The Hindu Business Line : Uniform law needed to regulate multi-level marketing schemes

THE recent Madras High Court ruling that multi-level marketing scheme, by whatever name it is called, is illegal (The Hindu, January 26) has once again helped highlight two issues - one, the need to make the law - Prize Chits and Money Circulation Scheme (Banning) Act, 1978 - relevant to the present times, and the other, uniform implementation of the law across the country.

Call it direct marketing, network marketing, multi-level marketing, all the schemes seek to create an ever expanding market for products, often luxury goods such as toiletries, by creating a chain of customers.

Those who enter the chain first as customers soon become sellers or marketers. In order to reap financial benefit from the scheme, they have to induce others to join the scheme. This creates a virtually unending chain of customers for products of the promoter company.

The significance of the ruling lies in the fact that courts would look with disfavour or frown on only those schemes that encourage and profit from creation of a long customer network. Schemes that create conditions whereby customers could be enlisted with undue influence; misrepresentation and similar deeds would come in for scrutiny.

The Indian Direct Selling Association - a body of network marketing companies - has been lobbying with the Government to enact a separate legislation to cover direct selling.

The Association has claimed that the law is vague and that its members are being targeted because of the unclear nature of the law. It has sought a distinction between prize chit funds and genuine agencies involved in direct marketing.

The Ministry of Consumer Affairs had on more than one occasion expressed the view that a separate legislation was not necessary to protect the interest of consumers as there were adequate provisions available in the Sale of Goods Act, 1930 (for regulating the sale of goods), the Indian Contract Act, 1872 (for the sale of services) and the Consumer Protection Act, 1986 (to promote and protect the rights of consumers).

The Reserve Bank of India too had, a few years ago, examined the scheme of a well-known US company operating in India that sought to create a chain of distributors, and expressed the view that the said scheme appeared to be a prize chit or money circulation scheme and hence prohibited under the law.

Police authorities of the concerned State Governments have to investigate and take a view. This has the potential to create distortions.

Different States can take different views on the operation of the same or similar scheme.

It is necessary to make the law absolutely clear by establishing objective criteria for deciding whether a scheme is legal or not.

The law has to be applied uniformly across the country and the element of discretion should be minimum.

State Governments must regulate such schemes and ensure that the products marketed comply with all legal requirements in terms of quality, packaging and requisite disclosures.

Given the modest level of education, high level of urban unemployment and people constantly looking for income earning opportunities, schemes such as network marketing are bound to create conditions that could potentially go against consumer welfare.

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