To make a clear distinction between genuine direct-selling companies and fraudulent ponzi schemes, the government will soon put in place a set of 'model guidelines' to be followed by different states in such cases.
"These guidelines are close to being finalised by the Consumer Affairs Ministry and the Corporate Affairs Ministry has given its suggestions and other inputs in this regard," union minister Sachin Pilot said.
"There was a meeting of consumers affairs secretary,corporate affairs secretary, myself and other stakeholders on the issue. Once we put these standard guidelines in place, the ambiguities about genuine companies and fraudulent schemes would go away," the corporate affairs minister told PTI in an interview here.
Pilot's comments come against the backdrop of the recent arrest of global direct selling major Amway's India Chairman William S Pinckney and two company directors by the Kerala police over allegations of fraud.
While they were released later on bail, the incident has generated a debate on need for a clear set of rules for differentiating between registered companies doing genuine businesses and those duping the investors through fraudulent schemes structured like multi-level marketing operations.
"The standard guidelines would have the distinction between what is legal and what is illegal," Pilot said.
"These would be model guidelines. We hope that state governments adopt them pretty much as they are except for minor changes.
"Right now, there is no clarity on the issue. In India it is illegal to charge commission for membership. You cannot make a member and take commission on that. Selling products or services is legal but sometimes people do both," he said.
Direct selling involves selling various consumer products to their customers, who in turn get incentives for bringing more clients and further expanding the network.
On the other hand, in ponzi schemes, the focus is on incentives from multi-level marketing model but in most cases they are without the presence of any real products.
"While we must take strong action against the companies that are misusing the laws and duping investors, reputed companies that are doing good work and did not violate any Indian laws should be allowed to operate without any fear.They must be given confidence," Pilot said.
Earlier, Pilot had described the Amway incident as an unfortunate one and had said there needs to be more clarity in the operations of multi-level marketing companies in India.