The government has suspended the issuance of new licences and temporarily halted business transactions of seven companies that have received permits to conduct direct sales of goods, following a directive of the parliamentary Industry, Commerce, Labour and Consumer Welfare Committee and opposition from consumer welfare activists.

In the last fiscal year, the department had granted licences to seven companies—iboss Global International, Chabahil; Nature Herbs International, Kumaripati; New Bibek Enterprises, Ekantakuna; Healthy Living Nepal, Battisputali; Care Matters International, Chabahil; Uturn International, Tokha and Global Orients Nepal, Balaju—to conduct direct sales of goods.

More than a year later, the department came under heavy fire from consumer rights activists who accused the government of promoting the illegalised networking business under a new avatar as the permit recipients were the same people running networking businesses a decade ago.

As controversy grew, it attracted the attention of a parliamentary committee which launched a formal probe.

The Direct Sale of Goods (Management and Regulation) Act was passed by Parliament on October 10, 2017 and signed into law by the president a week later.

Bimal Prasad Shrivastav, chairperson of the parliamentary committee, said that a sub-committee had been formed to conduct an investigation into the seven companies that received the licences.

“The panel will also determine whether the new law has justified that direct sales of goods and networking business are different,” he said, adding that further decisions would be made based on the sub-committee's report, which is due by September 1.

“The operation of the seven companies that have obtained licences has been temporarily halted,” he said.

“As we were not satisfied by the clarification given by the industry minister, industry secretary and director of the Ministry of Industry about the issuance of licences for direct sales of goods, we decided to form a separate fact-finding committee,” said Shrivastav.

Operating a networking business is still outlawed in Nepal. The Supreme Court in May 2010 declared networking businesses illegal and ordered the government to scrap the Directives on Network Marketing of Commodities after hundreds of people were duped by such firms.

“The lawmakers fear that those involved in networking businesses in the past may use the direct sales business to revive their operations,’ said Netra Prasad Subedi, director general of the department. “As per their directives, the issuance of new licences was stopped since July 30 until the committee reaches a decision.”

“Issuing licences to conduct direct sales of goods to companies owned by the same people who cheated ordinary citizens out of millions of rupees in the past is not right,” said Madhav Timilsina, president of the Consumer Rights Investigation Forum, an organisation that works to protect consumer rights.

Subedi claimed that the Direct Sale of Goods (Management and Regulation) Act 2018 and Rules 2019 do not allow the operation of networking businesses.

Before the networking business was made illegal, companies like Unity Life International, Herbo International, Gold Quest International, Crystal Vision International, Best World Business Link and Robious International duped people of billions of rupees. Unity Life International alone swindled its members out of around Rs4 billion.

The modus operandi of the network business was to give membership to people after they paid a certain amount, telling them that they would get a high interest rate. If a member recruited other members, a large percentage of the membership fee from new members would be given to the recruiter. Under the direct business, the company sends representatives door-to-door to sell goods.

These network companies would have billions of rupees in their hands which people thought they were saving for a rainy day. Most of these companies did not have the money when the members came to ask for returns, and were duped of their savings.

But the Department of Commerce, Supplies and Consumer Protection maintains that the new licences are not for operating networking businesses.

“Licences are issued under the Direct Sales Commodity Act so that there shall be no layer between sellers and buyers,” Subedi told the Post. “We will assume the responsibility of implementing it.”

Subedi said that one of the licensed companies had advertised something similar to a networking business on its website, and the department had asked for an explanation. There is a provision for fines and imprisonment if anyone is found engaging in a networking business.

“If they are the same people who operated networking businesses earlier, they might engage in such activities to make a profit and can work illegally,” he said.

Subedi admits that those who have obtained licences for direct sales could get into networking businesses as they are not clear regarding their proposed businesses. “They are not clear about what they will be selling and where the goods are produced. They don’t generally seem to be well prepared,” he said.

As per the prevailing law, a company should submit its transaction details to the department within seven days of starting operations. “But none of them has submitted the details of their transactions,” he said.

Ever since the government started issuing licences under the new law charging a fee of Rs200,000, concern has heightened that networking businesses may be making a comeback.

“Therefore, even those companies that started operating with the right intentions have been affected due to the controversy,” Subedi said.