FDSA – Proposed Guidelines for Direct selling Business

Introduction

Federation of Direct Selling Association (FDSA) is a voluntary social organization formed with an
intention to look into the activities of all genuine Direct Selling / Direct Marketing / Network
Marketing companies in India and to guide them in establishing legitimate and ethical business
practices. The Association is able to muster good support from several genuine Direct
Marketing companies pan India. Hence, it has become imminent to have a uniform code of
conduct, ethical business practices and guidelines to all member companies of FDSA.

Pursuant to the above, FDSA formulated certain guidelines to regulate the sale of goods and
services in Direct Marketing, Direct Selling or Network Marketing and to provide protection to
the consumer who purchase goods & services from the Direct Seller / Direct Marketing /
Network Marketer.

The following guidelines are formed by FDSA in the best interest of the Direct Selling /
Network Marketing industry in India, where either the company or the distributor will not
face any losses. In addition, The Govt. will also get huge revenues in the form of various
taxes.

I. Definitions:

1. Direct Selling

Direct selling means marketing or sales of goods or service directly to the end user / consumer
using word of mouth publicity, display and/or demonstrations of the goods or services, and / or
distribution of pamphlets.

2. Direct Selling Entity

Direct selling Entity means a business entity as recognized by law for the time being in force
including but not limited to a company duly incorporated under the Indian Companies Act, a
registered Partner Ship Firm, constituted under the Indian Partnership Act, Co-Operative society
registered under the Co-operative Societies Act, however shall not include Proprietary concern and
HUF, that engages /engaged in the business of direct selling.

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 3. Direct Seller
Direct seller means a person who is authorised by the Direct Selling Entity to engage into the
business of Direct Selling.

4. Consumer

An individual who buys goods or services for personal use and not for manufacture or resale and
shall have the same meaning as provided under the Consumer Protection Act, 1986.

5. Distributor
A person who is engaged in the business of promoting or conducting direct selling by self or
through Direct Seller/s is called a Distributor.

6. Distributionship
Means the authentication/License granted by the Direct selling entity to an eligible applicant to
engage in the business of Direct selling as Distributor.

7. Goods or Services
Goods or Services shall have the same meaning as defined in the Sale of Goods Act and section
3(26) of the General Clauses Act, 1897, that is, it shall include every kind of movable property or
service other than actionable claims and money.
8. Sale
'Sale' means any transfer of property in goods or services for cash or deferred payment
or other valuable consideration, including a transfer of property in goods or services
involved in the execution of a contract, but does not include a mortgage, hypothecation,
charge or pledge. Explanation I.-A transfer of goods on hire- purchase or other
installment system of payment shall, notwithstanding that the seller retains a title to
any goods as security for payment of the price, be deemed to be a sale.

9. Sales Commission

Sale Commission means compensation payable to the direct seller/Distributor for

effecting sale of goods or services as stipulated herein by whatever name it is called.

II. Conditions for Permissible Direct Selling

a. Should be a Direct Selling Entity, having sales tax / Vat, Income Tax, TDS, Service
Tax and Shops and Establishment registration and other license as may be
required as per the law and regulations of its principle place of business.

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 b. Partnership Deed or Memorandum of Association or bye-laws as the case may
be should clearly state their nature of business as direct selling. (Those who do
not have such specific clauses should get their memorandum of Association or
Partnership Deed as the case may be amended within 2 months from the date of
publication of these Guide lines)

c. The Direct Selling Entities should maintain websites with complete details of
their products and/or services, terms and conditions, details of direct selling and
all relevant information about the company and business in detail. The websites
shall be updated regularly and shall furnish all necessary information as required
by any law or regulations/guidelines as applicable.

d. Shall pay sales commission at the agreed rate within the agreed period as per
the terms stipulated in the distribution/direct seller appointment agreement, on
the sales affected directly by direct seller/distributor or through his team.

e. Shall give facility to verify the authenticity of the Direct seller / Distributor
through the official website on furnishing the Unique Identification number of
the Direct Seller/Distributor.

f. Should have a consumer grievance cell that endeavor redressal of consumer

grievances within 7 days from the date of making such complaints. Direct Selling
Entity shall maintain a consumer Complaint Register and shall record the
complaints, settlement/outcome. Such register shall made available for
inspection as and when required by the FDSA .

g. Website shall have provision for registering consumer complaints.

h. The Direct selling entity shall provide Photo Identity Cards to the Direct
Seller/Distributors and Direct Seller/Distributor shall visibly display the identity
card at the time of soliciting the sales.

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 III. Appointments/Authorisations:

a. Direct Selling Entity shall enter into an agreement for appointment only after
scrutinizing the application of the intending person in a prescribed format with
necessary supporting documents such as;
i. Photo ID card
j. Address Proof
k. PAN Card
l. Other certificates

b. An agreement recording terms of such appointment should be executed

between the Direct Selling Entity and distributor/direct seller.

c. No application should be considered unless such applicant is attained the age of

majority under the Indian Contract Act to enter into an Agreement.

d. Each Direct Seller/Distributor shall be allotted Unique Identification Numbers

and Photo Identity Card upon granting license / permission to start direct selling.

IV. Prohibitions:

a. Shall not allot more than one Distributor ship to a single individual/entity.

b. Shall not pay sales commission unrelated to their respective sales volume.

c. Shall not sell goods or services with the knowledge that such goods or services are
inferior or exceeded its validity period as per the manufacturer or service provider.

V. General Conditions:

a. Packages of the Goods sold by the Direct Selling Entity should display details under the
weights and measurements Act like
i. Name and address of the Manufacturer / importer
ii. Name and address of the marketing company
iii. Year and month of Manufacturing / import
iv. Expiry date in case of consumables
v. Content, quantity
vi. MRP
vii. Customer care number and Address

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 b. No sale should be affected by the Direct Selling entity on accepting “cash”. All sales and
consideration for direct sale transaction should be effected through bank.

c. Accounts of individual distributor shall be maintained properly and should be made

available through World Wide Web and/or printed form to be sent periodically to the
respective distributor/direct seller

d. Sales commission should be distributed to the respective Distributors on or before the

agreed date of settlement as per the terms of appointment as distributor/direct seller .

e. No sale shall be affected unless obtained an order form duly signed by the prospective
consumer.

f. “Goods sold by the Direct Selling entity should carry guaranty / warranty of the
manufacturer. However consumer should be given opportunity to exchange/return the
goods if finds any manufacturing defect or the product purchased is not useful for the
purpose it was meant, within 7 days from the date of purchase.

VI. Compensation plan:

There is no specific frame to control the model of compensation system but it is mandatory to
follow the below:

1. The Opportunity should be subjected solicitation.

2. Companies opting for registration / renewal fee should not offer any benefits /
commissions on the registration charges.

3. The compensation system / business model should offer commissions / benefits based
only on sale volumes. Any kind of returns on investment, fixed returns, interests,
periodical returns are not permitted under Direct Selling business.

4. The compensations system / business model should have proven arithmetic

propositions.

5. The compensation system should also have scope to achieve commissions by the
distributors even without any down-line (Self purchase or own sponsored consumer
sales).

6. A Distributor should be allowed to operate only on a single ID or position in the

compensation system.

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VII. General Business Ethics / Code of conduct:

Every Direct Selling Company should specify general business ethics / code of conduct
applicable for every distributor.

VIII. Information Readiness (Ready information file):

1. Every Direct Selling Company should maintain a file with all relevant documents that
include:
a. Certificate issued by Registrar Of Companies and MOA.
b. Xerox copies of TIN, DIN of Directors, TAN, PAN.
c. Certificate of Sales Tax, Service Tax, CST Registrations.
d. Copies of all Sales Tax Returns filed with the authorities.
e. Copies of Service Tax Returns filed with the authorities.
f. Copies of IT Returns of company filed with the authorities.
g. TDS Statements of Distributors and respective challans paid.

2. Every Direct Selling Company should maintain KYC / KYD (Know Your Customer / Know Your
Distributor) as a mandatory process. Specific formats are to be provided on their websites
to be available for all at any time.

IX. Grievance Redressal Mechanism:

Every Direct Selling Company must have a complaint redressal mechanism to address any
problem of their customers / distributors.

The business activities not complying with the above guidelines will
not be considered as Direct Selling / Direct Marketing and would be
dealt appropriately through FDSA policy of self-policing with the
concerned authorities.

* * *
Note: The FDSA is ready to accept any required modifications to suite as per law.

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