GOVERNMENT NOTIFIES CONSUMER PROTECTION (DIRECT SELLING) RULES, 2021 AND PROHIBITS PROMOTION OF PYRAMID SCHEMES BY DIRECT SELLING ENTITIES

The #Ministry of #ConsumerAffairs, #Food and #PublicWelfare has recently notified the Consumer Protection (Direct Selling) Rules 2021 (herein referred as ‘Rules’) under Clause (zg) of sub-section (2) of Section 101 read with Section 94 of the Consumer Protection Act, 2019.  As per the Ministry, the new Rules are focused at making the #directselling entities more responsible and liable for any #deficiency in goods or services.

Important aspects of the Consumer Protection and (Direct Selling Rules, 2021:

For better understanding of the Rules, the term Direct Selling Entities (herein referred to as ‘Entities’) have been defined as those which directly sell their goods or services through its representatives instead of having a retail space. For instance, many companies such as Amway and Oriflame take help of their representatives to reach customers directly.

The Centre has asked all the Entities to comply by the above mentioned Rules within 90 days. The Rules are applicable for the Entities that are directly selling and also for the Entities that are using E-Commerce platform for the same. They are also applicable to an Entity that doesn’t have an office in India but is providing goods and services to Indian consumers.

Direct Selling Entities using E-commerce platforms for sale shall comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020.

As per the above-mentioned Rules, the Direct Selling Entities are prohibited from committing the following acts:

1) Prohibited from promoting a ‘Pyramid Scheme’ under the pretext of Direct Selling or encouraging participation of consumer in such Scheme. A ‘Pyramid Scheme’ is a business model that recruits or engages members with promise of payments or services for enrolling others into the Scheme, instead of sale of products or services. Thus as per the latest Rules, Pyramid Schemes have been declared as illegal. Also the Entities have to make a Self- Declaration about non-involvement in any Pyramid Schemes.

2) Entities to be incorporated under the relevant Laws such as the Companies Act, 2013, the Partnership Act 1932 or the Limited Liability Partnership (LLP) Act, 2008, if it is an LLP.

3) Entities to have at least one registered office in India.

4) Entities are required to maintain a proper and updated website with all relevant details of that Entity, including the documents or records, the self-declaration specified, contact information that is updated, details of its nodal officer, grievance redressal officer, its management, products, product information, price and grievance redressal mechanism for consumers.

5) The Entities have to own, hold or be the licensee of a trademark, service mark or any other identification mark, which identifies the Entity with the goods or services to be sold or supplied, but shall not give commissions, bonuses or incentives on sale of goods or services of which it is not the owner, holder or licensee of trademark, service mark or other identification marks.

In light of recent developments, most consumers are becoming vulnerable to fraud and cheating by deceitful traders and are getting trapped in Pyramid Schemes offered by Direct Selling Entities, hence, consumers are now opting for online purchase of goods and services . The new Rules now explicitly bar any Direct Selling Entity to engage in Pyramid Schemes and also makes provision for quick redressal of disputes.

Sneha Verma

Senior Associate

The Indian Lawyer