Key takeaways from New Direct Selling Rules

The Central Government has notified the Consumer Protection (Direct Selling) Rules, 2021 (‘Direct Selling Rules’). Direct Selling Rules applies in respect of

(i) all goods and services bought or sold through direct selling;

(ii) all models of direct selling;

(iii) all direct selling entities offering goods and services to consumers in India;

(iv) all forms of unfair trade practices across all models of direct selling;

Rules prohibit direct selling entities from promoting pyramid and money circulation schemes. Direct selling entities are required to comply with new norms within 90 days of notification. The motive behind this step is to protect consumers’ rights and restrict companies that are involved in direct selling. Key Highlights of Direct selling rules are discussed hereunder: –

1. Meaning of Direct Selling entity, Direct Seller

“Direct Selling Entity” means the principal entity which sells or offers to sell goods or services through direct sellers, but does not include an entity that is engaged in a Pyramid Scheme or money circulation scheme.

“Direct seller” means a person authorized by a direct selling entity through a legally enforceable written contract to undertake direct selling business on principal to principal basis.

2. Applicability of Direct Selling Rules

Direct Selling Rules applies in respect of

(i) all goods and services bought or sold through direct selling;

(ii) all models of direct selling;

(iii) all direct selling entities offering goods and services to consumers in India;

(iv) all forms of unfair trade practices across all models of direct selling;

However, existing direct selling entities shall have to comply with the provisions of Direct Selling Rules within 90 days from the date of publication of these rules in the Official Gazette. Direct Selling Rules shall also apply to a direct selling entity that is not established in India but offers goods or services to consumers in India.

3. Obligation of Direct selling entities

3.1 Entity should be registered

The Direct Selling rules require entities to be registered under the Companies Act, 2013 if it is a Company, Under Partnership Act, 1932 if it is a Partnership firm, likewise if it is an LLP then it should be registered under the LLP Act.

3.2 Must have a physical registered address in India

The rules require entities to have a minimum of one physical location as its registered office within India;

3.3 Self-declaration about non-involvement in Pyramid scheme

The Direct selling entities shall have to make self-declaration to the effect that it has complied with the provisions of these rules and is not involved in any Pyramid Scheme or money circulation scheme.

3.4 Disclosure of information of entity’s website

Direct selling entities are required to maintain a proper and updated website with all relevant details of that entity, including the documents or records, the self-declaration specified, contact information that is current and updated, details of its nodal officer, grievance redressal officer, its management, products, product information, price and grievance redressal mechanism for consumers.

3.5 Entities to hold trademark, service mark identification marks

Direct selling entities shall have to own, hold or be the licensee of a trademark, service mark or any other identification mark which identifies that entity with the goods or services to be sold or supplied, but shall not give commissions, bonuses or incentives on sale of goods or services of which it is not the owner, holder or licensee of trademark, service mark or other identification marks.

3.6 Certification from a Company Secretary

Direct entities are required to get all information provided by it on its website duly certified by a Company Secretary.

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