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Union Government issues model guidelines for states to curb Ponzi schemes

The Union Government has issued model guidelines for states to regulate direct selling and multi-level marketing businesses to protect consumers from Ponzi frauds.

These model guidelines titled the Direct Selling Guidelines 2016 framework was released by Union Food and Consumer Affairs Minister Ram Vilas Paswan in New Delhi.

Key features of guidelines

  • The direct selling has been clearly defined as marketing, distribution and sale of goods or providing of services as a part of network of direct selling.
  • The legitimate direct selling is differentiated from pyramid and money circulation schemes in order to help investigating agencies identify fraudulent players.
  • Money Circulation Scheme has the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
  • It bars 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.
  • It also mandates direct sellers to constitute a grievance redressal committee to protect consumers’ right.
  • It lays down remuneration system for the person engaged in direct selling firms on sharing of incentives, profit and commission.
  • Adds provision for appointment of monitoring authority at both Union and state level to deal with the issues related to direct selling.

Comment

  • Ponzi schemes are banned under the Prize Chit and Money Circulation (Banning) Act, 1978.
  • Though it is a Central Act but the respective State governments are the enforcement agency of this law. SEBI is also not having the regulatory purview of Ponzi schemes.
  • These newly issued guidelines will allow states to make some change in their guidelines as per their localised requirements.
  • These guidelines are necessary for better growth of the direct selling business. It will also help protect consumers as direct sellers can now be identified, and goods exchanged.

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