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Consumer Protection (Direct Selling) Rules, 2021

Consumer Protection (Direct Selling) Rules, 2021
Trade & Regulatory Compliance Practice | Kainat Singh

The Department of Consumer Affairs recently notified the Consumer Protection (Direct Selling) Rules, 2021 (“Direct Selling Rules”) on December 28, 2021, in accordance with Section 101 (2) (zg) read with Section 94 of the Consumer Protection Act, 2019 with the intent to regulate the Direct selling industry (engaged in activities involving multi-level marketing, pyramid schemes etc.) which was largely unregulated. A Direct Selling Entity (“DSE”) is a principal entity, which sells or offers to sell goods or services through direct sellers who undertake direct selling business on a principal-to-principal basis.

Under the Direct Selling Rules, DSEs are required to ensure that consumer grievances are appropriately redressed and all possible recourse mechanisms are adequately highlighted in a prominent and evident manner by the DSE on its platform.

Salient Features:

  • Application:

      These rules shall apply to -

    • all goods and services bought or sold through direct selling;
    • all models of direct selling;
    • all DSEs offering goods and services to consumers in India;
    • all forms of unfair trade practices across all models of direct selling

  • Obligations on DSEs:

      The following obligations have been created for DSEs -

    • Mandatorily have a minimum of one physical location as its registered office within India.
    • Incorporation under the Companies Act, 2013 if DSE is a company; registration under the Partnership Act, 1932 in case DSE is a partnership firm; and registration under the Limited Liability Partnership Act, 2008 in case of a limited liability partnership.
    • DSE has to maintain and regularly update its website with the requisite details of the DSE, including a self-declaration to the effect that it has complied with the provisions of the Direct Selling Rules and is not involved in any Pyramid Scheme or money circulation scheme, current and updated contact information, details of its nodal officer, grievance redressal officer, its management, products, product information, price, and grievance redressal mechanism for consumers;
    • DSE is obligated to own, hold, or be the licensee of a trademark, or any mark such as the identification or service mark which would help determine the entity in the context of the goods and services that are being sold by the DSE.
    • Obtain all applicable trade registrations and licenses, including Permanent Account Number and Goods and Services Tax Registration; and get all information provided by it on its website duly certified by a Company Secretary;
    • Have a prior written contract with its direct sellers (“DSs”) 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;
    • Ensure that all its DSs have verified identities and physical addresses and issue identity cards and documents only to such DSs;
    • Create adequate safeguards to ensure that goods and services offered by its DSs conform to applicable laws;
    • Be liable for the grievances arising out of the sale of goods or services by its DSs;
    • DSE to ensure that the following information is made available on its website in addition to the mandatory declarations under the Legal Metrology (Packaged Commodities) Rules, 2011:
      • Registered name of the DSE;
      • Registered address of the DSE and its branches, if any;
      • Contact details, including email address, fax, landline, and mobile numbers of its customer care and grievance redressal officers;
      • A ticket number for each complaint lodged through which the complainant can track the status of the complaint;
      • Information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, grievance redressal mechanism and such other information which may be required by the consumers to make informed decisions;
      • Information on available payment methods, the security of those payment methods, the fees or charges payable by users, the procedure to cancel regular payments under those methods, charge-back options, if any, and the contact information of the relevant payment service provider
      • The total price of the sold goods or service in one single figure in addition to the break-up of the entire price to show the compulsory and voluntary additions made chosen by the consumers. This includes the delivery, handling, postage, courier, conveyance, and tax charges break-up in the final amount.
      • Provide whole and accurate information prior to the purchase stage to ensure that the consumers make informed purchase decisions.

  • Prohibition on Engagement in Pyramid Schemes: DSEs and DSs are prohibited from promoting a Pyramid Scheme, enrolling any person to such scheme or participating in money circulation schemes or any such arrangement in any manner under the garb of doing direct selling business.

Our Take:

The Direct Selling Rules are a welcome step in safeguarding consumer interest as the sector was previously largely unmonitored without a system of checks and balances in place. Resultantly, both the DSE's and the consumers were at risk of hosting and purchasing products respectively from unverified DS's.

The Rules have not only ensured that a consumer is fortified with all the relevant information about a product but has placed a requirement on DSEs to facilitate an appropriate and effective grievance redressal process alongside verifying identities of the DSs selling on their platforms. Additionally, the Rules have also mandated requirements for DSEs to accept returns of defective goods and provide refunds for the consideration amount paid by the consumer.

Furthermore, as provided in the Direct Selling Rules, the contravention provisions as envisaged within the Consumer Protection Act, 2019 ("CPA") shall apply to the DSE and DSs. Since the CPA provides consumers with the right to approach dispute redressal commissions set up under the Act and file complaints for any harm caused, DSEs and DSs have now been explicitly brought under the ambit of the CPA providing more clarity and recourse options for consumers.

The Rules came into effect upon their publication in the official gazette on 28th December 2021 and DSEs were given a ninety-day window to comply with the provisions of the said Rules.

Link to the Direct Selling Rules:https://consumeraffairs.nic.in/sites/default/files/232214.pdf

Practice Contacts

Ameet Datta - Partner (Practice Lead) | ameet@saikrishnaassociates.com

Suvarna Mandal - Partner | suvarna@saikrishnaassociates.com

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