This article encompasses the compliances to be undertaken by an entity located in the State of Maharashtra, which is engaged in the business of direct selling and multi-level marketing (Direct Selling) to sell and distribute its products/ services throughout India.

Direct Selling:

Direct Selling means marketing, distribution and sale of goods or providing of services as a part of ‘Network of Direct Seller’ other than under a pyramid scheme. In order to understand the meaning of ‘Network of Direct Seller’, it is foremost important to understand the meaning of ‘Direct Seller’.

The term ‘Direct Seller’ means a person appointed or authorized, directly or indirectly, by a direct selling entity (“DSE”) through a legally enforceable written contract to undertake Direct Selling business on principal to principal basis. Accordingly, the expression ‘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 and shall include the multi-level marketing method of distribution.

Direct Selling Guidelines:

The Ministry of Consumer Affairs, Food and Public Distribution vide its notification G.S.R. 1013(E) dated October 26, 2016 has notified the Direct Selling Guidelines 2016. These guidelines were issued as guiding principles for State governments to regulate the business of ‘Direct Selling and Multi-Level Marketing’ and strengthen the regulatory mechanism to supervise the activities of Direct Sellers and DSE for preventing fraud and protecting the legitimate rights and interests of consumers. Accordingly, different State governments have formulated their own guidelines to regulate the activities of Direct Sellers and DSE in their State. In this regard, the Food, Civil Supply and Consumer Protection Department, Government of Maharashtra has issued the Direct Selling guideline dated July 10, 2019 (“Guidelines”).

Compliances under the Guidelines:

In terms of relevant provisions of the Guidelines, DSE located in Maharashtra is required to undertake following compliances:

Particular and Relevant Provisions Compliances under the Guidelines
I. For establishing Direct Selling business:
Mandatory Orientation Session [Clause 2(2)] Conduct a mandatory orientation session to all prospective direct sellers to provide fair and accurate information about Direct Selling operation, including remuneration system and expected remuneration for newly recruited direct sellers.
Information to Direct Seller [Clause 2(3)] Provide accurate and complete information to prospective and existing direct sellers about reasonable amount of remuneration opportunity.
Conviction of Promoters and KMP [Clause 2(7)] Promoters or key management personnel of DSE should not have been convicted of any criminal offence punishable with imprisonment in last 5 years.
Office of DSE [Clause 2(8)] Should 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, etc.
Trademark/ Service Mark/ Identification Mark [Clause 3(1)] Should be the owner, holder, licensee of a trademark, service mark or any other identification mark which identifies DSE with goods to be sold or services to be rendered.
Website of DSE [Clause 3(4)] Should maintain and update a website with all relevant details of DSE, its contact information, management products, product information product quality certificate, price, complaint redressal mechanism, etc. Website should have space for registering consumer complaints, which should be addressed within 45 days of making complaints.
Prohibited Activities for DSE [Clause 3(7)] DSE should not be engaged in the business of monetary deposits, investments, trading in commodities, live stocks, life insurance policies (not regulated by IRDA), virtual/ Crypto currencies, selling of websites, web space, online education, online training, etc.
Grievance Redressal Committee [Clause 7(4)] DSE should constitute a Grievance Redressal Committee (“GRC”) consisting at least 3 officers of DSE.
Pyramid Scheme and Money Circulation Scheme [Clause 8] DSE should not engage in Pyramid Scheme and Money Circulation Scheme.

Money circulation scheme means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions.

The meaning of ‘Pyramid Scheme’ is defined in the Guidelines.

Other Registration Requirements [Clause 9] – DSE should have its’ registered local office address and the same address should be mentioned in all correspondence.

– DSE should be registered in India.

– DSE should submits its’ balance sheets at least for previous 3 years to the Competent Authority while getting registered for DSE. New DSE, i.e., entities old less than 3 years, should submit affidavit about financial condition of their business at the time of registration.

– DSE should comply with all the norms pertaining to the laws and rules made under Companies Act, Income Tax Act, Goods and Services Tax, Provident Fund etc.

– Direct seller should be an Indian Citizen, not below the age of 21 years.

II. Other Compliances
Refund/ Buy-Back Guarantee [Clause 2(5)] DSE should notify and provide a full refund or buy-back guarantee to every direct seller which can be exercised within a period of 30 days from the date of distribution of the goods or services to the direct seller.
Cooling-off Period [Clause 2(6)] DSE should provide a cooling-off period to the direct seller to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations of DSE. During cooling-off period, a direct seller is entitled to return any goods/services purchased by the direct seller during the cooling-off period.

Cooling-off Period” shall mean the duration of time counted from the date when the direct seller and the DSE enter into an agreement 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.

Identification Documents to Direct Sellers [Clause 3(2)] DSE should issue proper identity documents(s) to its direct sellers.
Periodic Account/ Information [Clause 3(5)] DSE should provide to direct sellers their periodic account/information about sales, purchases, details of earnings, commission, bonus and other relevant data, in accordance with agreement entered with the direct sellers.
III. Maintenance of Records
Business Records [Clause 3(3)] DSE should maintain proper records either manually or electronically of their business dealings with complete details of:

– Goods and Services offered by DSE

– Terms of contract price

– Income Plan

– Details of direct sellers, including but not limited about their enrolment, termination, active status and earnings.

Register of Direct Sellers [Clause 3(3) (a)&(b)] DSE should maintain a ‘Register of Direct Sellers’ wherein relevant details of each enrolled direct seller shall be updated and maintained. Such details should include but not limited to verified proof of address, proof of identity and PAN details.
IV. Agreement between DSE and Direct Sellers
Written Agreement between DSE and Direct Sellers [Clause 4(1)] DSE shall execute a written contract agreement, whether directly or indirectly, with direct sellers before their enrolment. The relationship between DSE and the direct seller should be determined as per their written agreement containing the rights and obligations that are expressly provided as conditions for undertaking Direct Selling business.
Content of the Agreement [Clause 1(16)(d) and 4(2)] The agreement with direct sellers should contain material terms of participation by direct sellers. The term ‘material terms’ shall mean terms related to buy-back or repurchase policy, cooling-off period, warranty and refund policy.
Other Terms and Conditions of the Agreement [Clause 1(16) and 4(2)] The Agreement should:

– not require the direct seller 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, and (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;

– should not have provision that a direct seller will receive remuneration or incentive for the recruitment/enrolment of new participants;

– 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;

– allow for termination of contract with reasonable notice, where a direct seller is found to have made no sales of goods or services for a period of up to 2 years since the contract was entered into or since the date of the last sale made by the direct seller;

– 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;

V. Responsibilities of Direct Sellers
Responsibilities Direct Sellers [Clause 5(1), (2) & (3)] The direct sellers engaged by DSE 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 clearly identify themselves, the identity of DSE, the nature of 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 and aftersales service;

Information to the prospect/ consumer at the time of sale by Direct Seller [Clause 5(4)] Direct Seller should provide the following information to the prospect/ consumers at the time of sale:

– name, address, registration number or enrollment number, identity proof and telephone number of the direct seller and details of DSE;

– description of the goods or services to be supplied;

– explain about the goods return policy of DSE in the detail before the transaction;

– order date, total amount to be paid by the consumer along with the bill and receipt;

– time and place for inspection of the sample and delivery of goods;

– information of rights of consumer to cancel the order and /or to return the product in saleable condition and avail full refund on sums paid; and

– details regarding the complaint redressal mechanism.

Protection of Consumers [Clause 7] – DSE and the direct sellers should take appropriate steps to ensure the protection of all private information provided by the consumer.

– DSE and direct sellers shall follow the provisions 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 DSE shall constitute a GRC which shall address complaints and inform complainants of any action taken.

– All grievances will be resolved directly by DSE.

Prior Written Approval of DSE [Clause 7(6)] Any person who sells or offers for sale any product or service of DSE should take prior written consent from DSE in order to undertake or solicit such sale or offer.

Author Bio

Qualification: LL.B / Advocate
Company: N/A
Location: New Delhi, IN
Member Since: 22 Mar 2020 | Total Posts: 1

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