Government notifies new rules for direct selling industry

• Government in exercise of the powers conferred by clause (zg) of sub-section (2) of section 101 read with section 94 of the Consumer Protection Act, 2019 has notified the Consumer Protection (Direct Selling) Rules, 2021.
• To protect consumers, the central government prohibited direct selling companies from promoting pyramid or money circulation schemes, while also announcing new industry guidelines that must be followed within 90 days from the date of publication of these rules in the Official Gazette.
• Such businesses will now be accountable for any complaints stemming from the sale of goods or services by their direct sellers.

Consumer Protection (Direct Selling) Rules, 2021

• The Consumer Protection (e-Commerce) Rules, 2020 must be followed by direct sellers and direct selling companies who use e-commerce platforms to market their products.
• For ensuring compliance of these rules by direct selling entities and direct sellers, every State Government sets up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.
• The Rules provide for certain obligation upon direct selling entities, these are :-

1. 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;

2. Have a minimum one physical location as its registered office within India;

3. 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;

4. 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;

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

6. Create adequate safeguards to ensure that goods and services offered by its direct sellers conform to applicable laws;

7. Liable for the grievances arising out of the sale of goods or services by direct sellers.

8. Every direct selling entity need to provide the information on its website in a clear and accessible manner contact details, including email address, fax, landline and mobile numbers of its customer care and grievance redressal officers.

• In the course of its business or otherwise, no direct selling company shall engage in any unfair trade practices, and shall adhere to requirements specified in any law for the time being in force.