In exercise of its powers under §94 and §101(2)(zg) the Consumer Protection Act 2019 (Act), the Central Government notified the Consumer Protection (Direct Selling) Rules 2021 (Rules) on 28 December 2021.
The Rules are aimed at the regulation and supervision of activities by direct selling entities and set out a framework with various requirements to be complied with by such entities. The Act defines "direct selling" as "marketing, distribution and sale of goods or provision of services through a network of sellers, other than through a permanent retail location"1. However, with the introduction of the Rules, definitions of direct selling entities2 and direct sellers3 as well as other requirements have also been incorporated in the Rules.
The Rules inter alia require 'direct selling entities' to maintain a comprehensive database of 'direct sellers' and fasten responsibility on such 'direct selling entity' in relation to compliance of such standards by 'direct sellers'. All direct selling entities are required to ensure compliance with the Rules within 90 days from the date of their publication ie by 28 March 2022.
Rule 2(1) states that the Rules shall be applicable 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, and
- a direct selling entity which is not established in India, but offers goods or services to consumers in India.
Inclusion of contemporary practices
With the apparent aim of keeping pace with the fast developing sales practices over electronic modes, the Rules have added several new provisions to regulate direct selling marketplaces. The Rules mandatorily require direct selling entities and direct sellers using e-commerce platforms for effecting their sales to also comply with the Consumer Protection (e-Commerce) Rules 2020, in addition to these Rules4. The Rules put in place specific provisions in relation to, inter alia, having a grievance redressal mechanism in place5, assumption of liability on the direct selling entity for authenticity of the goods and services offered6, assimilation with the National Consumer Helpline of the Central Government7 and requirement for goods to comply with the provisions of the Legal Metrology Act 20098. Additionally, the Rules also introduce a definition for "sensitive personal data"9, focussing on data protection measures to be taken in the interest of consumers.
Duties and Obligations of Direct Selling Industry
The Rules lay down extensive duties and obligations of direct selling entities and any direct sellers engaged by them, in order to safeguard the interests of consumers. The key highlights are as follows:
- Every direct selling entity is required to mandatorily maintain all records, as may be mandated under applicable law, at its registered office, either manually or electronically10.
- A host of obligations and requirements for direct selling entities11 have been specified and include inter alia the mandatory requirement of 1 physical office, updated websites with details of nodal and grievance officers and written contracts with direct sellers
- The obligations of direct sellers12, inter alia, include providing the relevant information and details of the direct selling entity and the goods/services sought to be sold at the initiation of any sale representation.
- The Rules also specify that direct sellers and direct selling entities should otherwise the follow applicable law in the course of their operations, including, inter alia, ensuring the products are packaged in compliance with appropriate health and safety standards13, not misleading the consumer through deception or unfair trade practices14, and informing the customer in case of any delays in delivery15.
The Rules prohibit any person of unsound mind, or who is convicted or declared bankrupt in the last 5 years prior to his association with the direct selling business from engaging in the business of direct selling16. Similarly, the Rules prohibit any direct selling entity or direct seller from promoting a Pyramid Scheme17 or any Money Circulation Scheme18, "in the garb of doing direct selling business"19.
The objective of the Rules are, inter alia, to formalise the direct selling sector and put in place a framework through which various aspects of direct selling and the entities undertaking direct selling can be monitored and regulated. In the process, clear obligations have been placed on 'direct selling entities' in relation to supervision of activities of its 'direct sellers'. Non-compliance with these Rules could attract civil and criminal proceedings under the provisions of the Consumer Protection Act 201920.
While the Rules are still fairly new, press reports so far indicate that the Rules have broadly been received positively by the market, and such regulation of direct selling is expected to bring more clarity and effective legitimacy to direct selling business.
1. §2(13) of the Act.
2. Rule 3(1)(d) defines a direct selling entity as follows:
"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 Pyramid Scheme or money circulation scheme."
3. Rule 3(1)(c) defines a direct seller as follows:
"a person authorized by a direct selling entity through a legally enforceable written contract to undertake direct selling business on principal to principal basis."
4. Rule 9.
5. Rule 5(6).
6. Rule 5(14).
7. Rule 5(17).
8. Rule 7(i)(v).
9. Rule 3(1)(k).
10. Rule 4.
11. Rule 5.
12. Rule 6.
13. Rule 7(i)(m).
14. Rule 7(i)(e).
15. Rule 7(i)(n).
16. Rule 8.
17. Rule 3(1)(i).
18. Rule 3(1)(f).
19. Rule 10.
20. Rule 13.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.