In today’s Scenario, Direct Selling is most trending business in India. In common parlance it is also termed as Network Marketing or Multi- level Marketing (MLM) or Direct Selling. Central and some state government have issued guidelines regarding the Direct Selling Business. Government of Kerala has also issued guideline for the same. Guideline is issued on 4th June, 2018.

Government of Kerala has divided this guideline into 9 clauses.

Clause Details
1 Definitions
2 Conditions for the setting up of Direct Selling business
3 Conditions for conduct of Direct Selling Business
4 Conditions for Direct Selling contract between Direct Seller / Distributor and Direct Selling Entity
5 Certain obligations of Direct Sellers
6 Relationship between Direct Selling Entity and Direct Seller
7 Conduct for the Protection of Consumer
8 Prohibition of Pyramid Scheme and Money Circulation
9 Appointment of Monitoring Authority

Clause 1: Definition

Various important and frequently used terms are defined. Total 14 definitions are in first clause.

Clause 2: Conditions for the setting up of Direct Selling business

Direct Selling Entity should have legal entity. It can be Proprietorship, Partnership, Company, Limited Liability Partnership (LLP) etc. Most important point is legal entity should be registered in India.

Direct Selling Entity shall provide a mandatory orientation session to all prospective direct sellers providing fair and accurate information on all aspects of the direct selling.

Direct Selling Entity shall 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.

Promoter or key management personnel of Direct Selling Entity should not have been convicted of any criminal offence punishable with imprisonment in last 5 years by any Court of competent jurisdiction

Clause 3: Conditions for conduct of Direct Selling Business

There are so many conditions for conduct of Direct Selling Business. We discussed some conditions here:

Direct Selling Entity shall be the owner, holder, licensee of a trademark.

Direct Selling Entity 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.

Direct Selling entity shall maintain a “Register of Direct Sellers” wherein relevant details of each enrolled Direct Seller shall be updated and maintained.

Direct Selling entity shall maintain proper and updated website with all relevant details of the entity.

SOME IMPORTANT PROHIBITION FOR DIRECT SELLING ENTITY:

Direct Selling entity cannot use misleading, deceptive or unfair recruiting practices, including misrepresentation of actual or potential sales or earnings.

Direct Selling entity cannot make any factual representation to a prospective direct seller that cannot be verified or make any promise that cannot be fulfilled. 

Direct Selling entity cannot present any advantages of direct selling to any prospective direct seller in a false or deceptive manner.

Direct Selling entity cannot ask direct sellers to pay any money by way of minimum monthly subscription or renewal charges.

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 as per Indian Contract Act, 1872. It should be made in writing, describing the material terms of participation, rights and obligations of parties etc.

Note: One of the most critical parts is drafting of Agreement.

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.

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.

Direct Seller should provide information i.e; name, address, registration number or enrollment number, identity proof and telephone number of the direct seller and details of direct selling entity to prospect customer.

Clause 6: Relationship between Direct Selling Entity and Direct Seller

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.

Direct Selling entity is liable to monitor and control the practices/methods adopted by the Direct Sellers.

Clause 7: Conduct for the Protection of Consumer

All complaints received over phone, e-mail, website, post and walk-in should have a complaint number for tracing and tracking the complaint and record time taken for redressal.

Direct Sellers and Direct Selling Entity shall be guided by the provision of the Consumer Protection Act, 1986/ 2019.

All grievances will be resolved directly by the Direct Selling Entity.

Clause 8: Prohibition of Pyramid Scheme and 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.

Also Read-Model Guidelines on Direct Selling

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