Page 1 of 12 Advisory to State Governments / Union Territories: Model Framework for Guidelines on

Direct Selling These guidelines, may be called the Direct Selling Guidelines 2016.These are issued as
guiding principles for State Governments to consider regulating the business of „Direct Selling‟ and
Multi-Level Marketing (MLM) and strengthen the existing regulatory mechanism on Direct Selling
and MLM, for preventing fraud and protecting the legitimate rights and interests of consumers.
Clause 1. Definitions: In these Guidelines unless and otherwise required: 1. "Act" means the
Consumer Protection Act, 1986 (68 of 1986); 2. “Consumer” shall have the same meaning as
provided under the Consumer Protection Act, 1986; 3. “Prospect” means a person to whom an offer
or a proposal is made by the Direct Seller to join a Direct Selling opportunity; 4. “Direct Seller” means
a person appointed or authorized, directly or indirectly, by a Direct Selling Entity through a legally
enforceable written contract to undertake direct selling business on principal to principal basis. 5.
“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, who they then support:
Explanation: “network of direct selling” shall mean any system of distribution or marketing adopted
by a direct selling entity to undertake direct selling business and shall include the multi-level
marketing method of distribution. Page 2 of 12 6. “Direct Selling” means marketing, distribution and
sale of goods or providing of services as a part of network of Direct Selling other than under a
pyramid scheme, Provided that such sale of goods or services occurs otherwise than through a
“permanent retail location” to the consumers, generally in their houses or at their workplace or
through explanation and demonstration of such goods and services at a particular place 7. “Direct
Selling Entity”, means an entity, not being engaged in a pyramid scheme, which sells or offers to sell
goods or services through a direct seller. Provided that “Direct Selling Entity” does not include any
entity or business notified otherwise by the Government for the said purpose from time to time. 8.
“Goods” means goods as defined in the Sale of Goods Act, 1930 and “Service” means service as
defined in the Consumer Protection Act, 1986; 9. “Saleable” shall mean, with respect to goods and /
or services, unused and marketable, which has not expired, and which is not seasonal, discontinued
or special promotion goods and / or services; 10.“Cooling-off Period” means the duration of time
counted from the date when the direct seller and the direct selling entity enter into an agreement
under Clause 4 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;
11. “Pyramid Scheme” means: 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. The
subscribers enrolling further subscriber(s) occupy higher position and the enrolled subscriber(s)
lower position, thus, with successive enrolments, they form multi-layered network of subscribers.
Page 3 of 12 Provided that the above definition of a “Pyramid Scheme” shall not apply to a multi
layered network of subscribers to a scheme formed by a Direct Selling Entity, which consists of
subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly,
where the benefit is as a result of sale of goods or services by subscribers and the scheme/financial
arrangement complies with all of the following: a) It has no provision that a Direct Seller will receive
remuneration or incentives for the recruitment / enrolment of new participants. b) It does not
require a participant 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; 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; c) It does not require a participant to pay any entry/registration fee, cost of sales
demonstration equipment and materials or other fees relating to participation; d) It provides a
participant with a written contract describing the “material terms” of participation; e) It allows or
provides for a participant a reasonable cooling-off period to participate or cancel participation in the
scheme and receive a refund of any consideration given to participate in the operations; f) It allows
or provides for a buy-back or repurchase policy for “currently marketable” goods or services sold to
the participant at the request of the participant at reasonable terms; g) It establishes a grievance
redressal mechanism for consumers, more particularly described in Clause 7 herein. Explanation 1 –
For the purposes of this proviso the term “material terms” shall means buy-back or repurchase
policy, cooling-off period, warranty and refund policy Page 4 of 12 12.“Money Circulation Scheme”
has the same meaning as defined under the Prize Chits and Money Circulation Schemes (Banning)
Act, 1978. 13.“Remuneration System” means the system followed by the direct selling entity to
compensate the direct seller which illustrates the mode of sharing of incentives, profits and
commission, including financial and non-financial benefits, paid by the direct selling entity to the
direct sellers, on a monthly or periodic or yearly basis or both, as the case may be. This system, for
every Direct Selling entity, shall: a) Have no provision that a direct seller will receive remuneration
from the recruitment to participate in such direct selling; b) ensure that direct sellers shall receive
remuneration derived from the sale of goods or services; c) clearly disclose the method of
calculation of remuneration. 14. „State‟ includes a Union territory. Clause 2. Conditions for the
setting up of Direct Selling business: Every Direct selling entity intending to carry out direct selling
business subsequent to the publication of the notification in the Gazette, shall within 90 days comply
with the following set of conditions for the conduct of direct selling business: It shall 1. be a
registered legal entity under the laws of India. 2. Provide a mandatory orientation session to all
prospective direct sellers providing fair and accurate information on all aspects of the direct selling
operation, including but not limited to the remuneration system and expected remuneration for
newly recruited direct sellers; 3. Provide accurate and complete information to prospective and
existing direct sellers concerning the reasonable amount of remuneration opportunity, and related
rights and obligations; 4. Pay all dues and make withholdings from direct sellers in a commercially
reasonable manner; Page 5 of 12 5. 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; 6. Notify and provide to
every direct seller a cooling-off period which entitles such direct seller to return any goods /services
purchased by the direct seller during the cooling-off period; 7. The promoter or key management
personnel should not have been convicted of any criminal offence punishable with imprisonment in
last 5 years by any Court of competent jurisdiction; 8. It shall 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 and efficient delivery of goods
and services, and post-sale redressal of grievances; Clause 3: Conditions for conduct of Direct Selling
Business Every Direct Selling entity shall comply with the following conditions: 1. It shall be the
owner, holder, licensee of a trademark, service mark or any other identification mark which
identifies the entity with the goods to be sold or supplied or services to be rendered; 2. It shall issue
proper identity document(s) to its Direct Sellers; 3. It 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; a) Every Direct Selling entity shall maintain a “Register of
Direct Sellers” wherein relevant details of each enrolled Direct Seller shall be updated and
maintained; b) The details of Direct Sellers shall include and not be limited to verified proof of
address, proof of identity and PAN; 4. It shall maintain proper and updated website with all relevant
details of the entity, contact information, its management, products, product information, product
Page 6 of 12 quality certificate, price, complete income plan, terms of contract with direct seller and
complaint redressal mechanism for direct sellers and consumers. The website should have space for
registering consumer complaints and should ensure that grievances are addressed within 45 days of
making such complaints; 5. It shall provide to all direct sellers their periodic account / information
concerning, as applicable, sales, purchases, details of earnings, commissions, bonus and other
relevant data, in accordance with agreement with the direct sellers. All financial dues shall be paid
and any withholding made in a commercially reasonable manner; 6. It shall monitor the value of the
purchases of all its Direct Sellers/Distributors on a monthly basis and once the purchase value
crosses the VAT threshold; it must intimate the Direct seller/Distributor to pay the VAT; 7. A Direct
Selling entity shall not: a) Use misleading, deceptive or unfair recruiting practices, including
misrepresentation of actual or potential sales or earnings, in their interaction with prospective or
existing direct sellers; b) Make any factual representation to a prospective direct seller that cannot
be verified or make any promise that cannot be fulfilled; c) Present any advantages of direct selling
to any prospective direct seller in a false or deceptive manner; d) Make or cause, or permit to be
made, any representation relating to its direct selling business, including remuneration system and
agreement between itself and the direct seller, or to the goods or services being sold by itself or by
the direct seller which is false or misleading; e) Engage in, or cause or permit, any conduct that is
misleading or likely to mislead with regard to any material particulars relating to its direct selling
business, including remuneration system and agreement between itself and the direct seller, or to
the goods or services being sold by itself or by the direct seller; f) Use, or cause or permit to be used,
fraud, coercion, harassment, or unconscionable or unlawful means in promoting its direct selling
practice, Page 7 of 12 including remuneration system and agreement between itself and the direct
seller, or to the goods or services being sold by itself or by the direct seller; g) Require its direct
sellers to provide any benefit, including entry fees and renewal fees or to purchase any sales
demonstration equipment or material in order to participate in its direct selling operations; h)
Provide any benefit to any person for the introduction or recruitment of one or more persons as
direct sellers; i) Require the direct sellers to pay any money by way of minimum monthly
subscription or renewal charges; 8. Notwithstanding the distribution system adopted by a direct
selling entity, the Direct Selling Entity shall be responsible for compliance of these Guidelines by any
member of its network of direct selling, whether such member is appointed directly or indirectly by
the Direct Selling Entity. Clause 4: Conditions for Direct Selling contract between Direct
Seller/Distributor and Direct Selling Entity. 1. Every Direct Selling entity shall execute a contract
agreement, whether directly or indirectly, with Direct Sellers before enrolment: a) The Agreement
shall be provided in a manner consistent with Section 10 of the Indian Contract Act, 1872; b) In
addition to the rights and obligations of parties to this agreement under these guidelines or any
other law in force, parties shall have rights and obligations that are coextensive with rights and
obligations of parties under the Indian Contract Act, 1872; 2. The agreement shall be made in
writing, describing the material terms of participation and shall: a) Not compel or induce the direct
seller to purchase goods or services in an amount that exceeds an amount that can be expected to
be sold to consumers within a reasonable period of time; Page 8 of 12 b) 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; c) Allow for the termination of contract, with reasonable notice, in such
instances and on such terms where a direct seller is found to have made no sales of goods or
services for a period of up to two years since the contract was entered into, or since the date of the
last sale made by the direct seller; d) 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 Clause 5: Certain obligations of Direct Sellers 1. Direct Seller engaged in direct
selling should carry their identity card and not visit the customer‟s premises without prior
appointment/approval; 2. At the initiation of a sales representation, without request, truthfully and
clearly identify themselves, the identity of the direct selling entity, the nature of the goods or
services sold and the purpose of the solicitation to the prospective consumer; 3. 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; 4. Provide
the following information to the prospect / consumers at the time of sale, namely: a) Name, address,
registration number or enrollment number, identity proof and telephone number of the direct seller
and details of direct selling entity; b) A description of the goods or services to be supplied; c) Explain
to the consumer about the goods return policy of the company in the details before the transaction;
Page 9 of 12 d) The Order date, the total amount to be paid by the consumer along with the bill and
receipt; e) Time and place for inspection of the sample and delivery of good; f) Information of
his/her rights to cancel the order and / or to return the product in saleable condition and avail full
refund on sums paid; g) Details regarding the complaint redressal mechanism; 5. A direct seller shall
keep proper book of accounts stating the details of the products, price, tax and the quantity and
such other details in respect of the goods sold by him/her, in such form as per applicable law. 6. A
direct seller shall not: a) Use misleading, deceptive and / or unfair trade practices; b) Use misleading,
false, deceptive, and / or unfair recruiting practices, including misrepresentation of actual or
potential sales or earnings and advantages of Direct Selling to any prospective direct seller, in their
interaction with prospective direct sellers; c) Make any factual representation to a prospective direct
seller that cannot be verified or make any promise that cannot be fulfilled; d) Present any
advantages of Direct Selling to any prospective direct seller in a false and / or a deceptive manner; e)
Knowingly make, omit, engage, or cause, or permit to be made, any representation relating to the
Direct Selling operation, including remuneration system and agreement between the Direct Selling
entity and the direct seller, or the goods and / or services being sold by such direct seller which is
false and / or misleading; f) Require or encourage direct sellers recruited by the first mentioned
direct seller to purchase goods and / or services in unreasonably large amounts; g) Provide any
literature and / or training material not restricted to collateral issued by the Direct Selling entity, to a
prospective and / or existing direct sellers both within and outside the parent Direct Selling entity,
which has not been approved by the parent Direct Selling entity; Page 10 of 12 h) Require
prospective or existing direct sellers to purchase any literature or training materials or sales
demonstration equipment. Clause 6: Relationship between Direct Selling Entity and Direct Seller
1.1The relationship between Direct Selling entity and Direct Seller shall be determined as per the
written agreement between the parties which shall contain the rights and obligations that are
expressly provided as conditions for the conduct of Direct Selling business as well as provide for the
obligation of the direct selling entity and the direct seller in terms of these guidelines; 1.2All other
rights and obligations shall be determined as per the express terms of written agreement between a
Direct Selling entity and Direct Seller; 2. The Direct Selling entity will be liable for grievances arising
out of sale of products, services or business opportunity by its Direct Sellers; 3. It will be the
responsibility of the Direct Selling entity to monitor and control the practices/methods adopted by
the Direct Sellers; Clause 7: Conduct for the Protection of Consumer 1. Direct Sellers and Direct
Selling Entity shall take appropriate steps to ensure the protection of all private information
provided by a consumer; 2. Direct Sellers and Direct Selling Entity shall be guided by the provision of
the Consumer Protection Act 1986; 3. 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; 4. Every Direct Selling company shall constitute a Grievance Redressal
Committee whose composition, nature of responsibilities shall include but not limited to: a) The
Grievance Redressal Committee shall consist of at least three officers of the Direct Selling entity;
Page 11 of 12 b) The Grievance Redressal Committee shall address complaints and inform
complainants of any action taken; c) Complaints may be made by any member of the general public
against a Direct Seller of the company, an employee or any other officer of the entity; d) All such
grievances will be resolved directly by the Direct Selling Entity; 5. The direct selling entity shall
provide information to the consumer upon purchase which shall contain: (a) the name of the
purchaser and seller; (b) the delivery date of goods or services; (c) procedures for returning the
goods; and (d) warranty of the goods and exchange / replacement of goods in case of defect.
Provided that no Direct Seller shall, in pursuance of a sale, make any claim that is not consistent with
claims authorized by the Direct Selling Entity. 6. Any person who sells or offers for sale, including on
an e-commerce platform / marketplace, any product or service of a Direct Selling Entity must have
prior written consent from the respective Direct Selling Entity in order to undertake or solicit such
sale or offer. Clause 8: Prohibition of Pyramid Scheme & Money Circulation Scheme 1. 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. 2. 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. Page 12 of 12 .Clause 9:
Appointment of Monitoring Authority 1. The Nodal department to deal with the issues related to
Direct Selling will be Department of Consumer Affairs at the Union and the respective State
Governments in the States; 2. The State Governments will also set up a mechanism to
monitor/supervise the activities of Direct Sellers, Direct Selling Entity regarding compliance of the
guidelines for Direct Selling; 3. Any direct selling entity conducting direct selling activities shall
submit an undertaking to the Department of Consumer Affairs, stating that it is in compliance with
these guidelines and shall also provide such details of its incorporation and other business details as
may be notified from time to time. ***End of note***