Commonly used terms in Direct Selling – Ideated and Developed by Strategy India

Draft Definitions for Direct Selling, Participant-Based Marketing and Compensation Arrangements

Purpose and approach

This document provides neutral, plain-English definitions for use in legislation, rules, regulations or guidance addressing direct selling, participant-based marketing, compensation arrangements, pyramid schemes, money-circulation schemes, collective investment schemes and related commercial models.

The definitions describe commercial arrangements without assuming that an arrangement is lawful or unlawful because it uses a particular label, product, structure, payment frequency or form of enrolment. Legal character must be determined under applicable law and on evidence of the arrangement’s actual operation.

Part I — Interpretation

1. General rules of interpretation

Unless the context otherwise requires—

(a) words importing the singular include the plural and vice versa;

(b) references to one gender include all genders;

(c) a reference to a person includes a natural person and a legal person;

(d) a reference to a document includes a document in physical, electronic, digital, audiovisual or other recorded form; and

(e) a reference to applicable law includes any Act, rule, regulation, notification, order or other legally binding instrument in force from time to time, and binding judicial precedent applicable to the matter.

2. Effect of nomenclature and structure

The name, description, form, structure or mode of operation of an arrangement, including its description as direct selling, network marketing, affiliate marketing, retail marketing, referral marketing, direct compensation, single-level compensation, multi-level compensation, binary, matrix, infinity, hybrid or by any other name, shall not by itself determine whether the arrangement is lawful or whether it constitutes a pyramid scheme, money-circulation scheme, collective investment scheme or other regulated or prohibited arrangement.

In determining the nature of an arrangement, the competent authority shall have regard to its actual terms and operation, including—

(a) the source and basis of remuneration or other benefits;

(b) the relationship between remuneration and the sale of goods or services;

(c) any benefit arising from enrolment, recruitment, placement or the activity of other participants;

(d) purchase, subscription, activation, renewal, rank or eligibility conditions;

(e) representations made to prospects and participants;

(f) the operation of returns, refunds, buy-back and repurchase arrangements; and

(g) commercial and financial evidence relevant to the arrangement.

Part II — Persons and Entities

3. Person

“Person” includes an individual, Hindu undivided family, company, firm, limited liability partnership, association of persons, body of individuals, trust, society, co-operative, local authority, Government, artificial juridical person and any other entity recognised by applicable law.

4. Customer

“Customer” means a person who purchases goods or obtains services for consideration, whether paid, promised, partly paid and partly promised, or payable under a deferred-payment arrangement, and includes a beneficiary of such goods or services where the use or benefit is obtained with the approval of the purchaser or service recipient.

Explanation 1.— A customer may also be a participant, direct seller, purchaser, consumer, user or another person, depending on the facts and applicable law.

Explanation 2.— A person does not cease to be a customer solely because that person is eligible to receive a benefit under a compensation plan. The purpose, quantity, timing and commercial context of the transaction may nevertheless be examined under applicable law.

5. Consumer

“Consumer” has the meaning assigned to it under the Consumer Protection Act, 2019, as amended from time to time, and may include a person who is not a purchaser, such as a beneficiary or user of goods or services obtained by another person with that person’s approval.

Explanation.— The status of a person as a direct seller, participant, subscriber or member under a compensation plan, scheme or arrangement does not by itself determine whether that person is a consumer in relation to a particular transaction. The purpose, nature and circumstances of the transaction shall be considered.

6. Participant

“Participant” means any person who joins, registers, subscribes, enrols, purchases, sells, promotes, facilitates, receives, or may become eligible to receive, a benefit under a compensation plan or participant-based arrangement, whether or not that person is described as a direct seller.

7. Investor

“Investor” means a person who contributes money, property, tokens or other value to a scheme or arrangement with a view to receiving profits, income, produce, property, appreciation, redemption value or another financial return.

Explanation.— Whether a participant is an investor for securities-law purposes shall be determined from the substance of the transaction and applicable law, rather than the label used by the entity.

8. Prospect or prospective participant

“Prospect” or “prospective participant” means a person to whom an offer, invitation, proposal, representation or communication is made to purchase goods or services, join a participant-based arrangement, become a direct seller, or become eligible for a benefit under a compensation plan.

9. Independent contractor

“Independent contractor” means a person engaged under a contract for services who is not an employee of the engaging entity and who performs agreed activities using that person’s own judgement, skill, discretion or resources, subject to the terms of the contract and applicable law.

Explanation.— The description of a person as an independent contractor does not by itself determine the true nature of the relationship for the purposes of labour, tax, consumer, securities, competition, criminal or other applicable law.

10. Principal-to-principal basis

“Principal-to-principal basis” means an arrangement under which each contracting party acts in its own name and on its own account, assumes its own contractual rights and obligations, and is not authorised to bind the other party, except to the extent expressly provided in a written agreement or required by applicable law.

Explanation.— The use of the expression “principal-to-principal” does not by itself determine the true legal relationship between the parties for labour, tax, consumer, securities, competition, agency, criminal or other purposes.

11. Contract for services

“Contract for services” means a contract under which one person agrees to provide services to or for another person while retaining control over the manner in which the services are performed, subject to agreed outcomes, contractual terms and applicable law.

Explanation.— Whether an arrangement is a contract for services or a contract of service shall be determined from the substance of the relationship, including control, integration, financial risk, equipment, supervision and mutual obligations.

12. Direct seller

“Direct seller” means a person who enters into an agreement, whether in physical, electronic or digital form, with a direct selling entity or a person authorised by that entity, to market, recommend, distribute, sell or facilitate the sale of goods or services.

Explanation 1.— A direct seller may be known as a distributor, associate, independent business owner, consultant, networker, member, adviser, affiliate, representative, agent or by any other name.

Explanation 2.— A direct seller may also be a customer, consumer, user, purchaser, reseller or participant, depending upon the facts and applicable law.

13. Active direct seller

“Active direct seller” means a direct seller who satisfies activity, purchase, sales, performance or other conditions specified in a compensation plan or related policy.

Explanation.— The designation of a direct seller as active, inactive, qualified, verified, preferred or by any other name does not by itself determine the legality or compliance of the activity criteria or compensation plan.

14. Direct selling entity

“Direct selling entity” means a person, body corporate, partnership, limited liability partnership, association, trust, co-operative, organisation or other entity, duly incorporated or registered with the Registrar of Companies or another competent statutory authority under applicable law, that markets, sells, offers to sell, distributes or facilitates the supply of goods or services through direct sellers, and that establishes, administers, represents or operates a compensation plan or participant-based sales arrangement.

Explanation.— Incorporation or registration does not by itself establish that an entity’s compensation plan or participant-based sales arrangement is lawful. The entity and its arrangements remain subject to applicable law, including provisions relating to pyramid schemes, money-circulation schemes, collective investment schemes and other prohibited or regulated arrangements.

15. Operating requirement for a direct selling entity

No person shall carry on the business of a direct selling entity unless it is incorporated or registered with the competent authority required under applicable law and complies with such registration, disclosure and operational requirements as may be prescribed.

Part III — Goods, Services and Transactions

16. Goods

“Goods” has the meaning assigned to it under the Consumer Protection Act, 2019, as amended from time to time.

 

17. Product

“Product” means goods, services, a bundle of goods and services, a digital product, subscription, access right, licence, voucher, token or any other item offered, supplied, marketed or promoted for consideration.

18. Service

“Service” has the meaning assigned to it under the Consumer Protection Act, 2019, as amended from time to time.

19. Consideration

“Consideration” means money, money’s worth, goods, services, a right, credit, token, voucher, discount, rebate, subscription, promise, undertaking or other value paid, promised, provided or agreed to be provided in connection with a transaction or arrangement.

20. Price

“Price” means the monetary consideration payable, promised or provided for the purchase, supply or acquisition of goods or services, including monetary consideration payable on a deferred, conditional, financed, bundled or subscription basis.

21. Purchase

“Purchase” means the acquisition, subscription for, order of, booking of, payment for or commitment to acquire goods or services for consideration.

Explanation.— Whether a purchase by a direct seller or participant is made primarily for consumption, resale, qualification, rank maintenance or eligibility for remuneration shall be determined from the facts, including its quantity, timing, frequency, relation to eligibility criteria, resale, return and refund history, and communications made to the purchaser.

22. Retail sale

“Retail sale” means the sale of goods or services to a person for that person’s own use, consumption or other final use, and not for resale or for a purpose principally connected with qualification, rank maintenance or eligibility for a benefit under a compensation plan.

Explanation.— Whether a transaction is a retail sale shall be determined from its substance and surrounding facts, including the purchaser’s purpose, quantity, timing, frequency, resale, return history and relationship to compensation conditions.

23. Personal consumption

“Personal consumption” means the genuine use or consumption of goods or services by a purchaser or members of that purchaser’s household, and not a purchase made principally to obtain, retain or enhance eligibility for remuneration, rank, incentive, reward or another benefit under a compensation plan.

24. Sale

“Sale” means the supply, transfer, delivery, provision, licensing, distribution or making available of goods or services for consideration.

25. Delivery

“Delivery” means the voluntary transfer, transmission, making available or placing into the possession or control of a person of goods, services, access, records, digital content or another subject matter of a transaction.

26. Quality

“Quality” means the condition, characteristics, performance, safety, suitability, merchantability, durability or fitness of goods or services for the purpose represented, stated, implied or reasonably expected, having regard to the relevant contract, official communication, labelling, advertisement, specification and applicable law.

27. Saleable or currently marketable

“Saleable” or “currently marketable”, in relation to goods or services, means capable of being lawfully sold, supplied, used or consumed in the ordinary course of trade, having regard to condition, safety, expiry, legal compliance, packaging, demand, utility and the entity’s current product range.

Explanation.— An item may be treated as not currently marketable where it is expired, materially damaged, obsolete, discontinued, unlawfully supplied, unsaleable in the ordinary course, or otherwise incapable of being lawfully or commercially offered to customers.

 

28. Return

“Return” means the giving back of goods, cancellation of services or reversal of a transaction by a customer or participant in accordance with contractual terms or applicable law.

29. Refund

“Refund” means the repayment or credit of money or other consideration following a return, cancellation, rejection, adjustment or other reversal of a transaction.

30. Satisfaction guarantee

“Satisfaction guarantee” means a representation, undertaking or policy under which a customer or participant may return goods or cancel services, subject to disclosed conditions, if the goods or services do not meet the stated or reasonably represented standard, performance, quality or suitability.

31. Money-back guarantee

“Money-back guarantee” means a representation, undertaking or policy under which a purchaser or participant may return goods, cancel services or obtain repayment, credit, replacement or another remedy, subject to disclosed terms and conditions.

Explanation.— A money-back guarantee may include a buy-back, repurchase, refund, return or cancellation arrangement, but the label used does not determine its scope, enforceability or compliance.

32. Buy-back or repurchase arrangement

“Buy-back” or “repurchase arrangement” means an arrangement under which an entity, seller or other person agrees or represents that it will purchase back, accept the return of, refund, credit or otherwise compensate for goods or services previously supplied to a participant or customer, subject to disclosed terms and applicable law.

33. Cooling-off period

“Cooling-off period” means the period during which a participant may cancel an agreement for participation in a direct-selling business without breach of contract or penalty, subject to applicable law and disclosed terms.

 

34. Negative product list

“Negative product list” means a list of goods or services that an entity is prohibited, restricted or not authorised to market, promote, supply or include within a compensation plan or participant-based arrangement.

35. Special product list

“Special product list” means a list of goods or services that may be marketed, promoted, supplied or included within an arrangement only subject to specified conditions, approvals, restrictions, disclosures or compliance requirements.

Part IV — Communications, Enrolment and Records

36. Company literature

“Company literature” means any material issued, authorised, published, hosted, transmitted or made available by, or on behalf of, an entity, whether in physical, electronic, audiovisual, digital or another form, including catalogues, brochures, product information, presentations, websites, applications, social-media content, business-opportunity material, training material, advertisements, emails, messages, newsletters, policies, contracts and income representations.

37. Official communication

“Official communication” means any communication made, approved, issued, transmitted, hosted or published by an entity or a person authorised by it, whether in writing, electronically, digitally, orally, audio visually or by another means.

38. Income representation

“Income representation” means a representation, whether express or implied, concerning actual, expected, typical, potential or possible income, profit, commission, incentive, reward, return, savings, lifestyle benefit, financial outcome or other economic advantage available under an arrangement.

Explanation.— An income representation includes a representation made in company literature, official communication, social-media content, training material, testimonial, presentation, message, audio, video or oral communication.

 

39. Earnings disclosure

“Earnings disclosure” means a written or electronically recorded statement that describes, on an accurate and substantiated basis, the earnings, expenses, costs, outcomes, assumptions, qualifications, limitations and material conditions relevant to an income representation.

40. Product claim

“Product claim” means a representation, whether express or implied, concerning the nature, composition, origin, quality, performance, safety, efficacy, benefit, use, price, discount, availability or suitability of goods or services.

41. Office

“Office” means a physical, virtual, registered, administrative, operational, branch or other place from which an entity carries on, manages, represents or facilitates its business activities.

42. Enrolment

“Enrolment” means the act, process or arrangement by which a person is registered, signed up, admitted, mapped, assigned, sponsored, nominated, placed or otherwise included as a participant, direct seller, subscriber, member or another person in a participant-based arrangement.

Explanation.— Enrolment may occur through physical, electronic, digital, oral or other means and may be free, paid, conditional, automatic or otherwise structured. Its description does not determine its true legal or commercial effect.

43. Activation

“Activation” means the process, event or condition by which a participant becomes eligible, or is represented as becoming eligible, to receive benefits, undertake activities or access functions under an arrangement.

44. Renewal

“Renewal” means the extension, continuation or restoration of a participant’s enrolment, status, access, eligibility or contractual relationship for a further period.

 

45. Subscription

“Subscription” means an arrangement under which a person agrees to make one or more recurring or periodic payments in exchange for goods, services, access, membership, content, tools, benefits or another stated entitlement.

Part V — Organisation Structures

46. Organisation structure

“Organisation structure” means the manner in which participants are presented, positioned, mapped, connected or arranged in a network, hierarchy, genealogy, tree, line, leg, matrix, group, team, board, pool or other structure for administrative, reporting, sales, performance, remuneration or other purposes.

47. Frontline

“Frontline” means the participants positioned, mapped or directly connected in the first generation or first level of another participant in an organisation structure.

48. Upline

“Upline” means one or more participants positioned, mapped, assigned, sponsoring or otherwise connected above another participant within an organisation structure.

49. Downline

“Downline” means one or more participants positioned, mapped, assigned, enrolled, sponsored, placed or otherwise connected below another participant within an organisation structure for administrative, sales, performance, reporting or compensation purposes.

Explanation.— “Downline” describes a network relationship only. It does not by itself determine whether a benefit paid in connection with that relationship is lawful.

50. Sponsor

“Sponsor” means a participant or other person identified in the records of an entity as having introduced, referred, nominated, recommended or otherwise caused another person to be enrolled, placed or connected within an organisation structure.

Explanation.— Sponsorship does not by itself establish a right to remuneration, agency, employment, control or legal responsibility for the conduct of the sponsored person.

51. Placement

“Placement” means the positioning, mapping, assignment or allocation of a participant within an organisation structure, whether through direct enrolment, sponsorship, nomination, reallocation, spill-over, automated allocation or another method.

52. Spill-over

“Spill-over” means the placement or assignment of a participant into the organisation structure of another participant by an entity or another person, otherwise than through the direct sponsorship or enrolment of that participant by the person in whose structure the placement occurs.

53. Leg

“Leg” means a separately identifiable branch, line, group or segment of participants, sales, turnover, volume or performance within an organisation structure or genealogy structure.

54. Single-leg or monoline structure

“Single-leg” or “monoline structure” means an organisation structure that provides for one principal branch, line or leg below a participant.

55. Binary structure

“Binary structure” means an organisation structure that provides for two principal branches, lines or legs below a participant.

56. Trinary structure

“Trinary structure” means an organisation structure that provides for three principal branches, lines or legs below a participant.

57. Fixed-width or matrix structure

“Fixed-width structure” or “matrix structure” means an organisation structure in which the number of participants, positions or branches permitted at one or more levels is limited by a specified number or formula.

58. Infinity structure

“Infinity structure” means an organisation structure in which the number of participants or branches permitted at the first level is not limited, subject to the stated terms of the arrangement.

59. Hybrid structure

“Hybrid structure” means an organisation structure or compensation arrangement that combines two or more structures, remuneration methods, eligibility conditions or payout mechanisms.

60. Direct organisation structure

“Direct organisation structure” means an arrangement in which participants are connected directly with the entity and are not mapped below another participant for the purpose of remuneration or genealogy.

61. Single-level organisation structure

“Single-level organisation structure” means an arrangement in which a participant may be connected with the entity through, or positioned below, another participant at one intervening generation or level.

62. Multi-level organisation structure

“Multi-level organisation structure” means an arrangement in which participants are connected, positioned or mapped through two or more generations or levels of participants.

Explanation applicable to sections 54 to 62.— The classification of an organisation structure by reference to the number of legs, branches, levels or generations describes only the architecture of placement. It does not by itself determine whether remuneration is tied to the sale of goods or services, recruitment, enrolment or another activity. The actual basis of remuneration and operation of the arrangement shall be considered.

Part VI — Compensation and Remuneration

The definitions in this Part describe methods by which benefits may be offered, calculated, accrued or paid. They do not by themselves determine whether a compensation arrangement is lawful, whether remuneration is permissible, or whether the arrangement constitutes a pyramid scheme, money-circulation scheme, collective investment scheme or another regulated or prohibited arrangement.

63. Benefit

“Benefit” means a monetary or non-monetary advantage, including remuneration, commission, incentive, bonus, reward, rebate, discount, credit, point, profit share, rank-related entitlement, voucher, token or other consideration.

64. Participant-based arrangement

“Participant-based arrangement” means an arrangement under which one or more persons may obtain, or be offered or promised, a benefit in relation to their own activity or the activity, purchase, sale, enrolment, performance or position of one or more other persons.

65. Compensation plan

“Compensation plan” means the arrangement, formula or method, whether written, electronic, oral or otherwise recorded, by which a person or entity calculates, promises, offers, accrues, allocates or pays a benefit to a participant on the occurrence of a sale, purchase, subscription, enrolment, recruitment, performance or another specified condition.

Explanation 1.— A compensation plan includes an arrangement whether formally disclosed or operated in practice, and whether contained in a contract, policy, presentation, website, application, communication, training material, incentive programme, oral representation, digital record or another medium.

Explanation 2.— The presence of goods, services, free enrolment, written policies, retail transactions, rebates, discounts, rewards or non-monetary benefits does not by itself determine the nature, legality or compliance of a compensation plan.

66. Remuneration system

“Remuneration system” means the component of a compensation plan that specifies the basis, formula, conditions, timing, limitations, adjustments and method for calculating, allocating, accruing or paying remuneration or another benefit to participants.

67. Volume

“Volume” means a numerical, monetary, points-based or other quantified measure of purchases, sales, turnover, subscriptions, services, transactions or other activity used for reporting, rank qualification, remuneration or another purpose under a compensation plan.

Explanation.— Volume may be calculated from personal activity, customer activity, participant activity, group activity or another source. Its use does not by itself establish the legality of the associated compensation plan.

 

68. Personal volume

“Personal volume” means volume attributed under a compensation plan to a participant’s own purchases, sales, customer transactions, subscriptions, services or other activity.

69. Group volume

“Group volume” means volume attributed under a compensation plan to a participant and one or more other participants connected with that participant in an organisation structure.

70. Carry-forward volume

“Carry-forward volume” means volume generated in one assessment period that is retained, recorded or applied for eligibility, rank, calculation of remuneration or another benefit in a subsequent assessment period.

71. Qualification purchase

“Qualification purchase” means a purchase, subscription, order, activation, renewal or payment made wholly or substantially to obtain, retain or increase eligibility for remuneration, rank, title, status, incentive, reward, downline-related benefit or another advantage under a compensation plan.

72. Inventory loading

“Inventory loading” means the acquisition, or encouragement of acquisition, by a participant of goods or services in quantities that are commercially unreasonable having regard to that participant’s reasonably expected personal consumption, resale capacity, retail demand, return rights and the period during which the goods or services are likely to remain saleable or currently marketable.

Explanation.— Inventory loading may arise through a starter package, activation package, rank requirement, volume requirement, recurring order, promotion, incentive, field representation or another arrangement, whether or not an express purchase requirement appears in the published compensation plan.

73. Starter package

“Starter package” means goods, services, access, training, materials, subscriptions, tools, digital products or other items offered to a prospect or participant at or near enrolment.

Explanation.— The description of an item as a starter package does not determine whether its acquisition is voluntary, commercially reasonable or required in substance for participation or eligibility.

74. Rank

“Rank” means a title, level, status, designation or classification assigned to a participant under a compensation plan by reference to sales, purchases, volume, performance, activity, eligibility conditions, the activity of other participants or another stated criterion.

75. Title

“Title” means a name, designation, recognition, status or privilege assigned to a participant under an arrangement and includes a rank, leadership designation, achievement level or similar classification.

76. Matching bonus

“Matching bonus” means a benefit calculated by reference to remuneration, commission, earnings, volume, performance or another result of one or more other participants.

77. Leadership bonus

“Leadership bonus” means a benefit offered, promised, calculated or paid to a participant by reference to a rank, title, mentoring role, group performance, volume, sales, remuneration or another stated criterion.

78. Direct compensation plan

“Direct compensation plan” means a compensation plan under which a participant may receive, or may be offered, promised, represented or made eligible to receive, a benefit in relation to—

(a) the participant’s own sale, purchase, subscription, turnover, volume, performance, activity or other result; or

(b) a retail sale, purchase, subscription, turnover, volume, performance, activity or other result directly attributable to that participant,

and does not include remuneration calculated by reference to the result, action, purchase, sale, subscription, enrolment, recruitment, placement, turnover, volume or performance of another participant.

 

79. Single-level compensation plan

“Single-level compensation plan” means a compensation plan under which a participant may receive, or may be offered, promised, represented or made eligible to receive, a benefit in relation to—

(a) the participant’s own sale, purchase, subscription, turnover, volume, performance, activity or other result; and

(b) the sale, purchase, subscription, turnover, volume, performance, activity or other result of one or more participants placed, mapped, assigned, sponsored, enrolled, nominated or otherwise connected in the first generation or first level of that participant,

but not in relation to the corresponding result of a participant in the second or a subsequent generation or level.

80. Multi-level compensation plan

“Multi-level compensation plan” means a compensation plan under which a participant may receive, or may be offered, promised, represented or made eligible to receive, a benefit in relation to—

(a) the participant’s own sale, purchase, subscription, turnover, volume, performance, activity or other result; and

(b) the sale, purchase, subscription, turnover, volume, performance, activity or other result of one or more participants in two or more generations or levels below, above, alongside, within, mapped to, assigned to or otherwise connected with that participant in a genealogy structure, network, group, line, leg, matrix, tree, team, pool or other arrangement.

Explanation applicable to sections 78 to 80.— The restriction or extension of a compensation plan to one, two or more generations does not by itself determine its legality. Each plan shall remain subject to examination as to whether remuneration is substantially tied to the sale of goods or services, enrolment, recruitment, participant purchases or another activity under applicable law.

81. Non-cumulative rank or title arrangement

“Non-cumulative rank or title arrangement” means an arrangement under which a participant’s rank, title, status, eligibility or associated benefit is determined afresh for each specified assessment period without automatic retention of a rank, title or benefit attained in an earlier period.

 

82. Cumulative rank or title arrangement

“Cumulative rank or title arrangement” means an arrangement under which a participant retains a rank, title, status, recognition or specified privilege previously attained, subject to the terms of the arrangement, even where remuneration for a subsequent period is separately calculated.

83. Real-time payout

“Real-time payout” means a payout calculated, accrued, displayed or made available immediately or substantially immediately following the occurrence of a specified transaction, event or condition.

84. Daily, weekly, fortnightly or monthly payout

“Daily payout”, “weekly payout”, “fortnightly payout” or “monthly payout” means a payout calculated, accrued or paid at the relevant interval, subject to the terms of the compensation plan.

Explanation applicable to sections 83 and 84.— The frequency of payout is an operational feature and does not by itself determine the legality of the underlying compensation plan. A payout structure linked predominantly to enrolment events, rather than verified sales, may be relevant to the assessment of risk under applicable law.

Part VII — Prohibited-Scheme Concepts

The definitions in this Part identify concepts relevant to the assessment of prohibited arrangements. Classification under this Part shall be determined under applicable law and on the actual terms, representations, funding, remuneration mechanics and operation of the arrangement.

85. Pyramid scheme

“Pyramid scheme” has the meaning assigned to it under the Consumer Protection (Direct Selling) Rules, 2021, as amended from time to time.

Explanation.— The existence of goods or services, free enrolment, a written policy, a transaction involving a customer, a compensation plan or stated retail activity does not by itself establish that an arrangement falls outside that meaning.

86. Money-circulation scheme

“Money-circulation scheme” has the meaning assigned to it in clause (c) of section 2 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, as amended from time to time.

Explanation.— The description of an arrangement as a sale of goods or services, membership, subscription, investment, reward programme, token, digital asset, discount, rebate or by another name does not by itself determine whether it falls within or outside that meaning.

87. Ponzi-style arrangement

“Ponzi-style arrangement” means an arrangement in which returns, benefits or payouts promised to a participant are funded wholly or substantially from money received from later participants, rather than from sustainable underlying commercial activity.

Explanation.— This is a descriptive term and does not limit or narrow the meaning of “money-circulation scheme”, “pyramid scheme” or another prohibited arrangement under applicable law.

88. Easy-money representation

“Easy-money representation” means a representation, whether express or implied, that a person may obtain money, income, return, reward, profit or another financial benefit with little or no meaningful sale of goods or services, work, risk disclosure, skill, effort or substantiated commercial basis.

 

Part VIII — Collective-Investment Concepts

Nothing in this document shall be construed to exclude the application of the Securities and Exchange Board of India Act, 1992 or the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 to an arrangement that satisfies the conditions of a collective investment scheme under section 11AA of that Act.

89. Pooling arrangement

“Pooling arrangement” means an arrangement under which money, tokens, property, contributions or other value from two or more persons is collected, combined or managed together for a common purpose.

Explanation.— A pooling arrangement may be relevant to an assessment under section 11AA of the Securities and Exchange Board of India Act, 1992 where the other statutory conditions for a collective investment scheme are satisfied.

90. Collective investment scheme

“Collective investment scheme” or “CIS” has the meaning assigned to it in section 11AA of the Securities and Exchange Board of India Act, 1992, as amended from time to time.

Explanation.— The description of an arrangement as direct selling, network marketing, affiliate marketing, membership, subscription, reward programme, product purchase, token, digital asset, compensation plan or by another name does not by itself determine whether it is or is not a collective investment scheme.

91. Registered collective investment scheme

“Registered collective investment scheme” means a collective investment scheme organised, operated and managed by a collective investment management company holding a valid certificate of registration issued by the Securities and Exchange Board of India under the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999, as amended from time to time.

92. Unregistered collective investment scheme

“Unregistered collective investment scheme” means a scheme or arrangement that is a collective investment scheme within the meaning of section 11AA of the Securities and Exchange Board of India Act, 1992 but is offered, operated, managed, promoted or continued without the registration, certificate, approval or authorisation required under that Act, the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or another applicable law.

Explanation.— An arrangement does not cease to be an unregistered collective investment scheme merely because it is presented as a product sale, direct-selling opportunity, membership, subscription, referral programme, digital-token offering, compensation plan, reward programme or by another name.

 

Part IX — Digital and Marketing Terms

93. Direct marketing

“Direct marketing” means marketing or promotional communication directed to an identifiable person or group of persons through mail, telephone, electronic mail, text message, messaging service, digital platform, social media, online advertising, telemarketing or another direct communication channel.

94. Electronic commerce

“Electronic commerce” means the offering, marketing, sale, purchase, supply, payment for or facilitation of goods or services through an electronic network, including the internet, a website, mobile application, digital platform, social-media platform, electronic marketplace or similar technology.

95. Electronic service provider

“Electronic service provider” means a person or entity that provides technology, infrastructure, software, payment, communication, marketplace, advertising, hosting, data-processing, logistics or other services that enable or facilitate the electronic marketing, offering, sale, supply or purchase of goods or services.

96. Virtual currency or virtual digital token

“Virtual currency” or “virtual digital token” means a digitally represented unit, token, credit, point, voucher, code or other digital representation of value, entitlement or access that may be created, issued, transferred, stored, exchanged, redeemed or used electronically, whether or not described as a currency, asset, coin, reward, credit or by another name.

Explanation.— The description of a unit or token as a currency, coin, cash, money, asset, reward or credit does not determine its legal status, value, transferability, regulatory treatment or compliance.

97. Crypto-asset

“Crypto-asset” means a digital representation of value, right, entitlement or interest capable of being transferred, stored or traded electronically using distributed-ledger technology, cryptography or similar technology, whether or not described as cryptocurrency, virtual currency, token, coin or by another name.

98. Mining

“Mining”, in relation to a crypto-asset, means the process by which transactions are validated, recorded or added to a distributed ledger, or by which digital units are created or allocated, through computational, cryptographic or protocol-based processes.

99. Minting

“Minting”, in relation to a crypto-asset, means the creation, issuance or allocation of a digital unit by a person, entity, protocol or platform, whether through a programmed, centralised, decentralised, discretionary or another process.

100. Staking

“Staking” means the commitment, locking, delegation or allocation of a crypto-asset or digital token for a specified purpose, including participation in transaction validation, network operations, governance, liquidity provision or an arrangement represented as generating a return.

Explanation.— The use of the term “staking” does not determine whether a return, pooling arrangement, investment contract, collective investment scheme or another regulated arrangement exists.

101. Legal tender

“Legal tender” means money recognised by applicable law as valid and lawful payment for the discharge of monetary obligations, subject to limits and conditions specified by that law.

 

Part X — Final Provision

102. Prevailing laws

“Prevailing laws” means all applicable Acts, rules, regulations, notifications, orders, circulars, directions and other legally binding instruments, as amended, replaced or re-enacted from time to time, and includes binding judicial precedent applicable to the matter.

Drafting Note

Strategy India prepared this resource to assist legislative and policy drafting on direct selling, participant-based marketing, compensation arrangements, pyramid schemes, money-circulation schemes, collective investment schemes and related commercial models.

The definitions have been deliberately drafted in neutral terms. Direct-selling businesses, pyramid schemes, money-circulation schemes, Ponzi-style arrangements, collective investment schemes and other participant-based models may use similar commercial features, including goods or services, memberships, subscriptions, digital platforms, compensation plans, commissions, incentives, rewards, ranks, referral arrangements, participant networks, product purchases, free or paid enrolment, and digital credits, tokens or vouchers.

The existence, description or use of any such feature does not by itself determine the legal character, validity or compliance of an arrangement. In particular, the presence of a product or service, a written policy, free enrolment, a buy-back representation, a retail transaction, a compensation plan or a particular network structure does not establish that an arrangement is lawful direct selling, or that it falls outside the scope of a pyramid scheme, money-circulation scheme, collective investment scheme or another prohibited or regulated arrangement.

Accordingly, these definitions are intended to apply across arrangements involving persons who may purchase, sell, promote, distribute, refer, enrol, subscribe, facilitate transactions, receive remuneration or become eligible for benefits under an arrangement. Such persons may be described as direct sellers, distributors, members, subscribers, affiliates, associates, consultants, independent business owners, customers, promoters, representatives, agents or by another name.

The use of any such description does not determine the legal status of the person or the relationship. These definitions do not presume that a participant is an employee, agent, independent contractor, consumer, customer, investor or direct seller. Those questions must be determined on the facts and under applicable law.

The inclusion of collective-investment terminology is intentional. A participant-based arrangement may, depending on its terms and actual operation, attract the application of section 11AA of the Securities and Exchange Board of India Act, 1992 and the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999. The inclusion of CIS-related terminology does not imply that every direct-selling, network-marketing, pyramid or money-circulation arrangement is a collective investment scheme. It ensures that the definitions do not exclude the possible application of securities law merely because an arrangement is presented as product sales, a membership, subscription, reward programme, token offering, referral opportunity or compensation plan.

Before adoption, each statutory cross-reference should be verified against the current text of relevant legislation, rules, regulations and notifications. The draft should undergo a formal legislative-harmonisation review to ensure that it does not conflict with central or state law, including consumer-protection, direct-selling, securities, financial-services, prize-chits, money-circulation, criminal, company, partnership, limited-liability partnership, co-operative, tax, data-protection, advertising and information-technology law.

This drafting resource is intended to assist legal and policy discussion. It does not constitute legal advice, a regulatory determination or a conclusion on the legality of a particular entity, compensation plan or participant-based arrangement.