IndusViva Permitted To Resume Operations: High Court of Telangana

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26th July 2021 will be written in golden words in the history of IndusViva, a Direct Selling company in Bangalore, while 4th march 2021 will be marked as the Black Day. EOW Cyberabad police had arrested innocent people of IndusViva at midnight, and their bank accounts were frozen alleging of money circulation. However, they were complying with all the guidelines existing in the country for the direct selling industry. No mothers’ pleas, wives’ woes or children’s cries were paid heed. When the company filed a Writ petition in Telangana high court, Justice Sridevi granted the company's prayers to continue the business, defreeze bank accounts and release seized goods. The guiltless souls got bail in all the three cases filed against them.

Let’s take a look back as to why this commotion happened and how it all started.

Direct Selling is the marketing, distribution and sale of goods or providing services through a network of people, known as direct sellers. However, the growth and success of this industry led to the development of fraud money circulation schemes in the name of Direct Selling. The absence of specific laws and norms to regulate direct selling companies was the reason behind this misconception. 

The industry witnessed a revolution by issuing Direct Selling Guidelines 2016. 

Consisting of the guiding principles for State Governments to consider Direct Selling as regular businesses and appointing a monitoring mechanism to prevent any fraud in the best interests of the people involved in the business or customers was the main highlight. Following the guidelines, many states involved in this business has appointed a nodal authority for strict supervision.  

According to Consumer Protection Act 2019, it is a legal, economic activity that helps entrepreneurs build a business. Multi-Level Marketing is a kind of direct selling in which a direct seller is paid compensation for the sales generated and the sales of their direct selling network who they recruit or sponsor directly or indirectly. People can enjoy financial freedom by earning a commission from the sale of products or services. 

Although there is a guideline and most state governments have appointed monitoring mechanisms, the absence of an exclusive law still leads to the discriminatory approach of people or authority. They cannot distinguish between legitimate Multi-level Marketing companies and fraudulent money circulation schemes. This results in disbelief and mistrust among ordinary people leading to defamation of several companies of this industry. It is hopeful for the industry that the Ministry of Consumer Affairs (Direct Selling Rules 2021) shall help. According to Direct Selling Guidelines 2016 (Clause 1.7), a Direct Selling organization is not engaged in a pyramid scheme that sells or offers to sell goods or services through a direct seller. In the Guidelines, Clause 1, Sub-clause 11, the first paragraph defines the Pyramid scheme, and the second paragraph clearly explains how Direct Selling is different from Pyramid Scheme by laying down few conditions. Even after the clarity provided in the Guidelines, as mentioned above, misinterpretation by the law enforcement agencies continued. Let’s consider the case study of India's leading Direct Selling company, IndusViva Health Sciences Private Limited, situated in Bangalore, got trapped. It complies with the Central Direct Selling Guidelines-2016, Telangana State Direct Selling Guidelines2017 and is registered as per Companies Act-2013.

Kerala Govt. issued their first Multi-level Marketing guidelines on 14th September 2015, regarding Kerala Finance Bill 2015, according to Kerala Value Added Tax (KVAT) Act, 2003, which was the first of its kind. IndusViva got the first registration as per the abovementioned guidelines and was the first direct selling company to be legalized by any state government. It is enlisted in the provisional list of direct selling entities published by the Ministry of Consumer Affairs after due scrutiny, hence stands upright as a legal entity. With valid and authorized certifications, IndusViva conforms with the Consumer Protection Act 2019 and the Direct Selling Guidelines 2016. 

However, since March 2021, the company has been struggling to prove its legitimacy, despite abiding by all rules and regulations for more than seven years, during which they have paid more than 190 crores to Govt. as various taxes out of their total turnover of nearly INR 1500 crores which were projected as a scam by the police. During this period, the company could change the lives of lakhs of people with its high premium quality wellness products manufactured under the licence of the Department of Ayush and through the business opportunity of marketing these products, which the Department of Consumer Affairs duly scrutinised, Govt. of India. IndusViva and other direct selling/ multi-level marketing organizations are getting stuck due to a lack of expert opinion. 

Let’s shed light on how the Direct selling guidelines 2016 has differentiated the pyramid scheme based on enrolment and direct selling (Clause 1, sub-clause 11: a-g). 

Provided that the above definition of “Pyramid Scheme” will not apply to a multi-layered network of subscribers to scheme formed by Direct Selling Entity, which consists of subscribers enrolling one or more subscribers to receive the benefit, directly or indirectly, where the benefit is a result of the sale of goods or services by subscribers and the scheme/financial arrangement complies with all of the following:

A) It has no provision that Direct Sellers will receive remuneration or incentives for the recruitment/enrolment of new participants.

B) It does not require the participant to purchase goods or services:

i. for an amount that exceeds the amount for which such products or services can be expected to be sold or resold to consumers;

ii. for the quantity of goods or services that exceeds an amount which can be expected to be consumed, or sold or resold to consumers;

C) It does not require participants to pay any entry/registration fee, cost of sales demonstration equipment and materials or other fees relating to participation;

D) It provides participants with a written contract describing the “material terms” of participation;

E) It allows or provides for a participant a reasonable cooling-off period to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations;

F) It allows or provides for a buy-back or repurchase policy for “currently marketable” goods or services sold to participants at the request of the participants at reasonable terms;

G) It establishes a grievance redressal mechanism for consumers, more particularly described in Clause 7 herein.

Verification based on these conditions shows whether a company is a legitimate Direct Selling/ Multi-level Marketing company or a Ponzi Scheme. In the same manner, it can be clearly understood that IndusVivaHealthSciencesPvt. Ltd. is not a money circulation scheme.

Considering all facts and verifying all policies, the High Court of Telangana has passed an order for IndusViva to resume its business like before. This proves that direct selling is not illegal, but deficiency of knowledge is becoming a bane for an excellent economic opportunity. 

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