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:
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. “Prospect” 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 enforceable written contract to undertake
direct selling business on principal to principal 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:
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.
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 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
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 the said purpose from time to time.
8. “Goods” means goods as defined in the Sale of Goods Act, 1930 and “Service”
means service as defined in the Consumer Protection Act, 1986;
9. “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;
10. “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;
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 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
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 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.
14. „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:
It shall
1. be a registered legal entity under the laws of India.
2. 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;
3. Provide accurate and complete information to prospective and existing direct
sellers concerning the reasonable amount of remuneration opportunity, and
related rights and obligations;
4. Pay all dues and make withholdings from direct sellers in a commercially
reasonable manner;
5. 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;
6. 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;
7. 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;
8. 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:
1. 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;
2. It shall issue proper identity document(s) to its Direct Sellers;
3. 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;
4. 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;
5. 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;
6. 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;
7. 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;
8. 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.
Clause 4: Conditions for Direct Selling contract between Direct
Seller/Distributor and Direct Selling Entity.
1. 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;
2. 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
1. Direct Seller engaged in direct selling should carry their identity card and not visit
the customer.s premises without prior appointment/approval;
2. 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;
3. 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;
4. 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;
5. 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.
6. 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
1.1 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;
2. The Direct Selling entity will be liable for grievances arising out of sale of
products, services or business opportunity by its Direct Sellers;
3. 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
1. Direct Sellers and Direct Selling Entity shall take appropriate steps to ensure the
protection of all private information provided by a consumer;
2. Direct Sellers and Direct Selling Entity shall be guided by the provision of the
Consumer Protection Act 1986;
3. 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;
4. 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;
5. 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.
6. 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
1. 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.
2. 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
1. 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;
2. 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;
3. 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.
***End of note***
