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MLM law in India to be govern by SEBI

Press Information Bureau
Government of India
Ministry of Consumer Affairs, Food & Public Distribution
12-September-2016 17:41 IST
Model Guidelines on Direct Selling

Shri Ram Vilas Paswan, Minister of Consumer Affairs, Food and Public Distribution today informed the media that the model guidelines on direct selling had been formulated and sent to State Governments.

State Governments/UTs may kindly take necessary action to implement the same. It is envisaged in the guidelines that the State Governments will set up a mechanism to monitor/ supervise the activities of Direct Sellers, Direct Selling Entity regarding compliance of the guidelines for Direct Selling.

Any direct selling entity conducting direct selling activities shall submit an undertaking to the Department of Consumer Affairs within 90 days, stating that it is in compliance with these guidelines and shall also provide details of its incorporation.

Advisory to State Government / Union Territories :
Model Framework for Guidelines on Direct Selling

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The guidelines, may be called the direct selling guidelines 2016. These are issued as guiding principles for State Governments to consider regulating the business of “Direct Selling” and Multi Level Marketing (MLM) and strengthen the existing regulatory mechanism on Direct Selling and MLM, for preventing fraud and protecting the legitimate rights and interests of consumers

Direct Selling Guidelines 2016

In These Guidelines unless and otherwise required:

1.  “Act” means the Consumer Protection Act, 1986 (68 of 1986)

2.  “Consumer” shall have the same meaning as provided under the Consumer Protection Act, 1986;

3.  “Prospects ” means a person to whom an offer or a proposal is made by the Direct Seller to join a Direct Selling Opportunity;

4.  “Direct Seller” means a person appointed or authorized, directly or indirectly, by a Direct Selling Entity through a legally enforced written contract to undertake direct selling business on principal to principle basis.

5.  “Network of Direct Selling ” means a network of direct sellers at different levels of distribution, who may recruit or introduce or sponsor further levels of direct sellers, who they then support; Expansion : ‘network of direct selling’ shall mean any system of distribution or marketing adopted by a direct selling entity to undertake direct selling business and shall include the multi-level marketing method of distribution.

6.   “Direct Selling” means marketing, distribution and sale of goods or providing of services as a part of network of Direct Selling other than under Pyramid scheme.

Provided that such sale of goods or services occurs otherwise than through a “Permanent retail location” to the consumers, generally in their houses or at their workplace or through explanation and demonstration of such goods and service at a particular place.

7.   “Direct Selling Entity”, means an entity, not being engaged in a pyramid scheme, which sells or offers to sell goods or services through a direct seller.
Provided that “Direct Selling Entity” does not include any entity or business notified otherwise by the Government for said purpose from time to time.

8.   “Goods” means goods as defined in the Sales of Goods Act, 1930 and “Service” means service as defined in the Consumer Protection Act, 1986;

9.   “Sealable” shall mean, with respect to goods and / or services, unused and marketable, which has not expired, and which is not seasonal, discontinued or special promotion goods and / or services;

10.   “Cooling-off Periods” means the duration of time counted from the date when the direct seller and the direct selling entity enter into an agreement under Clause 4 and ending with date on which the contract is to be performed within which the direct seller may repudiate the agreement without being subject to penalty for breach of contract;

11.   “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 benefits, directly or indirectly, as a result of enrolment, action or performance of additional subscribers to the scheme. The subscribers enrolling further subscriber(s) occupy higher position and the enrolled subscriber(s) lower position, thus, with successive enrolments, they multi-layered network of subscribers. Provided that the above definition of a “Pyramid Scheme” shall not apply to a multi layered network of subscribers to a scheme formed by a Direct Selling Entity, which consist of subscriber enrolling one or more subscribers in order to receive any benefits, directly or indirectly, where the benefit is as a result of goods and services by subscribers and the scheme/financial arrangement complies with all of the following:

  1. It has no provision that a Direct Seller will receive remuneration or incentives for the recruitments / enrollment of new participants.
  2. It does not require a participant to purchase goods or service:
    • For an amount that exceeds an amount for which such goods or service can be expected to be sold or resold consumers
    • For a quantity of goods or services that exceeds an amount that can be expected to be consumed by, or sold resold to consumers.
  3. It does not require a participant to pay any entry/registration fee, cost of sales demonstration equipment and materials or other fees relating to participation.
  4. It allows or provides for a participant a reasonable cooling-off period to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations;
  5. It allows or provides for a buy back or repurchase policy for “currently marketable” goods or services sold to the participant at the request of the participants at reasonable terms;
  6. It establishes a grievance redressal mechanism for consumers, more particularly described in Clause 7 herein.

Explanation 1 – For the purpose of this proviso the term “material term” shall means buy-back or repurchase policy, cooling off period, warranty and refund policy.

12.   “Money Circulation Scheme” has the same meaning as defined under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978

13.   “Remuneration System” means the system followed by the direct selling entity to compensate the direct sellers which illustrates the mode of sharing of incentives, profits and commission, including financial and non-financial benefits, paid by the direct selling entity to the direct sellers, on a monthly or periodic or yearly basis or both, as the case may be. This system is for every Direct Selling entity, shall;

  1. Have no provision that a direct seller will receive remuneration from the recruitment to participate in such direct selling;
  2. Ensure that direct sellers shall receive remuneration derived from the sale of goods or services;
  3. Clearly disclose the method of calculation of remuneration

14.   ‘State’ includes a Union Territory.

Next Page for Direct Selling Business....

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