Legal aspects of multilevel marketing in India: negotiating through murky waters

Abstract

The direct selling industry is one of the fastest growing industries in India. Despite the prevalence of this business model since 1990s, India has neither provided for an exclusive regulatory framework nor attempted to define and differentiate the multilevel marketing schemes from comparable but illegal pyramid/Ponzi schemes. The ambiguity in the Indian regulatory environment has been a subject of intense discussion in the recent times specifically in relation to the operation of Amway India Enterprises. The incident with Amway exposed simultaneously, the vulnerability of doing business in an uncertain legal environment that lacks regulatory clarity and the potential for misuse by enforcement authorities and also the vulnerability of consumers who are party to such business transactions, with the law not providing definite recourse. In the backdrop of this incident, this paper attempts to understand the facets of multilevel marketing, a concept recognized and accepted, but regulated worldwide. The paper shall examine the legality of multilevel marketing in the context of the Indian PCMCS Act 1978 with a view to understand and differentiate genuine multilevel marketing companies from pyramid schemes run by fly-by-night operators, an activity considered illegal universally. The paper shall also examine the legality of the multilevel marketing schemes in India in the backdrop of the Amway fiasco, the judicial interpretations and the existing legal framework from a comparative perspective.