26th July 2021 will be written in golden words in the history of IndusViva, a Direct Selling company in Bangalore. When the company filed a Writ petition in Telangana high court, the court had directed to continue the business, defreeze bank accounts and release seized goods, as the company complies to all the guidelines existing in the country for the direct selling industry. On 27th September 2021, the court had also set aside an impugned PD order on the top management.
Let’s take a look back as to why this commotion happened and how it all started.
Direct Selling is the marketing, distribution and sale of goods or providing services through a network of people, known as direct sellers. However, the growth and success of this industry led to the development of fraud money circulation schemes in the name of Direct Selling. The absence of specific laws and norms to regulate direct selling companies was the reason behind this misconception.
The industry witnessed a revolution by issuing Direct Selling Guidelines 2016.
Consisting of the guiding principles for State Governments to consider Direct Selling as regular businesses and appointing a monitoring mechanism to prevent any fraud in the best interests of the people involved in the business or customers, was the main highlight. Following the guidelines, many states have appointed a nodal authority for supervision.
According to Consumer Protection Act 2019, it is a legal, economic activity that helps entrepreneurs build a business. Multi-Level Marketing is a kind of direct selling in which a direct seller is paid compensation for the sales generated and the sales of their direct selling network, who they recruit or sponsor directly or indirectly. People can enjoy financial freedom by earning a commission from the sale of products or services.
Although there is a guideline and most state governments have appointed monitoring mechanisms, the absence of an exclusive law still leads to the discriminatory approach of people or authority. They cannot distinguish between legitimate Multi-level Marketing companies and fraudulent money circulation schemes. This results in disbelief and mistrust among ordinary people leading to defamation of several companies of this industry. It is hopeful for the industry that the Department of Consumer Affairs have come up with Consumer Protection (Direct Selling) Rules 2021, as specified in the Act, which is about to be notified at any time, shall help. According to Direct Selling Guidelines 2016 (Clause 1.7), a Direct Selling organization is not engaged in a pyramid scheme that sells or offers to sell goods or services through a direct seller. In the Guidelines, Clause 1, Sub-clause 11, the first paragraph defines the Pyramid scheme, and the second paragraph clearly explains how Direct Selling is different from Pyramid Scheme by laying down few conditions.