have also specified certain obligations of direct sellers such as full disclosure of the good and services offered by the direct selling entities.

"The Direct Selling entity will be liable for grievances arising out of sale of products, services or business opportunity by its direct sellers.