Finally, India has a clear guideline for Direct Selling / Network Marketing / Multi-level Marketing (MLM) industry! With the announcement of Direct Selling Guidelines 2016 on 12th September 2016; legitimate Direct Selling companies are rejoicing & scams are in trouble. A new chapter indeed!
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“We have sent an advisory to state governments on the model framework for guidelines on direct selling after consultation with industry and stakeholders. Some states have already made their guidelines and can make changes locally,” Hem Pande, secretary in the Department of Consumer Affairs, told reporters in New Delhi.
Wish I could tell you how much Direct Selling Guidelines 2016 means to me! I started my Entrepreneurship journey with Direct Selling at the age of 19 in 2007. Had to tolerate so much negative remarks from family, friends, and everyone around; just because there was no official distinction between legitimate Direct Selling companies and illegal pyramid schemes in India. Common public was confused and misinformed. Been fighting to establish this industry to masses, educate Direct Sellers sharing everything I know, for so many years! Such step from India Government, made the fight worth.
Before talking about Direct Selling Guidelines 2016, let me share a few tids and bits about this industry.
- What is Direct Selling
- Direct Selling in India
- Consequence of Not Having Clear Direct Selling Guidelines in India
- Direct Selling Guidelines 2016 [ Summary ] Infographic
- Direct Selling Guidelines 2016 [Full-Text] Infographics
- Full Text of Direct Selling Guidelines 2016
- Industry’s Reaction and Media Coverage to Direct Selling Guidelines 2016
- IDSA’s comment on Direct Selling Guidelines 2016
- Amway India CEO’s take on Direct Selling Guidelines 2016
- FICCI ‘s comment on Direct Selling Guidelines 2016
- Oriflame India Director ‘s Take on Direct Selling Guidelines 2016
- PwC Director’s Comment on Direct Selling Guidelines 2016
- Scam buster Ethan Vanderbuilt’s Comment on Direct Selling Guidelines 2016
- KPMG’s Statement on Direct Selling Guidelines 2016
- Strategy India’s Feedback on Direct Selling Guidelines 2016
What is Direct Selling / Network Marketing / Multi-level Marketing ( MLM )
“Direct selling means marketing, distribution, and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme,” the guidelines said.
Direct Selling in India
Direct Selling Market Size in India
State Wide Direct Selling Market in India
“The direct selling market in India has grown at a CAGR of 16 per cent over the past five years to reach INR75 billion today. The market grew at a lower rate of 4 per cent in 2013-14 due to slowdown in the industry.
The Indian Direct Selling Industry is well placed to successfully foray into international and domestic markets. However, there are many issues and challenges that need to be overcome to make that vision a reality. The factors hampering full fledged growth include: fly-by-night Ponzi and pyramid schemes which are often confused with direct selling, a clear legal definition of the industry, and clear and centralised regulations.
In states such as Andhra Pradesh, Telangana and Kerala, the direct selling business has been impacted due to lack of regulatory clarity. There is a need for the central as well as respective state governments to arrive at a comprehensive policy for the industry, which would enable the industry to grow and create both direct and indirect employment.”
Consequence of Not Having Clear Direct Selling Guidelines in India
In 2014, when Amway India CEO was arrested, countless Direct Sellers in India were confused and worried about their future. I researched and published a detailed article on MLM / Network Marketing / Direct Selling legality that gave guidance and hope to many distributors.
Then came the Qnet chapter. Legal proceedings against the company and some of its distributors scared not only many Qnet distributors but also other Direct Sellers. I kept getting comments and messages from Qnet distributors asking questions about legality of their company and industry.
While legitimate Direct Selling companies and its distributors, continued to face troubles, sometimes due to exaggerating promotional practices & sometimes due to lack of proper regulations; illegal schemes pretending to be direct selling companies, continued to trap people to invest their money promising ‘quick & easy money’, utilizing the legal loopholes.
Organizations such as Strategy India, Federation of Indian Chambers of Commerce & Industry ( FICCI), KPMG, Indian Direct Selling Association ( IDSA) along with all legitimate Direct Selling companies has been requesting Indian Govt. to come up with clear Direct Selling industry guidelines for ages.
Finally Shri Ram Vilas Paswan, Minister of Consumer Affairs, Food and Public Distribution; announced these Model guidelines on Direct Selling with a press release on Monday, 12th September 2016.
While countless media websites covered this news, with comments from industry’s significant personalities, I couldn’t find any website mentioning all guidelines and simplifying them for common mass.
That is why, started working on this with my teammates Neelam & Abhishek, to bring the guidelines to you, in easiest possible manner.
I read the guidelines PDF quite a few times. Loved the fact that it covered most ( if not all) concerning points. But I must agree that a common person might get a bit lost and confused, and might miss important directives.
Direct Selling Guidelines 2016 [ Summary ] Infographic
After revising the original guidelines and the 3 part full-text infographics we’ve made, for 8-10 times, I could summarize following points. I’ve tried to include all vital points. Please let me know if I’ve missed any. If you want to read the guidelines in its entirety first, please skip this part and proceed to full text and 3 part infographics.
While summarizing, we’ve divided the important points into 2 sections : Guidelines for Direct Selling companies and Guidelines for Direct Selling Distributors or Direct Sellers.
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Guidelines for Direct Selling Companies
- Submission of undertaking : All Direct Selling companies need to submit an undertaking to Ministry of Consumer Affairs, within 90 days from the announcement of the guidelines. For now, companies need to submit a declaration of compliance with these guidelines and their incorporation details. Later companies will be required to submit more details, when notified.
This very requirement is going to scare off the foul players. Any company, not adhering to these guidelines, will have to either restructure their business operations to get compliant or say goodbye.
- Purchase Restriction: I’ve noticed this popular practice in even reputed Direct Selling companies, where distributors are encouraged to purchase large volume of products to qualify for a large commission or bonus etc. Can’t do that anymore.
A Direct Selling company can not encourage its Direct Seller to purchase more products or services than they can expect to consume or sale.
( I can still remember my Dad’s first reaction about this industry : ‘You joined Network Marketing? You just ruined your life! You know my friend X? He joined company Y and bought a house full of products with big dreams. Couldn’t sell most of that and lost hard earned money‘. Well this story will not be repeated again after this directive. )
- Reason of remuneration : A Direct Selling company can not give remuneration or incentive to any Direct Seller for recruitment / enrollment of new participants. Remuneration must be strictly tied to sales of goods and services.
So next time anyone tells you ‘Hi! I have a Direct Selling / Network Marketing / MLM opportunity, where you don’t have to sale anything but still can make money …‘ , run!
- No Fees Allowed : Ever wondered how some Direct Selling companies continued to make money, even when they were not selling that much of products / services? I did. I inspected. Found out that these companies were charging entry fee ( aka ‘joining kit’), monthly subscription fees, renewal fee and many other fees. Imagine a company with 1,00,000 active distributors, charging 1,000 INR for renewal fee. 10 Cr revenue from renewal fee!
Any Direct Selling companies, charging such fees, need to stop immediately. No Direct Selling company can demand any fee from its Direct Sellers related to participation.
- Written Contracts: Direct Selling company needs to provide written contracts to all its Direct Sellers, mentioning buy-back, repurchase policy, cooling off period, warranty and refund policy. This contract needs to be consistent with Section 10 of Indian Contract Act, 1872.
- Cooling off period : Every direct selling company must allow its new distributors a period of time ( termed as ‘cooling off period’) within which they can return products, cancel participation and get refund.
- Reasonable or repurchase policy: Nightmare of a new Direct Seller used to be ‘what if I can’t sell these products I’ve bought?’. Now no need to worry. Direct Selling companies should have a reasonable policy to buy back unsold products.
- Grievance redressal mechanism: You’ll find countless forums online, where frustrated Direct Selling consumers bursted out their grievances. Having proper grievance redressal mechanism in each Direct Selling company, would minimize consumer dissatisfaction and negative buzz about the industry.
- Calculation of remuneration: Everyday I get many requests to review various Direct Selling companies. Companies who doesn’t disclose their calculation of remunerations clearly, raise my eyebrows. Glad to see that this disclosure is mandatory now.
- Legal registration: Countless people are duped by MLM schemes that started just with a website and big promises, and then vanished in thin air after collecting money from early adopters. Now you need to be a legally registered entity in India, to operate with Direct Selling business model.
- Mandatory orientation session with accurate information: Most negative perception about this industry results from the incorrect, unprofessional, hyped, deceptive representation.
Now Direct Selling companies need to ensure mandatory orientation sessions for prospective Direct Sellers with fair and accurate information on all aspects of Direct Selling operation. Every prospective Direct Seller must be informed accurate and complete information regarding remuneration opportunity, rights and obligations.
- Clean background for Company’s management: Anyone important in the company management, can’t have a criminal record ( imprisonment) in last 5 years.
- Mandatory Office : Every Direct Selling company must have an office, where consumers and Direct Seller can visit to get information or after sales service.
- Issuance of Identity Documents: Every Direct Selling company must issue proper identity documents for all its Direct Sellers.
- Proper record keeping: Company must maintain proper records of their business dealings, with complete details of their goods, services, terms of contract, price, income plan, details of direct sellers, including but not limited to enrollment, termination, active status, earning etc. Every Direct Selling company must also maintain Register of Direct Sellers where they keep records such as verified proof of address, proof of identity and PAN for each and every Direct Seller.
- Proper and Updated website: This one is my favorite point! While reviewing countless Direct Selling company websites, I’ve noticed huge difference in terms of the kind of information a company disclose on their website. More information they share, more trustworthy they are. More they hide, more skeptical you should be.
These guidelines directed all Direct Selling companies to maintain proper and updated website with all relevant details entity, contact information, its management, products, product information, product quality certificate, price, complete income plan, terms of contract with direct seller and complaint redressal mechanism for direct sellers and consumers.
The website should have space for registering consumer complaints and should ensure that grievances are addressed within 45 days of making such complaints.
- Perioding Information sharing with Direct Sellers: Company should send regular information to its Direct Sellers regarding sales, purchases, details of earning, commissions, bonus and other relevant data, periodically.
- VAT: Company must intimate a Direct Seller to pay the VAT, the moment their purchase value exceeds the VAT threshold.
- Caution about ‘False promise’ & ‘Deceptive Approach’: Now Direct Selling companies need to pay extreme attention to the way their business is being represented to prospective Direct Sellers. Companies need to very strict in an attempt to stop ‘false promise’ and ‘deceptive approach’.
- Liability for Direct Seller’s Actions: Many times legitimate Direct Selling companies run into legal troubles, due to the callousness of its Direct Sellers. Earlier many companies could clear allegation, by pointing out that it was the Direct Sellers who misrepresented products and/or business opportunity. Not anymore.
These guidelines mention that a Direct Selling company will be liable for any grievance arising out of any business operations from its Direct Sellers.
- Termination of Contract : A Direct Selling company can terminate contract with a Direct Seller with reasonable notice, if the direct seller couldn’t make any sales within 2 years of the start of contract or since the day of the last sale.
Guidelines for Direct Sellers
If you are already a distributor of a Direct Selling company, please check whether your company is compliant with all the points mentioned above. Don’t hesitate to ask your company boldly, if you find any noncompliance. It’s a matter of your life and career. If you are considering to enter this industry, choose a company compliant with these guidelines.
Now let me discuss those vital directives for Direct Sellers, mentioned in the Guidelines.
- Selling checklist : In my last 9 years with this industry, I’ve seen thousands of helpless consumers and distributors, who were sold Direct Selling products or recruited as a distributor, without providing proper info. Neither they could use the products, nor could they return. They didn’t have any idea on where to get further support, when the person who sold them vanished. This is another aspect, that cost huge on our industry reputation.
But from now on, as a Direct Seller you have to provide following information to the prospect / consumer at the time of the sale:
- No mystery presentation : This is a popular practice of immature Direct Sellers, to make their prospects curious without disclosing much info. Like me, most people got exposed to this industry for the 1st time, unexpectedly. I was invited to a ‘career building seminar’ that turned out to be a product and business demonstration seminar from the company. Many are invited to ‘party’ , ‘meetup’, ‘get together’, ‘health camp’ etc where they are presented about this industry. This mystery approach doesn’t work well.
I’ve even observed presentations by Direct Sellers, where they excitedly explain the miraculous products and/or groundbreaking income opportunity, without even mentioning the term ‘Direct Selling’.
From now on, while approaching anyone, you have to disclose your identity, identity of the Direct Selling company, nature of the goods and services sold and the purpose of the interaction. E.g. Hi! This is _____. I am a Distributor of a Direct Selling company ______. We have ______ products and ________ services. I’d like to have a chat with you and see if our products / services can serve you in any way.
- Before you visit your customers : You must carry your company provided identity card. You can’t visit customer’s premises without prior appointment / approval.
- a) A description of the goods or services to be supplied;
- b) Explain to the consumer about the goods return policy of the company in the details before the transaction;
- c) The Order date, the total amount to be paid by the consumer along with the bill and receipt;
- d) Time and place for inspection of the sample and delivery of good;
- e) Information of his/her rights to cancel the order and / or to return the product in saleable condition and avail full refund on sums paid;
- f) Details regarding the complaint redressal mechanism;
- Accurate and complete explanations and demonstration: How often Direct Sellers knowingly or unknowingly withhold information, even twists information a bit to sound more catchy. You talk about your weight loss products but don’t mention that regular exercise is a must? You tell people that they can earn 40 Lakh in a year, but don’t show the math and mention that less than 1% people in your company could do that so far?
Well, time to stop. Whatever information you share with others, need to be accurate. Don’t start telling something to everyone, just because you’ve heard it in a seminar or from an upline. Check company’s website, and if needed verify contacting your company, whether the information is accurate. Similarly, partial information can be misleading. Give complete explanations and demonstrations.
- Proper bookkeeping: Every serious Entrepreneur and business owner keeps proper records of all business operations. Why should you do anything less as a Direct Seller? If you were not already doing so, please start bookkeeping habit, recording all information related to products, price, volume sold, tax etc.
- Business practices and Claims: This industry is notorious for unethical trade practices and over the head claims made by immature or con-artist distributor. Time to change that impression. Say ‘no’ to any kind of misleading, deceptive and / or unfair trade practices. Even I will urge you to take a step further and stop other Direct Sellers from indulging any such practices.
Be careful about any claims you make too. If you can’t verify it, don’t claim it. And same for promises, don’t make promises that can not be fulfilled.
- Volume of purchase : Never ever force or encourage any other Direct Seller to purchase goods or services in large volume. Every Direct Seller should only purchase goods or services that they can expect to consume or sell.
- Promoting literature or training material : You need to take approval for your company before giving any literature and / or training material to other existing or prospective Direct Sellers. ( This is the only point I am confused about!)
- Sale of anything outside company’s goods / services : Now this is a good point. You should not encourage other Direct Sellers to purchase any training materials, sales tools or demonstration equipment.
[I remember a scam in the company I was with. A certain senior distributor with a huge organization started selling ‘compulsory training kit’ to all his distributors. There was a CD with 3 training audio recordings, a company brochure printed from the official PPT from company website, and a book written by him ( later found out that most of the content was copied from other sources without attribution ). All of us used to buy and promote this kit as some kind of holy text to succeed. Much later company founder found out and stopped this scam. But it had done irreparable damage to the company by then. ]
- Written consent to sell products on eCommerce sites : Haven’t you noticed people selling Direct Selling products on various eCommerce sites, with various offers? Well time to put an end to that. To sell any Direct Selling company’s products on eCommerce sites and/or to promote any offer on those, you need to take written consent from your Direct Selling company.
Guidelines for both – Protection of private information of consumers
Regulatory Authority – State Government in State & Ministry of Consumer Affairs in Union
State governments will setup a mechanism to monitor / supervise activities of Direct Sellers and Direct Selling companies, to ensure that they are compliant with these guidelines.
Direct Selling Guidelines 2016 [Full-Text] Infographics
Even if you’ve read the summary above, I will strongly recommend you to read the guidelines completely in its original form. I might have missed some important points while summarizing. I might have misinterpreted something. I need your feedback to improve this article.
I understand that reading so much text ( often repetitive) is boring. That’s why my team tried as much as they could, to make it interesting through the 3 infographics below. See if you find these useful.
You will find the original texts of the guidelines, after these infographics.
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Full Text of Direct Selling Guidelines 2016
Transcripted from the Direct Selling Guidelines 2016 Official PDF :
Advisory to State Governments / Union Territories: Model Framework for Guidelines on Direct Selling
These 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.
Clause 1. Definitions:
In these Guidelines unless and otherwise required:
- “Act” means the Consumer Protection Act, 1986 (68 of 1986);
- “Consumer” shall have the same meaning as provided under the Consumer Protection Act, 1986;
- “Prospect” means a person to whom an offer or a proposal is made by the Direct Seller to join a Direct Selling opportunity;
- “Direct Seller” means a person appointed or authorized, directly or indirectly, by a Direct Selling Entity through a legally enforceable written contract to undertake direct selling business on principal to principal basis.
- “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:Explanation: “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.
- “Direct Selling” means marketing, distribution and sale of goods or providing of services as a part of network of Direct Selling other than under a 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 services at a particular place
- “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 the said purpose from time to time.
- “Goods” means goods as defined in the Sale of Goods Act, 1930 and “Service” means service as defined in the Consumer Protection Act, 1986;
- “Saleable” 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;
- “Cooling-off Period” 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 and within which the direct seller may repudiate the agreement without being subject to penalty for breach of contract;
- “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, 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 form 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 consists of subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, where the benefit is as a result of sale of goods or services by subscribers and the scheme/financial arrangement complies with all of the following:
- a) It has no provision that a Direct Seller will receive remuneration or incentives for the recruitment / enrolment of new participants.
- b) It does not require a participant to purchase goods or services:
i. for an amount that exceeds an amount for which such goods or services can be expected to be sold or resold to consumers;
ii. for a quantity of goods or services that exceeds an amount that can be expected to be consumed by, or sold or resold to consumers;
- c) 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;
- d) It provides a participant with a written contract describing the “material terms” of participation;
- e) 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;
- f) 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 participant at reasonable terms;
- g) It establishes a grievance redressal mechanism for consumers, more particularly described in Clause 7 herein.Explanation 1 – For the purposes of this proviso the term “material terms” shall means buy-back or repurchase policy, cooling-off period, warranty and refund policy
- ”Money Circulation Scheme” has the same meaning as defined under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
- “Remuneration System” means the system followed by the direct selling entity to compensate the direct seller 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, for every Direct Selling entity, shall:
a) Have no provision that a direct seller will receive remuneration from the recruitment to participate in such direct selling;
b) ensure that direct sellers shall receive remuneration derived from the sale of goods or services;
c) clearly disclose the method of calculation of remuneration.
- ‘State’ includes a Union territory.
Clause 2. Conditions for the setting up of Direct Selling business:
Every Direct selling entity intending to carry out direct selling business subsequent to the publication of the notification in the Gazette, shall within 90 days comply with the following set of conditions for the conduct of direct selling business:
- be a registered legal entity under the laws of India.
- Provide a mandatory orientation session to all prospective direct sellers providing fair and accurate information on all aspects of the direct selling operation, including but not limited to the remuneration system and expected remuneration for newly recruited direct sellers;
- Provide accurate and complete information to prospective and existing direct sellers concerning the reasonable amount of remuneration opportunity, and related rights and obligations;
- Pay all dues and make withholdings from direct sellers in a commercially reasonable manner;
- Notify and provide a full refund or buy-back guarantee to every direct seller on reasonable commercial terms which can be exercised within a period of 30 days, from the date of the distribution of the goods or services to the direct seller;
- Notify and provide to every direct seller a cooling-off period which entitles such direct seller to return any goods /services purchased by the direct seller during the cooling-off period;
- The promoter or key management personnel should not have been convicted of any criminal offence punishable with imprisonment in last 5 years by any Court of competent jurisdiction;
- It shall have an office with identified jurisdiction of its operation in the State to enable the consumers and direct seller to acquaint themselves with price of products, return or replacement of products and efficient delivery of goods and services, and post-sale redressal of grievances;
Clause 3: Conditions for conduct of Direct Selling Business
Every Direct Selling entity shall comply with the following conditions:
- It shall be the owner, holder, licensee of a trademark, service mark or any other identification mark which identifies the entity with the goods to be sold or supplied or services to be rendered;
- It shall issue proper identity document(s) to its Direct Sellers;
- It shall maintain proper records either manual or electronic of their business dealings, with complete details of their goods, services, terms of contract, price, income plan, details of direct sellers, including but not limited to enrolment, termination, active status, earning etc;
- a) Every Direct Selling entity shall maintain a “Register of Direct Sellers” wherein relevant details of each enrolled Direct Seller shall be updated and maintained;
- b) The details of Direct Sellers shall include and not be limited to verified proof of address, proof of identity and PAN;
- It shall maintain proper and updated website with all relevant details of the entity, contact information, its management, products, product information, product quality certificate, price, complete income plan, terms of contract with direct seller and complaint redressal mechanism for direct sellers and consumers. The website should have space for registering consumer complaints and should ensure that grievances are addressed within 45 days of making such complaints;
- It shall provide to all direct sellers their periodic account / information concerning, as applicable, sales, purchases, details of earnings, commissions, bonus and other relevant data, in accordance with agreement with the direct sellers. All financial dues shall be paid and any withholding made in a commercially reasonable manner;
- It shall monitor the value of the purchases of all its Direct Sellers/Distributors on a monthly basis and once the purchase value crosses the VAT threshold; it must intimate the Direct seller/Distributor to pay the VAT;
- A Direct Selling entity shall not:
- a) Use misleading, deceptive or unfair recruiting practices, including misrepresentation of actual or potential sales or earnings, in their interaction with prospective or existing direct sellers;
- b) Make any factual representation to a prospective direct seller that cannot be verified or make any promise that cannot be fulfilled;
- c) Present any advantages of direct selling to any prospective direct seller in a false or deceptive manner;
- d) Make or cause, or permit to be made, any representation relating to its direct selling business, including remuneration system and agreement between itself and the direct seller, or to the goods or services being sold by itself or by the direct seller which is false or misleading;
- e) Engage in, or cause or permit, any conduct that is misleading or likely to mislead with regard to any material particulars relating to its direct selling business, including remuneration system and agreement between itself and the direct seller, or to the goods or services being sold by itself or by the direct seller;
- f) Use, or cause or permit to be used, fraud, coercion, harassment, or unconscionable or unlawful means in promoting its direct selling practice, including remuneration system and agreement between itself and the direct seller, or to the goods or services being sold by itself or by the direct seller;
- g) Require its direct sellers to provide any benefit, including entry fees and renewal fees or to purchase any sales demonstration equipment or material in order to participate in its direct selling operations;
- h) Provide any benefit to any person for the introduction or recruitment of one or more persons as direct sellers;
- i) Require the direct sellers to pay any money by way of minimum monthly subscription or renewal charges;
- Not withstanding the distribution system adopted by a direct selling entity, the Direct Selling Entity shall be responsible for compliance of these Guidelines by any member of its network of direct selling, whether such member is appointed directly or indirectly by the Direct Selling Entity.
Clause 4: Conditions for Direct Selling contract between Direct Seller/Distributor and Direct Selling Entity.
- Every Direct Selling entity shall execute a contract agreement, whether directly or indirectly, with Direct Sellers before enrolment:
- a) The Agreement shall be provided in a manner consistent with Section 10 of the Indian Contract Act, 1872;
- b) In addition to the rights and obligations of parties to this agreement under these guidelines or any other law in force, parties shall have rights and obligations that are coextensive with rights and obligations of parties under the Indian Contract Act, 1872;
- The agreement shall be made in writing, describing the material terms of participation and shall:
- a) 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;
- b) Allow or provide the direct seller a reasonable cooling-off period in which to cancel participation and receive a refund for goods or services purchased;
- c) Allow for the termination of contract, with reasonable notice, in such instances and on such terms where a direct seller is found to have made no sales of goods or services for a period of up to two years since the contract was entered into, or since the date of the last sale made by the direct seller;
- d) Allow or provide for a buy-back or repurchase policy for currently marketable goods or services sold to the direct seller at the said direct seller’s request at reasonable terms
Clause 5: Certain obligations of Direct Sellers
- Direct Seller engaged in direct selling should carry their identity card and not visit the customer’s premises without prior appointment/approval;
- At the initiation of a sales representation, without request, truthfully and clearly identify themselves, the identity of the direct selling entity, the nature of the goods or services sold and the purpose of the solicitation to the prospective consumer;
- Offer a prospective consumer accurate and complete explanations and demonstrations of goods and services, prices, credit terms, terms of payment, return policies, terms of guarantee, after-sales service;
- Provide the following information to the prospect / consumers at the time of sale, namely:
- a) Name, address, registration number or enrollment number, identity proof and telephone number of the direct seller and details of direct selling entity;
- b) A description of the goods or services to be supplied;
- c) Explain to the consumer about the goods return policy of the company in the details before the transaction;
- d) The Order date, the total amount to be paid by the consumer along with the bill and receipt;
- e) Time and place for inspection of the sample and delivery of good;
- f) Information of his/her rights to cancel the order and / or to return the product in saleable condition and avail full refund on sums paid;
- g) Details regarding the complaint redressal mechanism;
- A direct seller shall keep proper book of accounts stating the details of the products, price, tax and the quantity and such other details in respect of the goods sold by him/her, in such form as per applicable law.
- A direct seller shall not:
- a) Use misleading, deceptive and / or unfair trade practices;
- b) Use misleading, false, deceptive, and / or unfair recruiting practices, including misrepresentation of actual or potential sales or earnings and advantages of Direct Selling to any prospective direct seller, in their interaction with prospective direct sellers;
- c) Make any factual representation to a prospective direct seller that cannot be verified or make any promise that cannot be fulfilled;
- d) Present any advantages of Direct Selling to any prospective direct seller in a false and / or a deceptive manner;
- e) Knowingly make, omit, engage, or cause, or permit to be made, any representation relating to the Direct Selling operation, including remuneration system and agreement between the Direct Selling entity and the direct seller, or the goods and / or services being sold by such direct seller which is false and / or misleading;
- f) Require or encourage direct sellers recruited by the first mentioned direct seller to purchase goods and / or services in unreasonably large amounts;
- g) Provide any literature and / or training material not restricted to collateral issued by the Direct Selling entity, to a prospective and / or existing direct sellers both within and outside the parent Direct Selling entity, which has not been approved by the parent Direct Selling entity;
- h) Require prospective or existing direct sellers to purchase any literature or training materials or sales demonstration equipment.
Clause 6: Relationship between Direct Selling Entity and Direct Seller
- 1 The relationship between Direct Selling entity and Direct Seller shall be determined as per the written agreement between the parties which shall contain the rights and obligations that are expressly provided as conditions for the conduct of Direct Selling business as well as provide for the obligation of the direct selling entity and the direct seller in terms of these guidelines;
1.2 All other rights and obligations shall be determined as per the express terms of written agreement between a Direct Selling entity and Direct Seller;
- The Direct Selling entity will be liable for grievances arising out of sale of products, services or business opportunity by its Direct Sellers;
- It will be the responsibility of the Direct Selling entity to monitor and control the practices/methods adopted by the Direct Sellers;
Clause 7: Conduct for the Protection of Consumer
- Direct Sellers and Direct Selling Entity shall take appropriate steps to ensure the protection of all private information provided by a consumer;
- Direct Sellers and Direct Selling Entity shall be guided by the provision of the Consumer Protection Act 1986;
- All complaints received over phone, email, website, post and walk-in should have a complaint number for tracing and tracking the complaint and record time taken for redressal;
- Every Direct Selling company shall constitute a Grievance Redressal Committee whose composition, nature of responsibilities shall include but not limited to:
- a) The Grievance Redressal Committee shall consist of at least three officers of the Direct Selling entity;
- b) The Grievance Redressal Committee shall address complaints and inform complainants of any action taken;
- c) Complaints may be made by any member of the general public against a Direct Seller of the company, an employee or any other officer of the entity;
- d) All such grievances will be resolved directly by the Direct Selling Entity;
- The direct selling entity shall provide information to the consumer upon purchase which shall contain:
- (a) the name of the purchaser and seller;
- (b) the delivery date of goods or services;
- (c) procedures for returning the goods; and
- (d) warranty of the goods and exchange / replacement of goods in case of defect. Provided that no Direct Seller shall, in pursuance of a sale, make any claim that is not consistent with claims authorized by the Direct Selling Entity.
- Any person who sells or offers for sale, including on an e-commerce platform / marketplace, any product or service of a Direct Selling Entity must have prior written consent from the respective Direct Selling Entity in order to undertake or solicit such sale or offer.
Clause 8: Prohibition of Pyramid Scheme & Money Circulation Scheme
- No person or entity shall promote a Pyramid Scheme, as defined in Clause 1(11) or enroll any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing Direct Selling business.
- No person or entity will participate in Money Circulation Scheme, as defined in Clause 1(12) in the garb of Direct Selling of Business Opportunities.
Clause 9: Appointment of Monitoring Authority
- The Nodal department to deal with the issues related to Direct Selling will be Department of Consumer Affairs at the Union and the respective State Governments in the States;
- The State Governments will also 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, stating that it is in compliance with these guidelines and shall also provide such details of its incorporation and other business details as may be notified from time to time.
Industry’s Reaction and Media Coverage to Direct Selling Guidelines 2016
IDSA’s comment on Direct Selling Guidelines 2016
IDSA said the move will help in protecting consumers from ponzi frauds and help them differentiate between genuine and fraudulent schemes, besides ensuring growth for the sector.
“Indian Direct Selling Association welcomes the guidelines on Direct Selling with open arms. This will be very encouraging for the development of the Industry. We wish to thank the government, especially, the Ministry of Consumer Affairs for coming out with guidelines for the direct selling industry.
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.” – Jitendra Jagota, Chairman, Indian Direct Selling Association ( IDSA).
Amway India CEO’s take on Direct Selling Guidelines 2016
“The guidelines on direct selling, issued by the Ministry of Consumer Affairs, represent an important step which will both safeguard the interests of consumers, as well as identify and help protect ethical direct selling companies.
We also believe that legislation will help the industry actualize 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.” – Anshu Budhraja, CEO, Amway India.
He further added that the new guidelines will spur the growth of direct selling in India and drive entrepreneurship in the sector. Source: Firstpost
“Amway India does not charge any entry fee to the distributors. Further, distributors are free to exit anytime. All of Amway’s products are backed by a refund policy. The guidelines reinforce our faith in India where we have invested more than Rs. 600 crore to set up a world-class manufacturing facility employing, directly and indirectly, close to 1,000 people” Source : The Hindu
Federation of Indian Chambers of Commerce and Industry ( FICCI) ‘s comment on Direct Selling Guidelines 2016
FICCI welcomed the guidelines saying it was a much-awaited move and it will help the industry to grow.
“We are confident these guidelines will certainly help in bringing in regulatory clarity for the sector. FICCI is positive that the state governments will implement these guidelines as the sector is a major contributor towards employment creation and tax revenue” – Dr. A Didar Singh, Secretary General, FICCI
Oriflame India Director ‘s Take on Direct Selling Guidelines 2016
“The direct selling industry now has an operational and definitional clarity and what makes us more relaxed is that E-commerce websites won’t be able to sell the products of direct selling companies without their approval.” – Vivek Katoch, Director – Corporate Affairds, Oriflame India.
PwC Director’s Comment on Direct Selling Guidelines 2016
“Ministry of Consumer Affairs has truly created a milestone in approving the guidelines . Its a very progressive move towards a consumer driven regulatory era.
It would however be important that these guidelines also get statutory teeth and be anchored to the Consumer Protection Act itself. It would be crucial to define pyramid schemes under unfair trade practices and expose the consumer to his right to protection from such unfair trade practices. Adoption of these guidelines by the State governments, will further enable a conducive ecosystem for Direct Selling industry in India,” Shilpa Gupta, Director of Regulatory Services, PricewaterhouseCoopers
Scam buster Ethan Vanderbuilt’s Comment on Direct Selling Guidelines 2016
“These are excellent guidelines. India has done a great job in protecting their people. It is time for the FTC to do the same in the USA. It should be crystal clear what is legal and what is not legal in direct selling and MLM business opportunities.” Source.
KPMG’s Statement on Direct Selling Guidelines 2016 [ Tax Flash News – 14th September 2016 ]
“One of the biggest challenges for the Indian Direct Selling (DS) industry is a lack of express regulatory framework. As a result, often DS companies are compared to pyramid schemes under the Prize, Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS). PCMCS, which was enacted much before the advent of a bona fide DS industry in India, is archaic and does not distinguish between rightful DS businesses from malicious DS schemes.
States like Andhra Pradesh, Kerala, Sikkim, etc. and Union Territories like Chandigarh, on multiple occasions have taken misguided penal action against legitimate DS companies, and this has stunted the growth of the DS industry in India.
Apart from the ambiguity in PCMCS, there are many other regulatory issues including lack of definition of DS and separate regulatory provisions for the industry.
In the wake of the above challenges and pursuant to extensive interactions with the DS industry, recently, the Union Ministry of Consumer Affairs, Food and Public Distribution issued a Model Framework for Guidelines on DS (Direct Selling Guidelines 2016 or Model Guidelines) for respective state government(s) [as retail trade is a state subject under the Constitution of India] to take necessary actions for implementation of the same. The Direct Selling Guidelines 2016 (DSG) have been issued as guiding principles for state government(s) to consider regulating the businesses of DS and Multi- Level Marketing (MLM) and strengthen the existing regulatory mechanism on DS and MLM, for preventing fraud and protecting the legitimate rights and interest of consumers.”
Strategy India’s Feedback on Direct Selling Guidelines 2016
Renowned Industry consulting firm Strategy India, mentioned on their website:
The guidelines if improvised will have the potential to –
- Help discourage people from investing time, money and energy in Scams
- Help the police identify scams before they do considerable damage
- Help discourage individuals’ from copying the modus operandi of scams and unintentionally robbing people
- Help in increasing tax collections via VAT and Service tax
- Fix loopholes exploited by product promoting MLM operations operating under the garb of direct selling.
They also mentioned a wishlist for updating the Guidelines:
- Easy for a common man to understand
- Not be open to interpretations
- Negative list of products/services
- Products to be promoted under specific conditions
- Vat payable by company on MRP
- Service tax payable by the direct sellers earning above INR 10 lacs
- Clear definitions of commonly used terms by 6 different types of models (which deploy the MLM compensation plans)
- Business information kit to be made mandatory (with buy back policy – known as cooling off period)
- And many more.
That’s all we could find as of now. Please let us know in the comments if we’ve missed anything. We’ll add.
Let’s have a discussion in the comments below. What do you think of these guidelines? How do you think these guidelines will help you, your company, our industry?
Any stories you want to share with us, where you’ve faced troubles from people who thought you were doing something illegal by being part of this industry.
If your company’s official statement is not included above, please share with us. We’ll include.
Update (18th September 2017)
After publishing the above guidelines, ministry received many queries asking for some clarifications. Keeping those in mind, ministry has released some answers to Frequently Asked Questions related to Direct Selling Guidelines. I am sharing them below as it is:
GUIDELINES FOR THE DIRECT SELLING ENTITIES | FAQs
“Direct Seller” means a person appointed or authorized, directly or indirectly, by a Direct Selling Entity through a legally enforceable written contract to undertake direct selling business on principal to principal basis.” How shall digital and e-contracts be treated?
Answer: The ‘written contract’ includes e-contracts or digital contracts and the same shall be governed as per the provisions of the Information Technology Act, 2000.
Clause 1.6 (Proviso)
“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 services at a particular place”. Does this Proviso mean that every sale needs to take place away from permanent retail location only?
Answer: Clause 1.6 does not restrict/preclude sales made from permanent retail location. However, direct selling entity will be governed by these guidelines.
“Provide a mandatory orientation session to all prospective direct sellers providing fair and accurate information on all aspects of the direct selling operation, including but not limited to the remuneration system and expected remuneration for newly recruited direct sellers’’. Whether the training/orientation provided by the Direct Seller to other prospective Direct Sellers would be in compliance to this clause?
Answer: Yes, the training / orientation will be provided by the Direct Selling Entity or by a Direct Seller or by any authorized representative of Direct Selling Entity, either in person or through any digital means.
“It shall have an office with identified jurisdiction of its operation in the State to enable the consumers and direct seller to acquaint themselves with price of products, return or replacement of products and efficient delivery of goods and services, and post-sale redressal of grievances” Whether an office in one State can be designated as focal point for jurisdiction of two or more states?
Answer: An office in one particular State can be designated having jurisdiction over two or more states, subject to the accessibility of the consumers, where Direct Sellers/consumers can interact with the Direct Selling Entity / Authorized representative of Direct Selling Entity.
Clause 3.3 (b)
“The details of Direct Sellers shall include and not be limited to verified proof of address, proof of identity and PAN”. Should the Direct Selling Entity take verified proof of address, identity, and PAN?
Answer. The requirement of PAN shall be as per the provisions of the Income Tax Act, 1961. Direct Sellers should submit to Direct Selling Entity, any photo ID card as issued by the State or Central government. These ID cards could be from the following-: Aadhaar Card, Driving License, Voter ID Card, Passport and Ration Card or any other identity document issued by the state or central government which can be verified.
“Notwithstanding the distribution system adopted by a direct selling entity, the Direct Selling Entity shall be responsible for compliance of these Guidelines by any member of its network of direct selling, whether such member is appointed directly or indirectly by the Direct Selling Entity”. How will a Direct Selling Entity ensure compliance of these Guidelines by Direct Sellers?
Answer: To comply to this clause, Direct Selling Entity shall sign an addendum to the current contracts with the existing Direct Sellers. For the Direct Sellers to be appointed herein-after, this clause shall be added in the contract signed by both the parties. The Direct Selling Entity should ensure that it contractually binds its Direct Sellers to comply with these Guidelines and take disciplinary action against reported non-compliance.
“Allow for the termination of contract, with reasonable notice, in such instances and on such terms where a direct seller is found to have made no sales of goods or services for a period of up to two years since the contract was entered into, or since the date of the last sale made by the Direct Seller”. When can the contract between Direct Selling Entity and Direct Seller be terminated?
Answer: The date of termination shall be provided or governed by the respective conditions of the contract executed between Direct Selling Entity and Direct Seller or by giving notice of reasonable period by either party say one month or as per the provisions of the Indian Contract Act.
The Direct Selling Entity shall be liable for grievances arising out of sale of products and services or business opportunity by the Direct Seller. And
“It will be the responsibility of the Direct Selling entity to monitor and control the practices/methods adopted by the Direct Sellers”.
Does this mean that only the direct selling entity will be liable for all grievances arising out of sale of products and services or business opportunity by the direct seller?
Answer. It is clarified that the Direct Selling Entity will be responsible for the quality of products and services and it will guide and help the Direct Seller to follow best practices in the interest of consumers. The scope and specific liabilities of the Direct Seller in such cases will be defined in unambiguous terms in the contract signed. By way of providing in the contract, every Direct Selling Entity shall define and develop some mechanism to monitor the practices being adopted by its Direct Sellers.
Industry: It appears to be a typographical error in this Clause. As the consumer is buying the products or services from the Direct Sellers, it should be the Direct Seller which will provide various details listed in this sub-clause. Please clarify.
Answer – Yes, it should be the Direct Seller. Please read Direct Seller in place of Direct Selling entity in this sub-clause.
I am receiving one question again and again from Direct Selling Company owners:
Q. How to submit the Direct Selling Guidelines undertaking after the prescribed 90 days was over?
Answer: You have to take a printout and fill up the following document
After the above form is duly filled up, and necessary documents are attached, either send it to Ministry of Consumers Affairs by official post to get an acknowledgement receipt or visit Ministry of Consumer Affairs office and deliver in person taking the acknowledgement.