The Indian Direct Selling Industry is one of the fastest growing sectors in the world. As per the report published by World Federation of Direct Selling Association (WFDSA) for the year 2020, the retail size of the direct selling industry in India was valued at $3 billion with a growth of 28.3% every year.
With the growth in this sector, the need to protect the consumers and regulate the direct selling industries in India, a new set of rules were brought into effect under The Consumer Protection (Direct Selling) Rules, 2021.
Who are considered as Direct Selling Entities?
Under the new Rules, Direct Selling is a business model where there is an exclusion of middlemen, and the product/service is directly sold to the consumer. It involves marketing, distribution and sales of goods or services through a network of sellers. A direct selling entity has been defined under the Direct Selling Rules as an entity that sells its goods or services through direct sellers and is not involved in Pyramid or money circulation scheme. Any person who is authorized by the direct selling entity to sell goods on a “principal to principal basis” is a direct seller.
Pyramid Scheme and Money Circulation Scheme
The Direct Selling Rules explicitly prohibits the Direct selling entities as well as direct sellers to promote Pyramid Scheme and Money Circulation Scheme. Pyramid scheme has been defined as the multi-layered network scheme of subscribers, where subscribers receive benefit by enrolling one or more subscriber to a particular scheme, and thereby occupying a higher position by enrolling further subscribers, and giving the new subscribers a lower position, which results in creation of a multi-layered network of subscribers based on enrollment. While Money Circulation Scheme refers to any scheme which involves making of quick or easy money by way of enrolling new subscribers and benefiting from that enrollment, or acquiring a benefit based on a contingent event, and other such related schemes.
Applicability
The Consumer Protection (Direct Selling) Rules, 2021 is applicable to all the goods and services which are sold through direct selling and all types of direct selling model. It also covers those entities which are not established in India but sells goods or services in India through direct selling means.
A host of Compliances have been rolled out for Direct Selling Entities as well as the Direct Sellers to comply within 90 days from date of publication of these rules in the Official Gazette.
Key Compliances to be Adhered by the Direct Selling Entities
Registration Requirement: Every Direct Selling Entity as well as Direct Sellers must register themselves with the Department for Promotion of Industry and Internal Trade (DPIIT) to receive an allotment number from the department.
Goods/Services sold through e-commerce Platform: Direct Selling entity selling through e-commerce platform, are required to comply with requirements such as, display of registration number on the website, mentioning the name and detail of the importer, provide ranking of goods listed in its website, not charging the cancellation charges from the consumers for cancellation of an order, unless such charges are bored by the e-commerce entity when an order is cancelled unilaterally from the e-commerce entity, and other compliances as mentioned under the Consumer Protection (e-commerce) Rules,2020.
Must enter into a written contract with direct sellers: There should be a written contract between the direct selling entity and the direct sellers which authorizes direct sellers to sell the good/service offered by such entity.
Establish an adequate grievance redressal mechanism and appoint a nodal officer: It is mandatory for Direct selling entities to appoint the grievance officer who needs to acknowledge the receipt of consumer complaints within 48 hours and redress the same within 1 month. In case of delay, the officer is also responsible for intimating the reason for delay and the actions taken regarding the complaint.
Must have a registered office located physically within India: It is mandatory for the Direct Selling Entities to have a registered office which is physically located within India.
Self-Declare its non-involvement in Unfair Trade Practices or schemes: The new rules mandate direct selling entities to not be involved in Pyramid or money circulation scheme and self-declare that it has complied with the new rules and not involved in such schemes.
Protect Personal Data: Store and take reasonable care to protect personal data from any misuse by any unauthorized person.
Maintain Proper and Updated Website: Every direct selling entity is required to maintain an updated website, having relevant information’s, like contact information, details of grievance redressal officer, information about the product, and the grievance redressal mechanism for its consumers. The other information, which must be provided on the website are registered name and address of the branches, along with contact details of such direct selling entity and any such other related information. All the information provided on the website must be duly certified by a Company Secretary.
Maintenance of Records: The Direct Selling entity is responsible for maintaining its records, such as certificate of incorporation, Memorandum of Association and Articles of Association, Income Tax Return, Audit Report and any such document which is required by law, either manually or electronically.
Verify and maintain record as well as monitor practices adopted by Direct Sellers: It is essential for the direct selling entity to verify and maintain a record like registration of all the direct sellers as well as consumers. The entity also needs to provide identity cards and other documents only tosuch direct sellers who have been verified. They also require to monitors the practices adopted by direct seller in selling such good/service.
Adhere to the compliance management requirement mentioned under several laws: The direct selling entity must abide by the compliance management requirement under the Legal Metrology (Packaged Commodities) Rules,2011 and the Legal Metrology Act, 2009.
There are several other obligations attached with the direct sellers, like, they cannot falsely represent a particular good/service and provide an order form to the consumer prior to sale of such good/service. To help organizations manage, monitor and mitigate any legal risks emerging from such new regulations, legal tech companies have developed high-end compliance management software that help in reducing legal risks.
The Indian Direct Selling Association (IDSA), having companies like Oriflame, Modicare and Amway has welcomed the Consumer Protection (Direct Selling) Rules, 2021 and stressed upon the fact that such rules will give impetus to the direct selling sector. The Direct Selling Industries believe that this step will ensure prohibition of money circulation scheme and pyramid scheme, thereby removing any scope of unfair trade practices within such models. Regulation of Direct Selling Entities as well as the Direct Sellers under Consumer Protection (Direct Selling) Rules, 2021 will not only ensure greater consumer protection and transparency but also curb unfair trade practices involved in these business model.
At Lexplosion, we have been working with a lot of Direct Selling Companies, helping them in understanding and landscaping with the new norms and regulations, under the Consumer Protection (Direct Selling) Rules, 2021. Komrisk, Lexplosion’s compliance management tool helps such companies manage, monitor, and mitigate their legal risks. To know how we can help your organization, connect with us now.
Written by: Amanya Gangawat
Reviewed by: Anchal Sharma
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