Multi-Level Marketing (MLM) in India: Legality Check
Multi-Level Marketing (MLM) is a business model which has remained in a grey area and is yet to see a legislation or a law enacted clearing the air on the legitimacy of the Multi-Level Marketing (MLM) business and industry as a whole. Having said that, on Sept. 9, 2016 an office memorandum for advisory to all the State Government and Union Territories on “Model Guidelines on Direct Marketing” was issued by the Ministry of Consumer Affairs, Food and Public Distribution Department of Consumer Affairs under the Government of India. The same can be termed as a first step taken forward by the Government of India to bring legitimacy on to the Multi-Level Marketing (MLM) business and Corporations in India.
“Direct Selling” as defined under this guideline means distribution of goods and providing of services through a network other than that of Pyramid Scheme. The Pyramid Scheme, as provided under the Guidelines, means a multi layered network of subscribers who become a part of the network to receive benefits either directly or indirectly from enrollment or performance of additional subscribers to the scheme. The “Pyramid Scheme” is not legal in India. The difference as provided by sub-clause (11) of Clause 1 of the guidelines is that under direct selling marketing network the members or the subscribers do not receive any kind of remuneration or benefits for the reason of enrolment or recruitment of new members but they get benefits based on the performance (sales made) by those newly enrolled members.
Top ten takeaways from these guidelines are mentioned below i.e.
- No remuneration to any existing member for the enrolment and/or recruitment of a new member.
- The members and/or the participants must not be compelled to purchase goods on exorbitant prices.
- The members and/or the participants cannot be compelled to sell goods with unrealistic sales targets.
- No entry fee should be levied on the new entrant.
- Cost of sale demonstration equipment or fee in any other form is not expected to be collected by any members.
- The scheme must have a provision for a reasonable cooling-off period for the participants.
- Having a “Grievance Redressal Mechanism” for all the participants.
- A proper Disclosure of the method of circulation of the remuneration
- A proper written contract with all the material terms of the participation be must be between the entity and the members.
- The contract between the entity and the participants must provide for the Pay-Back Policy for the goods sold to the participants, if the participant so requests under reasonable terms.
As per the Article 19 (1)(g) of the Constitution of India 1950 every person is free to carry on its business, however, the same are subject to certain reasonable restrictions. The same applies to the business of Multi-Level Marketing (MLM) including the Direct Selling Business. Up-till the time the business is being run in a lawful and/or legal manner and the means and resources deployed are lawful and legal while being compliant to all the Central & State laws and legislations then in that case the business stands legit. Having said that, the domain of Multi-Level Marketing (MLM) stands in a grey area and requires laws and legislations to be enacted both at the Central and State levels respectively.
Authored By: Adv. Anant Sharma