The Tussle Behind the Binding Nature of Direct Selling Guidelines

By Mayank Bhandari

In this article, the author will analyse the reasoning given by the division bench of Delhi High court in Amway case while pronouncing the verdict that the Direct Selling Guidelines are not binding, the same case is pending before the Hon’ble Supreme Court. Through this article, the author will advocate the perspective that, although DSGs are advisory in nature, they are binding in effect.

What are Direct Selling Guidelines?

The Direct Selling Guidelines 2016 have been issued by the Ministry of Consumer Affairs, Food & Public Distribution as guiding principles for the State Governments to govern the business of Direct Selling and strengthen the existing regulatory mechanism for preventing fraud and protecting the legitimate rights and interests of consumers and Direct Sellers.

Let us have a careful look at why these guidelines are important. These guidelines are the only statute exclusively dealing with rights of Direct Sellers and allows direct sellers like Amway to ensure that their products are only being sold through authorised sellers, preventing any kind of product tampering. Section 2(1)® of the Trademarks Act, 1999 mandates that the permitted user should take written permission and abide by the terms and condition as laid out by the registered proprietor. Harmonious interpretation of both these statutes clearly states that the Trademark owners shall be able to control who is selling their product. In the Amway case, one of the Direct sellers was selling his product through Amazon at heavy discounts which is against the policy of Amway. And Amway after scrutiny found out that the product has been tampered. This made Amway concerned that the goodwill of the Amway trademark has been compromised when the goods are being sold through Amazon. Amazon in its defence stated that once the product has been sold by Amway, Amway loses its rights over its products and Buyer of same product can sell it through any channel it prefers. Now Amway cited clause 7(6) of DSG stating that any person who sells any product of DSE must have a prior written consent to solicit such sale. Delhi High court single judge bench approved this argument but later this decision was overturned by division bench.

  
 Division Bench while overturning the verdict of single judge of Delhi High Court, has in shell given three basic reasons with respect to non-binding nature of DSGs. First, they are model guidelines which are advisory in nature for states to formulate their own laws on basis of such guidelines. Second, they are executive instructions which derive its legality from Consumer Protection Act 2019(CPA), but CPA 2019 itself is not being notified yet hence DSG is not binding. Thirdly, these guidelines are inconsistent with statutes as they violate principle of exhaustion, enshrined under Trade Marks act. The impact of this decision was Direct Selling Entities all over India does not have any remedy against sellers who are selling their trademarked goods through the platforms not approved by Manufacturers. This would lead to compromise in quality of their products, which would Deteriorate the goodwill of Trademark owners.

 The Division bench in Delhi High Courthas stated that, “The source of the power to frame such guidelines is traceable only to the CPA. With the CPA, 2019 itself not having been notified, these draft guidelines could not have attained the character of binding Rules under the CPA, 2019, or for that matter, even under the CPA, 1986”. This judgement will not hold much relevance now because Consumer Protection Act 2019 has been notified^[1], and model guidelines have been implemented in 12 states mutatis ecided. In arguendo let’s analyse even if they are not a delegated legislation, will the guidelines still be binding?

Deviation from guidelines is permissible only if the circumstances of any particular fact or law situation warrants the same. In the current case, Amway’s right to carry on business is being affected. Further, the rights of genuine consumers are being affected when quality of such goods has  been tempered.  Hence, it can be concluded that the current set of facts and situation do not warrant deviation from them. Furthermore, E-commerce platforms are only taking defence of the advisory nature of guidelines, to take unfair advantage of the Legislative lacuna. So, if such Legislative Lacuna exist, can a mere guideline be interpreted as binding law? The Constitution bench of the Hon’ble Supreme Court in Sant Ram Sharma case ecided in favour that, “if the Rules are silent on any particular point, the Government can fill-up and issue instructions not inconsistent with the rules already framed”. In the present case the Ministry of Consumer Affairs issued such instructions as the CPA, 1986 was silent on the same part.

 As per the observation of Additional Solicitor General of India, Maninder Singh,  in Amway case, “the DSG have been framed in terms of the legal procedure and are binding in law and further notified in terms of the Article 77 which is only law that regulates the business of Direct Selling.” This was taken on record when ASG was arguing for Govt. in the Amway case which shows that the legislative intent of the executive while framing these guidelines was binding in effect.

 Similarly, the Hon’ble Supreme Court, in Naga People’ Movement case held that the executive instructions are binding provided that the same have been issued to fill up the gap between the statutory provisions. The same guidelines can be said in consistent with sec 94 of CPA 2019. Which is the reason Ministry of Consumer Affairs drafted DSG again after the act which is yet not been notified but this shows that such guidelines are not inconsistent with any previous statute. It is also evident from the fact that 12 states already implemented such guidelines as statute in their respective states.

It can be concluded that if the online platforms were permitted to violate the DSGs, the DSEs would be left with no remedies to enforce a binding law. Ministry of Consumer affairs through various circulars asked ecommerce businesses to adhere to these guidelines hence Doctrine of Legitimate expectation as determined by Hon’ble Supreme Court in Ram Pravesh Singh case will be applied here to bind these guidelines to ecommerce platforms like Amazon, Snapdeal etc to sell such products without authorisation.

 Legitimate expectation is a remedy that may ordinarily flow from a promise or established practice which in this case is DSG. It is a concept fashioned by the courts, tor judicial review of administrative action. So how these DSGs can be interpreted as Legislative Expectation? The answer is simple. The DSGs having been authenticated by a Gazette notification and there is not any legislation that regulates the DSEs. Hence, they can be interpreted as Legitimate Expectations.

Hon’ble Supreme Court in G.J. Fernandez case stated that a person can be said to have a ‘legitimate expectation of a particular treatment, if any representation or promise is made by an authority, either expressly or impliedly, it gives room for such expectation in the normal course.

Thus, it can be concluded by relying on DSGs 2016, which are executive instruction meant to regulate business of Direct Selling to fulfil the legislative void are binding in effect. After Division Bench’s interpretation of DSGs, Direct Selling Businesses are rendered unsecured against unfair trade practices. Therefore, such guidelines should be binding to the extent permissible in law in the light of legislative lacuna that exist in Direct Selling Business. This legislative void can be fulfilled after the enactment of Draft Direct Selling Rules under Consumer Protection Act 2019, but till that time DSG 2016 which are executive instructions that exist in situation of no legislation should have a binding effect.

(Mayank Bhandari is one of our third year editorial members of the society. For any queries or comments, he can be contacted at mayank942bhandari@gmail.com)

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