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QNET Responds to Media Reports about Alleged Winding up of India Operations

Various media reports have appeared in the last few days as a result of a press conference held in Hyderabad about the public notice seen on the website of the Ministry of Consumer Affairs about QNET’s Indian franchisee Vihaan Direct Selling Pvt Ltd. Despite providing our statements to the media, QNET’s side of the story is not being presented in full to the public. We take this opportunity to clarify our stance on this matter.

The notice contains an incorrect representation of QNET’s Indian sub-franchisee – Vihaan Direct Selling (India) Pvt Ltd and is against public interest. It is wholly prejudicial to QNET/Vihaan Direct Selling and lakhs of our distributors all over India. The said Public Notice is premised on the purported report of the Registrar of Companies, Karnataka. We state that the subject report is fallacious and without merit and has been prepared without basis and understanding of the business we undertake.

The Registrar of Companies (RoC) has no bearing to deal with the aspects of our compliance with the Direct Selling Guidelines issued by the Ministry of Consumer Affairs and therefore any comments in respect thereto are completely out of place and baseless.

We are challenging the said report in the appropriate judicial forums.

 

In this regard, we would like to highlight the observations of the Hon’ble High Court of Karnataka[1]:

“A report prepared by the Federation of Indian Chambers of Commerce and Industry discloses that direct selling 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. It is also expressed therein 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.”

 

“In consideration of the fact that direct selling and multilevel marketing are important industry verticals, the Government of India has issued an Advisory to the State Governments and Union Territories, which contain ‘Model Framework for Guidelines on Direct Selling’. The model guidelines clearly indicate that multi-layered network of subscribers to a scheme formed by a direct selling company, which consists of subscribers enrolling one or more further subscribers in order to receive any benefit, directly or indirectly, where the benefit is, as a result of sale of goods or services for such subscribers, is not illegal.”

“Material of unimpeachable character pertaining to the activities of QNet have been produced before the Court. A perusal of the material and the charge sheet averments prima facie indicate that the activities of QNet and Vihaan i.e. the multilevel marketing companies, do not constitute offences under the Prize Chits and Money Circulation Scheme (Banning) Act, 1978. the activities of the company do not fall within the definition of ‘Money Circulation 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. When the activities of these companies do not constitute either Money Circulation Scheme or Prize Chits, the offences under section 4 and 5 of the Act, do not even remotely apply to such activities and consequently charging the accused for such offences is unsustainable.”

“The reports of FICCI also specify that the absence of a clear legislation and regulatory framework for multilevel marketing companies, have led to severe problems for such companies operating in the country. The present case clearly demonstrates the fact. Legislations such as 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.”

“Further, a prima facie perusal of the FIR and the charge sheet reveals that the ingredients of the offences under sections 417, 419 and 420 are not made out. The allegation pertains to payment of certain monies in anticipation of certain services and in the event of a deficiency of service, the appropriate course of action would be to initiate proceedings under the Consumer Protection Act, 1986 and not initiate criminal prosecution under the provisions of the IPC. The Advisory issued by the Central Government in terms of the Model Framework Guidelines on Direct Selling also recognizes this fact and specifies that the entire activity of direct sellers and direct selling entities should be guided by the provisions of the Consumer Protection Act, 1986.

“The instant case is a typical case where criminal legislation which are not even remotely applicable to the circumstances of the case has been invoked to substantiate 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. As a consequence, the FIR and the charge sheet are unsustainable and deserve to be quashed.”

 In view of the aforesaid findings and observations alone, the RoC report is bad in law, incorrect in its findings and therefore without absolutely any legal merit. These observations of the Hon’ble Court and other orders[2] from various other courts clearly establish the judicial view on the subject and reject and negate the arbitrary averments in the report. We therefore, deem the report to be a specious and a motivated overreach instigated by third party rivals and extortionist gangs who are on regular basis propagating false and baseless information about us.

The orders filed including in the cases reported in the Public Notice are testimonies of the views taken by the hon’ble courts. All the FIRs mentioned in the Public Notice have been subjected to judicial scrutiny and most of them under consideration of the Hon’ble Supreme Court. In fact the FIRs, which are subject matters of WP (Crl.) no. 31 of 2017 and WP (Crl.) no. 17 of 2019 have been stayed and an order of no coercive action have been passed, respectively, by the Hon’ble Supreme Court. Disgruntled by the outcome of various court proceedings, these unscrupulous people have started filing false complaints to statutory bodies to besmirch our reputation.

 

We would also like to respond to the main allegations being made as a result of this RoC report in the media.

Allegation 1 – QNET is an investment scheme.

QNET is an e-Commerce based direct selling company, which markets a high-quality range of products in the categories of Home Care, Personal Care, Skin Care, Health Food Supplements, Watches and Holiday Packages. Our distributors are not investors. They buy our products and also promote them to others to earn commissions on product sales.

QNET operates in India through its sub franchisee, Vihaan Direct Selling (India) Pvt. Lt, which operates in is full compliance of the Direct Selling Guidelines issued by the Ministry of Consumer Affairs in Sep 2016.

Allegation 2 – QNET Products are overpriced giving the company large profit margins

This is a baseless claim as QNET only sells unique products that are developed exclusively for the company. Hence, there is no comparison with any other product available in the market. Every company is free to have its own pricing for different classes of buyers.  The selling price factors in a number of things including marketing expense, licensing fees, and various other operational costs. The allegations in the notice takes into consideration only the selling and buying cost, which is incorrect as per trade practice. The difference between sale price and purchase price cannot by any stretch of imagination be construed as profit.

 

Allegation 3 Aspersions about the quality of QNET’s products

QNET invests significantly into research and development to procure only the highest quality of products and services. All our products come with appropriate certifications, and proven benefits.

 

Allegation 4Misrepresentations made to new distributors about the business and earning potential

The details of the company’s sales incentive plan, also known as the compensation plan are clearly stated on the company website. Also, this is explained to any new distributor by the existing distributor before they decide to enrol. Acceptance of the terms and conditions of the plan, and compliance to the company’s policies is a compulsory part of the registration process, as per the Indian Contract Act. All new distributors also sign a form to acknowledge that they have understood the business as presented to them. A comprehensive database of all direct sellers is maintained by the company.

The company also has a clearly stated earnings disclaimer on the website and makes no claims about any form of guaranteed income. All registered distributors are issued with identity cards. Details pertaining to sales, commission and other details as contemplated in the Direct Selling Guidelines, 2016, are provided to all direct sellers every week. We strongly refute any claims to the contrary.

 

Allegation 5 – QNET does not have a proper grievance redressal mechanism or refund process

The company has a well-established grievance redressal cell. All complaints received have a complaint number and the same is addressed in a time-bound manner. Proper records are maintained and are available with the company.

All distributors are informed about the details of their purchase and the probable date of delivery over phone, and invoices are raised and the products sent by courier. All the products despatched contain the warranty and replacement details.

At the time of registration, distributors are also informed that they can claim a full refund within 30 days with no questions asked. Further, if any claim is received after 30 days, the same is referred to a retired High Court Judge who serves as an ombudsman for the Grievance Cell and based on his opinion the claim is either accepted or rejected.  Thus, even though the direct selling guidelines by the government suggest only 30 days, cases beyond 30 days are also considered by the company.

 

Allegation 6 – Celebrities Endorse QNET and promote the business

We have stated this in many media reports that QNET has no contractual agreements with any celebrity to promote the QNet brand. Certain personalities in the past were invited to our company events as motivational speakers. Beyond that, QNET has no connection to any celebrities as alleged.

QNET is willing to speak to any media to answer further questions and is fully cooperating with all investigations.

 

[1] Criminal Petition no.9808/2016 (final judgment and order dated February 15, 2017)

[2]

I. High Court of Karnataka At Bangalore, Order dated 27.09.2018, In WP Nos. 36587 – 36591 of 2018 and WP Nos.37168 – 37187 of 2018

II. High Court of Karnataka At Bangalore, Order dated 12.10.2018, in WP Nos. 46044-46046 of 2018

III. High Court of Karnataka At Bangalore, Order dated 04.02.2019, in WP Nos. 1988-89 of 2019

IV. High Court for the State of Telangana at Hyderabad, Order dated 06.02.2019, in IA No. 1 of 2019 in WP No. 2289 of 2019

V. High Court of Andhra Pradesh, Order dated 01.03.2019, in Writ Petition No. 1269 of 2019

VI. High Court of Andhra Pradesh, Order dated 22.02.2019, in Writ Petition No. 2201 of 2019

VII. High Court of Andhra Pradesh, Order dated 08.03.2019, in Writ Petition No. 2201 of 2019

 

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