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Establishment of An Appropriate Regulatory Framework For Direct Selling in India
Establishment of An Appropriate Regulatory Framework For Direct Selling in India
Appropriate Regulatory
Framework for
Direct Selling in India
Table of Content
PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. In such instances, the seller use to have; not only direct sales,
but also establishes a personal relationship with his/her buyers.
Inevitably and incidentally, due to this personal rapport, some
other services, like investment advise, other useful
market/product information etc., are given to the buyers.
1
The total fiscal contribution of direct selling industry is INR 9,869 million during
2012-13.
2
As per IDSA the growth of Direct Selling in India is 12.2% during the financial year
2012-13.
3
Annual Survey Report 2012-13 of IDSA.
4
In June 1974 the RBI had constituted a Study Group under the Chairmanship of Shri.
James S. Raj, the then Chairman of Unit Trust of India, for examining in depth the
provisions of Chapter III-B of the Reserve Bank of India Act, 1934, and the directions
issued thereunder to non-banking companies in order to assess their adequacy in the
context of ensuring the efficacy of the monetary and credit policies of the country and
affording a degree of protection to the interests of the depositors who place their
savings with such companies. In its report submitted to the RBI in July 1975 – the
group observed that the prize chit/benefit/savings schemes benefit primarily the
promoters and do not serve any social purpose. On the contrary the Group has stated
that they are prejudicial to the public interest and affect eh efficacy of the fiscal and
monetary policies of the country.
15. For the benefit of our current context it may be repeated that,
the PCMC Act banns the promotion of any prize chit or money
circulation scheme by whatever name called, and participation
of any person in such chit or scheme. Sub-section (c) of Section
2 of the PCMC Act defines 'money circulation scheme' as
follows:
18. Any one related to such banned activities under the act; and
attempting to promote such activities are also liable to be
imprisoned for a term up to two years or with fine up to three
5
thousand rupees; or with both. Again there is a stipulation
that, unless there is a very special reason the minimum
imprisonment shall be at least for one year.
5
Like one who (i) prints or publishes any ticket, coupon or other document for use in
the prize chit or money circulation scheme; (ii) sells or distributes or offers or
advertises for sale or distribution, or has in his possession ofr the purpose of sale or
distribution any ticket, coupon or other document for use in prize chits or money
circulation scheme; or (iii) prints, publishes or distributes or has in his possession for
the purpose of publication or distribution; (iv) brings, or invites any person to send, for
the purpose of sale or distribution any ticket, coupon or other document for use in the
prize chit or money circulation scheme or any advertisement of such prize chit or
money circulation schemes; or (v) uses any premises, or causes or knowingly permits
any premises to be used, for purposes connected with the promotion or conduct of
the prize chit or money circulation scheme; or (vi) causes or procures or attempts to
procure any person to do any of the abovementioned acts.
20. This is the underlying policy objective which the Prize Chits and
Money Circulation Schemes (Banning) Act, 1978 attempts to
achieve. It must be prima facie observed that application of
PCMC Act to the direct selling industry is rather accidental by
enforcers and unintended by the legislators, provided the direct
selling model is genuine.
23. This has led to formidable hardship for the genuine players – as
the stipulations of PCMC law are pretty harsh. There was an
instance of a top managerial personnel of a direct selling
company remanded to the custody as well.
6
This was in response to Loksabha unstarred question No. 4875 dated December
12, 2002.
33. It must be noted that, bringing a dedicated law will not resolve
the issues in hand. The new law should also imperatively have
a regulatory/enforcement agency to implement. This would
create another regulatory agency, and until they attain the
optimal performing level this burning issue will certainly
continue.
34. Bringing another law will not nullify the effect of PCMC Act,
which will still continue to operate. Harmonizing the new
regime (to be created for the implementation of dedicated
law) and other existing regulators is going to be critical; and
unless achieved to the perfect level, the present danger of
misapplication of PCMC Act might continue.
38. During our consultations with FICCI (the task force formed for
the purpose) and other key members of Direct Selling Industry,
this option was heavily seconded and all exhibited unfounded
zeal to go for a new-dedicated Central legislation. But it appears
to be an idealistic solution only.
40. As referred above Sec. 2(c) of the PCMC Act is pushed for
an amendment. Said sub-section defines 'money circulation
scheme' and bans money circulation schemes, irrespective of
any name that is being used. The definition of 'money circulation
scheme' is central to the enactment.
42. Sub section (c) of Section 2 is clear and emits the mandate of
the PCMC law, that prize chits, money circulation schemes, by
whatever name they may be called, which do not bring public
value; and where the chance of innocent investors being lured
to loose their money – are to be banned. Following extract will
bring out the exact intent of the Committee:7
7
The Banking Commission constituted by the Government of India to review inter alia
'the role of various classes of non-banking financial intermediaries, to enquire into
their structure and methods of operation and recommend measures for their orderly
growth', made certain recommendations in 1972. These recommendations were
examined by the Reserve Bank of India, and as per its opinion – Government of India
decided that the relative provisions of the Reserve Bank of India, 1934 and the
directions issued thereunder to non-banking companies may be reviewed to plug
loopholes, if any, which were being taken advantage of, particularly by private limited
companies. With the view of examining this matter in all its aspects, the Reserve Bank
of India by constituted the James S. Raj Committee in 1974.
8
Para 6.11 (page No. 133-134) of the Committee Report.
46. The apex court felt that, it is far too vague and arbitrary to
prescribe that 'whosoever makes quick or easy money' is to be
penalized under the statute. After due deliberation the court laid
down as follows:
9
(1982) 1 SCC 561.
10
Para 09 of the judgment.
48. The PCMC Act, in its true spirit does not apply to Direct
Selling Companies, who develop multi-level marketing
schemes, with distributors developing their chain by
recruitment. The sole motive of the recruitment is to
develop a sales chain through these recruiters. The new
recruiters are generally advised to purchase the products
for cash and then sell them to prospective customers.
Contact Person
Shilpa Gupta
Head - Retail, FMCG & Luxury, Life Style, Gems n Jewellery Forum
Federation House, Tansen Marg, New Delhi 110 001
T: 011 23487270 | E: [email protected]
W: www.ficci.com