The Rs 8,000-crore (Rs 80 billion) Indian direct selling industry could soon come under the stringent Consumer Protection Act, 1986, as the government on Monday unveiled a series of guidelines for states to regulate the sector.
In an attempt to cleanse the sector, the guidelines have prohibited use of pyramid structure and money circulation scheme in any direct selling company, besides ensuring a safety net for consumers through multiple steps.
The move comes two years after William Pinckney, managing director & chief executive officer (CEO) of the country’s largest direct selling company Amway, was arrested for unethical circulation of money under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
The arrest had put the spotlight squarely on the domestic direct selling market and its operators, who’ve claimed all along that the 1978 Act unfairly targets them, bundling them with fraudsters.
“Direct selling means marketing, distribution and sale of goods or providing of services as part of a network of direct selling other than under a pyramid scheme,” the guidelines said.
Pyramid schemes or money circulation schemes have the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act, 1978, the guidelines said.
While disallowing a pyramid structure, the guidelines have defined such a scheme.
A ‘pyramid-scheme’ is 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.
But direct sellers have to comply with various conditions to operate as legitimate players in the country, the guidelines said.
One is direct sellers have been barred from charging any entry fee from agents or compelling them to buy back unsold stock.
“These entities will have to enter into an agreement with direct sellers or agents, and give full refund or buyback guarantee for goods and services sold to them,” the guidelines said.
It also mandates firms to constitute a grievance redressal committee to protect consumers.
It has also laid down a remuneration system for agents engaged by direct sellers.
The guidelines lay down among other things features like mandatory carrying of identity (ID) card by all sellers and not visiting a customer’s place without prior appointment.
It also says that direct sellers shall inform the prospective customers about all the procedures for cancellation of an order, refund of money and return of the product, etc.
The Direct Selling Guidelines 2016 framework was released by the Food & Consumer Affairs Minister Ram Vilas Paswan and has been sent to the states and Union Territories for adoption.
They bar direct selling companies from charging any entry fee from agents or compelling them to buyback unsold stocks.
These entities will have to enter into an agreement with direct sellers or agents and give full refund or buyback guarantee for goods and services sold to them.
It has also laid down remuneration system for the 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 direct selling industry meanwhile, wholeheartedly welcomed the new guidelines as a much-needed move to boost the industry which employs large number of unemployed youth and women.
“The guidelines on direct selling, issued by the ministry of consumer affairs, represent an important step which will safeguard the interests of consumers, as well as identify and help protect ethical direct selling companies. We believe it will spur the growth of direct selling in India and drive entrepreneurship,” Anshu Budhraja, CEO, Amway India, said.
- Direct sellers should not get any remuneration or incentives for recruitment/enrolment of new participants
- Participants not to pay any entry/ registration fee
- Sets up grievance redressal mechanism for consumers
- All direct sellers would have to mandatorily comply with the some rules within 90 days of their publication in the official gazette
- Direct sellers shall carry their identity cards and not visit any household without prior permission
- The guidelines also lay down a remuneration system for the person engaged by direct selling firms on sharing of incentives, profit and commission