Model Guidelines on Direct Selling

Narendra Kumar

19 Oct, 2019

Direct Selling

It is advisory to the state government and union territories to implement the model guidelines and the guidelines may be called as the Direct selling Guidelines 2016-To take necessary action to implement and to set up a mechanism to monitor/ supervise the activities of Direct Sellers, Direct Selling Entity regarding the compliance of the guidelines for Direct Selling.

The entities stating that it is in compliance with these guidelines shall submit an undertaking to the Department of Consumer Affairs within 90 days and shall also provide details of its incorporation.

The objective of issuing the guidelines –These guidelines are issued as a Principle for state government-

1. The guidelines are issued with a view for preventing fraud and protecting the licensed rights, interests of the consumers and to consider and regulating the business of direct selling and multi-level
2. For strengthening the existing regulatory mechanism on direct selling and multi-level.

Prerequisites–

1. Setting up of Direct Selling Business-
   

With the intent to carry on the business of direct selling activities ensuing to the publication of the notification in the Gazette, the Direct selling entity shall within 90 days comply with the below-mentioned conditions for conducting the direct selling business –

1. An entity should be registered legal entity recognized by the law and it not only includes Company incorporated under the Companies Act but also includes registered Partnership firm and co-operative society.DSE shall not include Proprietary concern and HUF.
2. An orientation session should be provided to the prospective direct sellers for providing fair and accurate information about direct selling operations in all aspects. It should not be limited to the information of (remuneration system*) for newly recruited sellers.

• The direct selling entity with a view to compensating the direct seller by the way of sharing (incentives, profit, and commission) implements the process of remuneration system. It includes financial and nonfinancial benefits. It can be paid on a monthly basis, periodic or yearly basis.

Limitations-There is no such provision that the direct seller will receive the remuneration to participate in such direct selling and the remuneration shall derive from the sale of goods and services. The entity should disclose the method of calculating the remuneration.

1. Disclosure of accurate information to the direct sellers (existing and potential sellers about the remuneration opportunity and rights and responsibilities thereto.
2. The promoter and KMP should not have been convicted for any criminal proceedings or offenses punishable with imprisonment in last the 5 years by any competent authority.
3. The entity shall provide to every direct seller a period i.e. a cooling-off period* which entitles them to return any goods and services purchased by them during the cooling-off period.

1. To enable the customer and direct seller to gen upon themselves with the price of goods and services and after purchase services like (return, replacement, delivery and post redressal grievances handling), the direct seller entity should have an office with the identified jurisdiction of its operation.
2. The entity shall pay all the dues and make withholdings from the direct sellers and shall provide a full refund or guarantee in a commercially viable manner that can be exercised within a period of 30 days, from the date of distribution of the goods and services to the direct seller.

For Conducting Direct Selling Business-

Every Direct Selling entity Shall Comply with the following Conditions for Direct Selling Business

1. Direct Selling Entity shall hold the ownership, the license of a trademark,  service mark which  identifies the entity with the goods to be sold or supplied or services to be rendered;
2. Proper identity document(s) issuance to its Direct Sellers;
3. Maintenance and track of proper records (manual or electronic) of their business dealings, with complete details of their goods, services, terms of the contract,  price, income plan, details of direct sellers.

A)-In Register of Direct Sellers all the relevant records and details of each enrolled Direct Seller shall be updated and maintained.

1. It shall provide to all direct sellers their periodic account/information related to them.
2. Monitoring the value of the purchases of all its Direct Sellers/Distributors on a monthly basis and to pay the tax after the threshold limit specified in the GST act.
3. An entity shall not do any such act which is misleading or can harm the consumers.

It shall follow the guidelines at the time of recruiting the direct sellers and the

Practice should be adopted in such a way to benefit the direct seller and customer along with the profit of a direct selling entity.

Direct Selling Contract Between Seller /Distributor and the Direct Selling Entity

1. Every Direct selling entity shall execute an agreement in writing, with Direct Sellers whether directly or indirectly describing the terms of participation and shall not compel the direct seller to purchase goods or services in an amount that after exceeding limits:

• a) In a manner consistent with Section 10 of the Indian Contract Act, 1872^[1];
• b) In addition to the rights and obligations of parties to this agreement under these guidelines, parties shall have rights and obligations that are cognate with the rights and obligations of parties under the Indian Contract Act, 1872.
• c) The entity shall provide the direct seller a reasonable cooling-off period.
• d) – Where it is found that the seller has 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, the entity can ask for termination of the contract with reasonable notice.