Government issues model guidelines for states to curb Ponzi schemes

New Delhi: To protect consumers from Ponzi frauds, the Centre today issued model guidelines for states to regulate direct selling and multi-level marketing businesses while prohibiting pyramid structures as well as money circulation schemes.

The 'Direct Selling Guidelines 2016' framework was released by the Food and Consumer Affairs Minister Ram Vilas Paswan and has been sent to the states and Union Territories for adoption.

In the guidelines, the government has clearly defined legitimate direct selling and differentiates it from pyramid and money circulation schemes to help investigating agencies identify fraudulent players.

"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," the guidelines said. They have also defined Pyramid Scheme. Money Circulation Scheme has the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

To conduct direct selling business, the guidelines have prescribed many conditions that need to be complied within 90 days such as direct selling firms should be a registered legal entity.

They bar direct selling companies from charging any entry fee from agents or compelling them to buy back unsold stocks. These entities will have to enter into an agreement with direct sellers or agents, and give full refund or buy-back guarantee for goods and services sold to them.

"We are sending the model guidelines to all State governments. States can make some change as per their localised requirements. The guidelines were necessary for better growth in the direct selling business," Consumer Affairs Secretary Hem Pande told reporters here.

He said the guidelines will help protect consumers as direct sellers can now be identified, and goods exchanged.

The guidelines also mandate direct sellers to constitute a grievance redressal committee to protect consumers right.

It has also laid down remuneration system for the person engaged by direct selling firms on sharing of incentives, profit and commission.

The guidelines have also made provision for appointment of monitoring authority at both Central and state level to deal with the issues related to direct selling.

Prohibiting pyramid and money circulation schemes, they said: "No person or entity shall promote a pyramid scheme as defined in Clause 1 (11) or enroll any such person to scheme or participate in such arrangement in any manner whatsover in the garb of direct selling business."