Under New Direct Selling Rules, Government Bars Entities From Promoting Pyramid Schemes

Government on Tuesday banned direct selling companies from promoting pyramid schemes, as it notified new rules for the industry, which it needs to comply with under 90 days.

The Consumer Protection (Direct Selling) Rules, 2021, as notified by the nodal consumer affairs ministry are to be complied with by both direct selling entities and direct sellers using e-commerce platforms for sale.

If these rules are not complied with, the penal provisions under the Act will apply to them, official sources said.

The move, which is aimed at protecting consumers' rights, restricts companies which are involved in direct selling like Tupperware, Amway and Oriflame from encouraging money circulation schemes.

Now, such companies will also be liable for the grievances arising out of the sale of goods or services by its direct sellers.

As per the new rules, state governments will have to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.

According to the rules, direct selling entities and direct sellers are prohibited from promoting a pyramid scheme or enrolling any person to such scheme or participating in such arrangement in any manner whatsoever in the garb of doing direct selling business.

They are also banned from participation in money circulation schemes in the garb of doing direct selling business, the new rules said.

These rules will apply to all goods and services bought or sold through direct selling, all models of direct selling and all direct selling entities to consumers in India. They will also apply to those direct selling entities also that are not established in India but offer goods or services to consumers here.

According to the new rules, a direct seller should not visit a consumer's premises without an identity card and prior appointment or approval.

The seller should not provide any literature to a prospect that has not been approved by the direct selling entity. The seller in pursuance of a sale should not make any claim that is not consistent with claims authorised by the direct selling entity.

Besides, the direct seller should have a prior written contract with the direct selling entity for undertaking the sale of, or offer to sell, any goods or services of such entity.

The seller should also disclose the identity of the direct selling entity, the address of the place of business, the nature of goods or services sold and the purpose of such solicitation to the prospect.

The seller should make an offer to the prospect providing accurate and complete information, demonstration of goods and services, prices, credit terms, terms of payment, return, exchange, refund policy, return policy, terms of the guarantee and after-sale service.

The seller should ensure that the actual product delivered to the buyer matches with the description of the product given and take appropriate steps to ensure the protection of all sensitive personal information provided by the consumer in accordance with the applicable laws for the time being in force.

In the case of direct selling companies, they should be incorporated under the Companies Act, 2013, or if a partnership firm, be registered under the Partnership Act, 1932, or if a limited liability partnership, under the Limited Liability Partnership Act, 2008.

Such firms should have a minimum of one physical location as their registered office within India and make self-declaration to the effect that the direct selling entity has complied with the provisions of the direct selling rules and is not involved in any pyramid or money circulation scheme.

They should ensure that all its direct sellers have verified identities and physical addresses, and issue identity cards and documents only to such direct sellers.

The direct selling companies will have to create adequate safeguards to ensure that goods and services offered by their direct sellers conform to applicable laws and be "liable for the grievances arising out of the sale of goods or services by its direct sellers".

The companies have been asked to establish an adequate grievance redressal mechanism and display the current and updated name, contact details, including telephone number, e-mail address and designation of such officer on its website.

The details of its website should also be prominently printed on the product information sheet or pamphlet.

Grievance redressal officer should acknowledge the receipt of any consumer complaint within 48 working hours of receipt of such complaint and redresses the complaint normally within a period of one month from the date of receipt of the complaint.

In case of a delay of more than a month, reasons for the delay and the actions taken on the complaint should be informed to the complainant in writing.

Further, direct selling firms are required to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act and the rules.

Such firms should establish a mechanism for filing complaints by consumers.

They should maintain a record of all its direct sellers, including their identity proof, address proof, e-mail and such other contact information.

As per the new rules, both direct selling companies and direct sellers are required to ensure that the terms of the offer made to consumers are clear.