High Court verdict in Qnet Case: Multi-level marketing & Direct Selling important forms of economic activities

MUMBAI,  27 february,  2017 : There has been relief for Qnet as Karnataka High Court rejected criminal proceedings against direct selling and multi-level marketing company QNet and it’s executive Naresh Balasubramaniam.  QNet is a Hong Kong-headquartered direct selling and multi-level marketing company currently doing business in India through it’s franchisee Vihaan Direct Selling.

The court in its order expressed that direct selling and multilevel marketing are forms of economic activity that could play a very important role in a country like India, as it envisages low transactional cost mechanisms for sale of consumer products without the need for large marketing infrastructure.

According to FICCI-KPMG India report, Direct Selling industry in has the potential to reach a size of Rs. 15-20 bn by 2025, driven by the swelling share of middle income households, growth in consumer markets and an increase in the penetration of direct selling to globally comparable levels. The report also suggests that realising this potential is contingent on creating an enabling environment for the industry and mitigating some of the challenges it faces today.

The direct selling industry in has witnessed reasonable growth in the past few years. However, the industry faces certain regulatory challenges. There is no systematic and standard policy on direct selling that is based on the constitutional structure. In addition to this, there are other regulatory issues including a lack of definition and separate provisions for the industry, which can adversely affect the industry, says FICCI report.

Chandralekha Malviya, Principal Advisor, Ministry for Consumer Affairs, Food & Public Distribution quoted that “We acknowledge the contribution of this industry and we have worked hard on preparing the guidelines for the industry. It is in the final stages of approvals and will be released very soon”.

In consideration of the fact that direct selling and multilevel marketing are important industry verticals, the Govt. of India has issued an Advisory to the State Governments and Union Territories, which contain 'Model Framework for Guidelines on Direct Selling'. 

The model guidelines clearly indicate that multi-layered network of subscribers to a scheme formed by a direct selling company,which consists of subscribers enrolling one or more further subscribers in order to receive any benefit, directly or indirectly, where the benefit is, as a result of sale of goods or services for such subscribers, is not illegal.