Government notifies Consumer Protection rule; Direct selling companies cannot promote Pyramid Scheme

Union Government has notified the Consumer Protection (Direct Selling) Rules, 2021. These Rules shall apply to all goods and services bought or sold through direct selling, all models of direct selling, all direct selling entities offering goods and services to consumers in India, all forms of unfair trade practices across all models of direct selling. These Rules shall also apply to a direct selling entity.

Existing direct selling entities need to comply with these rules within ninety days from the date of publication of these rules in the Official Gazette. The direct sellers, as well as the direct selling entities using e-commerce platforms for sale, shall comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020.

Both direct selling entities and direct sellers are prohibited from promoting Pyramid Scheme or money circulation schemes. State Government must set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities. Direct selling entities will be liable for the grievances arising out of the sale of goods or services by their direct sellers.

Direct selling entities and direct sellers are prohibited from:

(i) Promoting a Pyramid Scheme or enrolling any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing direct selling business.

(ii) Participate in money circulation scheme in the garb of doing direct selling business.

Rules provide for Monitoring by State Government.–– For ensuring compliance with these rules by direct selling entities and direct sellers, every State Government to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.

The Rules provide for certain obligations upon Direct Selling Entities which inter alia include:

(i) Incorporation under the Companies Act, 2013 or if a partnership firm, be registered under the Partnership Act, 1932, or if a limited liability partnership, be registered under the Limited Liability Partnership Act, 2008.

(ii) Have a minimum of one physical location as its registered office within India.

(iii) Make self-declaration to the effect that Direct Selling Entity has complied with the provisions of the Direct Selling rules and is not involved in any Pyramid Scheme or money circulation scheme.

(iv) Have a prior written contract with its direct sellers in order to authorize them to sell or offer to sell its goods or services, and the terms of such agreement shall be just, fair and equitable.

(v) Ensure that all its direct sellers have verified identities and physical addresses and issue identity cards and documents only to such direct sellers.

(vi) Create adequate safeguards to ensure that goods and services offered by its direct sellers conform to applicable laws.

(vii) Be liable for the grievances arising out of the sale of goods or services by its direct sellers.

(viii) Every direct selling entity to provide the following information on its website in a clear and accessible manner

♦ Registered name of the direct selling entity.

♦ The registered address of the direct selling entity and of its branches.

♦ Contact details, including e-mail address, fax, landline and mobile numbers of its customer care and grievance redressal officers.

♦ A ticket number for each complaint lodged through which the complainant can track the status of the complaint.

♦ Information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, grievance redressal mechanism and such other information which may be required by the consumers to make informed decisions.

♦ Information on available payment methods, the security of those payment methods, the fees or charges payable by users, the procedure to cancel regular payments under those methods, charge-back options, if any, and the contact information of the relevant payment service provider.

♦ The total price of any goods or service in a single figure, along with its break-up price showing all compulsory and voluntary charges, including delivery charges, postage and handling charges, conveyance charges and the applicable tax.

♦ Provide correct and complete information at the pre-purchase stage to enable buyers to make informed purchase decisions, No direct selling entity shall adopt any unfair trade practice in the course of its business or otherwise and shall abide by the requirements specified in any law for the time being in force.

All products of a direct selling entity to comply with the declarations to be made under the Legal Metrology Act, 2009.

Every direct selling entity to establish an adequate grievance redressal mechanism and display the current and updated name, contact details including telephone number, email address and designation of such officer on its website, and the details of its website shall also be prominently printed on the product information sheet or pamphlet.