Guidelines of Ministry of Consumer Affairs for Multi-Level Marketing (MLM) Companies in India | MLM Lawyer in India | MLM Lawyer in Delhi NCR |
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Multi-Level Marketing (MLM) is a business model which has been in the news for its notoriety. Although, at present there is/are no specific legislation and/or law for regulating the same yet there are certain guidelines which have been formulated by the Government of India and makes an efforts to make the business legit or legal in India. The Government of India has issued an advisory to all the State Governments including the Union Territories on moral guidelines on direct selling under the Ministry of Consumer Affairs under its Food & Public Distribution Department of Consumer Affairs. These guidelines are based on the deliberations of the Inter Ministry Committee and consolidation with the stakeholders.
These guideline provide for the definitions of various technical terms associated with Multi-Level Marketing (MLM) business and their mechanism of distribution of remuneration. It also provides for distinguishing factors between direct selling Multi-Level Marketing (MLM) Companies and pyramid scheme. The guidelines aims to bring transparency with respect to this business and/or industry while laying down certain parameters which shall be used as a monitoring and working mechanism for the MLM business. The guidelines provide for conditions for incorporation of separate legal entity for commencing business activities including the registration. It is also a mandatory requirement to hold and organize ”Orientation Session” for all their direct sellers providing them the information about not only the remuneration system including the expected remuneration for new layer of direct sellers but also the information regarding the products.
All the Multi-Level Marketing (MLM) Companies needs to have a proper “Written Contract” with all the material terms & conditions (T&Cs) included in the contract, including the provisions for buy back of the goods sold, provision for cooling off period during which they can return any goods, which is purchased by direct seller. The promoter or the key management personnel who is working for a Company having Multi-Level Marketing (MLM) scheme for distribution should not have been convicted of any criminal offense punishable with imprisonment. The whole idea revolves around the point that the key positions in the MLM Companies should be filled by law abiding citizens and the history of many people being duped by some of the MLM Companies should not be repeated.
The MLM Companies following direct selling scheme shall not use unfair recruiting practices including misrepresentation of actual sales or earnings data and figures. In so far as provided by the guideline, no remuneration or any kind of benefit should be provided to existing members for the recruitment of new members. The guidelines states that every contract which is existing between the MLM Company and their member shall be complied with all the provisions of Indian Contract Act, 1872 and in addition to the right and obligations of the parties under this agreement (with respect to MLM transactions) the parties shall also have all other rights and obligations that are available to any other parties under contract. Further, the MLM Companies are required to issue specific identity details to every direct seller of the Company and also to maintain the records of every seller either in electronic form or in Registers about their sales the recruitment date and such specifications as required by the laws for the time being in force. The guidelines further provides that the respective State Governments shall set up a mechanism to monitor or supervise the activities of MLM Companies in order to keep a check, control and monitoring of for direct selling for their respective State. In order to ensure progress and transparency in the business of direct selling which is being executed by the MLM Companies, there exists a dire need to enact legislations and laws which create checks and balances while also setting up of a Regulatory Mechanism which shall include the creation of “Statutory Regulatory Authority” which shall be acting as the regulator to control the direct selling business altogether.
Authored By: Adv. Anant Sharma