Government constitutes committee to frame laws for direct and network marketing

NEW DELHI: The government is gearing up to tighten noose around direct selling and multilevel marketing companies operating in the country. It has constituted seven-member inter-ministerial committee headed by consumer affairs secretary to consider framing legislation and rules to regulate the highly unregulated direct selling and network marketing businesses.

The committee, which has representation from departments like consumer affairs, financial services, financial intelligence, revenue, corporate affairs and Reserve Bank of India, will be submitting its report by the end of August this year.

“The committee will suggest legal provisions against the companies dealing with multi level marketing schemes. It will also fix a department which would be dealing with matters related to these marketing schemes,” said a senior consumer affairs ministry official.

The proposed regulations are likely to bring operations of leading direct selling companies like Avon, Amway, Oriflame and Tupperware under the ambit of government control. The turnover of direct selling companies registered with India Direct Selling Association ( IDSA) is around Rs 5200 crore. It will consider including the definition of direct selling, multi level marketing and pyramid scheme in the Prize, Chits and Money Circulation Schemes (Banning) Act, 1978 through an amendment.

The direct selling companies, however, has been demanding a separate legislation, arguing that the Prize Chits and Monetary Circulation scheme (Banning) Act, 1978 governs chit funds but does not apply to direct sellers.

“We welcome the decision of government for framing law which can penalise and keep fraudulent companies out of business. But direct selling should not be treated as multi level marketing business. Direct Selling business has money back products and offers business opportunities for its members with an exit policy while fraudulent multi level marketing companies don’t have tangible product, nor they have any exit policy,” said Chavi Hemanth, secretary general, IDSA.

The regulations will prevent frauds like Speak Asia Online which siphoned off Rs 2400 crore from people across the country in a span of 18 months. In last few months, several state government have cracked down heavily on various multi level marketing companies like Gold Sukh, PACL Limited and Tycoon Empire International on charges of duping people swindling crores of rupees by making false promises. The committee is also considering framing guidelines for these companies on the lines of Kerala which is the first state to set regulations for MLM companies.

“Kerala has made it mandatory for these companies to keep an audited account of all the financial transactions. The state government has also directed these companies to take prior permission before starting business activities with any organisation. We will try to emulate some of the Kerala guidelines,” a ministry official said.