As per the annual survey[i] of Indian Direct Selling Association, the total sales of Direct Selling Industry in India in 2018-19 stood at INR 130.8 billion with around 5.7 million direct sellers. The number of direct sellers is projected to grow to 18 million by 2025[ii]. The regulation of the industry has been a hotly debated topic, especially in the context of the controversies surrounding some of the business models, such as pyramid scheme. After some initial attempts to regulate it, the Central Government has now notified rules under the Consumer Protection Act, 2019.
The Ministry of Consumer Affairs, Food and Public Distribution, Government of India has issued the Consumer Protection (Direct Selling) Rules, 2021 (DS Rules) vide a notification dated December 28, 2021. The said DS Rules can be accessed here.
The DS Rules 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.
The DS Rules restrict any person who has been convicted or has been declared bankrupt in the last 5 (five) years prior to his/her association with the direct selling business or a person who is of unsound mind from engaging in the direct selling business.
The existing Direct Selling entities need to comply with these Rules within ninety days. Additionally, Direct Sellers and Direct Selling entities who use the e-commerce platform need to comply with the Consumer Protection (e-commerce) Rules, 2020. Definitions of important terms, such as ‘Direct Seller’, ‘Direct Selling entity” and ‘Pyramid Scheme’ have been provided in the DS Rules.
A Direct Selling entity has been defined as the principal entity which sells or offers to sell goods or services through direct sellers but does not include an entity which is engaged in a Pyramid Scheme or money circulation scheme. While direct sellers have been defined as a person authorized by a direct selling entity through a legally enforceable written contract to undertake direct selling business on principal-to-principal basis.
Rule 5 and Rule 6 of the DS Rules list the obligations of a Direct Selling entity and a Direct Seller respectively. The obligations of a Direct Selling entity inter alia include the following-
- Have a minimum of one physical location as its registered office within India.
- Maintain website with all the prescribed details and get it duly certified by a CS.
- Obtain all relevant registrations, including PAN and other tax registrations.
- Have just, fair and equitable written contracts with its direct sellers and ensure its direct sellers have verified identities and physical addresses.
- Comply with the Legal Metrology (Packaged Commodities) Rules, 2011.
- Store personal data within India.
- Establish an adequate grievance redressal mechanism.
Further, the following are the important obligations of a direct seller–
- Have prior written contract with Direct Selling entity.
- Provide full information about the Direct Selling entity, nature of goods and services, return and refund, warranty, etc. on initiation of sales representation.
- Provide an order form with various details about the direct seller and the Direct Selling entity.
- Protect the sensitive personal information provided by consumers.
- Not approach a consumer without his/her identity card.
- Not make claims inconsistent with claims as authorized by Direct Selling entity.
Rule 7 casts upon the Direct Selling entity and a direct seller several duties such as the clearly stating terms of the offer to the customers; not using any misleading, deceptive or unfair trade practices; not offering discounts/reduction in price for referring prospective customers; clearly setting out the remedial action open to the consumer; clearly stating the price and terms of payment; not indulging in fraudulent activities or sales, and not indulging in mis-selling of products or services.
It is pertinent to note that Pyramid schemes and money circulation schemes have been specifically prohibited under Rule 10. No Direct Selling entity or direct seller is allowed to promote a Pyramid Scheme or enroll any person to such scheme or participate in such arrangement or participate in money circulation scheme in the garb of doing direct selling business.
Any contravention of the DS Rules would be covered by the legal procedures enumerated under the Consumer Protection Act, 2019.
It is hoped that the DS Rules will help the genuine and bonafide players of the direct selling industry fight some of the notoriety caused by a handful of fraudsters and also fight off the misconceived notions among general public about this market. Quite expectedly, the introduction of the DS Rules has been widely welcomed[iii] by the direct selling industry.
[i] Report available on https://idsa.co.in/annual-survey
[ii] https://www.thehindubusinessline.com/opinion/direct-selling-industry-will-play-a-big-role-in-india-becoming-self-reliant/article34755225.ece
[iii] https://economictimes.indiatimes.com/news/india/new-rules-to-bring-clarity-provide-legitimacy-say-direct-sellers/articleshow/88551488.cms
