Direct selling and multi-level marketing are important forms of economic activities: Karnataka High Court

Mumbai, (GNI) : In a landmark judgment that will change the way Direct Selling and Multi-level marketing companies are perceived, the Karnataka High Court has quashed all allegations made against QNet’s Malaysia based executive. Pronouncing the judgement in a case filed against Naresh Balasubramaniam the honourable High Court has made some very strong and relevant observations that are likely to clear the air around the business model of QNet that has been going through harried times, thanks to completely misconstrued facts about its business model.

 

Naresh Balasubramaniam a resident of Kuala Lumpur had approached the High Court for a case against him by the Cyber Crime Police (Economic Offences Division) on a complaint filed by one Ms Pragya a resident of Electronic City.

 

Pronouncing the judgment the Honourable HC clearly stated that there is no case where any over act in inducing the complainant from parting with any money or influencing her in doing so was observed. Only because Subramaniam was the Managing Consultant of Q-Net India did not in any way provide grounds for his name to be included in the charge sheet said the order.

 

“It is not shown that the petitioner is associated with the latter. This circumstance alone would render the proceedings initiated against the petitioner had in law” read the order. Another significant factor that went in favour of Subramaniam is that he is a resident of Malaysia in the Charge sheet, “that is yet another factor that would dilute the case against the petitioner.” the order read.

 

What is more interesting are the observations that the HC has made on the overall allegations against Q-Net and its sub-franchisee Vihaan. Q–Net, is said to be engaged in multi-level marketing or direct marketing. According to the HC “the police appear to proceed on the basis that the activities of a multi-level marketing company is illegal and arbitrary. There is a suspicion created about the business in some circles while there are others who vouch for it as a sound business model. The doubts and strong words employed by the Bombay High court in denigrating the business itself, is a case in point.”

 

The HC has very clearly stated in no uncertain terms that “it is evident that ‘Direct Selling’ has emerged as a global industry. A report prepared by the Federation of Indian Chambers of Commerce and Industry discloses that direct and multi-level marketing in India is estimated to be to the tune of several hundred crores of rupees. And that it has emerged as an independent industry.”

 

The FICCI report as quoted by the Honourable HC also states that direct selling and multi-level 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. This is a very important observation as it helps clear the pollution spread by unwanted and probably self-interested elements around the business model of direct selling companies.

 

The HC has held that business models of multi-level marketing companies where the benefit is a result of sale of goods or services for subscribers, is not illegal.

 

As per the HC “Activities of QNet and Vihan i.e., the multilevel marketing companies, do not constitute offences under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.” According to the judgement, the activities of the company do not fall within the definition of ‘Money Circulations Scheme’ under Section 2(c) of the act, nor does it fall within the definition of ‘Prize chit’ under Section 2(e) of the Act.

 

Concluding on the applicability of the Act, the HC observed that “when the activities of these companies do not constitute either Money Circulation Scheme or Prize Chit, the offences under Sections 4 and 5 of the Act, do not even remotely apply to such activities and consequently charging the accused for such offences is unsustainable.”

 

Quoting the FICCI report the HC has observed that “absence of a clear legislation and regulatory framework for multilevel marketing companies, have led to severe problems for such companies operating in the country. Legislation such as the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, which do not even remotely apply to the activities of multilevel marketing companies, are applied by the investigating authorities leading to disastrous results.”

 

There is no way that criminal prosecution can be initiated under the provisions of the IPC and the best possible course of action would be to initiate proceedings under the Consumer Protection Act, 1886 in cases which have been filed against Q-Net or its stakeholders.

 

Cases registered in the Q-Net case are typically those where criminal legislation which are not even remotely applicable to the circumstances of the case have been invoked to substantiate the charges. “The dispute, if at all, is between a consumer and a direct seller and ought to be adjudicated under the provisions of the Consumer Protection Act, 1986.” says the HC.

All this puts to rest the misconceptions spread around the direct selling business models of companies like Q-Net and will go a long way in clearing a path of sustainable growth for the sector and all those associated with it. ends