Thiruvananthapuram: The Kerala Government has decided to ban altogether the infamous multi-level marketing (MLM) mode of business wherein money contributed by a new investor is shown or given as profits to early participants. For decades unsuspecting individuals in Kerala have been duped of crores of rupees in several such Ponzi schemes.
Draft regulations have been readied in the State in order to ban sale of products in the “money chain” mode by direct selling companies.
The method of operation wherein persons on the higher rung in the chain get money and commissions when he recruits more persons into the sale network will be prohibited. The guidelines, drafted by the State Consumer Affairs Department, stipulate that commissions and incentives should be in proportion to the turnover and profit of the company.
The draft rules also state that when products are sold without intermediaries, the price should be reduced proportionately.
Highlights of the proposals
A State Monitoring Authority will be constituted to prevent cheating, exploitation of labour and evasion of taxes by entities in the direct-selling and multi-level marketing sector and to protect the rights of consumers.
The Authority will be formed under the State Consumer Affairs Department on the basis of the Consumer Protection Rules (Direct Selling), issued by the Central government in 2021. The Centre has devolved on the States the power to enforce the regulations.
The Authority will have the powers to blacklist and ban companies that are found to be engaged in cheating.
The Food and Civil Supplies Commissioner will be the nodal officer and convener of the 11-member Authority that will be formed under the chairmanship of the Principal Secretary to the Consumer Affairs Department. The Additional Director General of Police, officials of the departments of Finance, Law, Revenue, Legal Metrology, Food Safety, Central and State GST and an expert individual will be members of the Authority.
All direct-selling companies must register themselves with the Authority by furnishing details such as the GST registration, balance sheet, and the audit report. The websites of the companies must provide information about the price of products and services, rates of tax, shipment charge, conditions for refund, guarantee, warranty, and facilities for repairs. There should also be a system for addressing grievances. The companies must also submit tri-monthly reports about the number of persons engaged in direct selling, their remunerations, the number of consumers, and details of the GST and income tax returns.
The Consumer Affairs Department has decided to make some minor changes in the draft guidelines on the basis of the discussions conducted with direct-selling companies, labour representatives, officials of other departments concerned and taxation experts.
Easier solution to grievances
Until now, the only option open to those who were defrauded by direct selling and multi-level marketing companies was to file a case of cheating with the police. However, this has not been effective.
Under the new rules, the government will empower district-level officers to investigate and take action if the companies themselves do not resolve complaints. If there is no solution within 10 days of the officials serving notice on the company, the Authority will take up the case.
If a violation of the law comes to its attention, the Authority is empowered to take suo motu action. It also has the powers to deploy officers of different enforcement departments and conduct investigations.
The guidelines are being brought in also in order to protect consumers from being cheated.
Experts in the sector point out that the ban is being imposed not on companies but on unfair business practices.
