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The Ministry of Consumer Affairs has notified Consumer Protection (Direct Selling) Rules, 2021.Theses rules shall 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 and all forms of unfair trade practices across all models of direct selling

These rules are to be read as a part of the Consumer Protection Act, 2019. In addition to these, the rules prescribe for mandatory maintenance of records by the companies involved in  direct selling including Balance Sheet, Audit Report and other such other relevant reports. The rules further imposes obligations on the companies involved in direct selling such as having a minimum of one physical location as its registered office within India and making self-declaration to the effect that it has complied with the provisions of the rules and is not involved in any Pyramid Scheme or money circulation scheme. According to the rules no direct selling entity shall adopt any unfair trade practice in the course of its business or otherwise.

In regard to the obligations of the direct seller, the rules prescribe that ave a prior written contract with the direct selling entity for undertaking sale of, or offer to sell, any goods or services of such entity. The rules further contemplate that ensure that actual product delivered to the buyer matches with the description of the product given.

The rules further contemplate that it is the obligation of the direct seller to ensure that actual product delivered to the buyer matches with the description of the product given.

According to the rules, the direct seller hall not

a) visit a consumer's premises without identity card and prior appointment or approval;

(b) provide any literature to a prospect, which has not been approved by the direct selling entity;

(c) require a prospect to purchase any literature or sales demonstration equipment;

(d) in pursuance of a sale, make any claim that is not consistent with claims authorized by the direct selling entity.

 

According to the rules, both the direct seller and direct selling entity shall ensure that the the terms of the offer are clear, so as to enable the consumer to know the exact nature of offer being made and the commitment involved in placing any order. In addition to this, the presentation made to enable the sale of the product shall not  contain any product description, claim, illustration or other element which, directly or by implication, is likely to mislead the consumer.

 

The rules prescribe that a direct selling entity shall not indulge in fraudulent activities or sales and shall take reasonable steps to ensure that participants do not indulge in false or misleading representations or any other form of fraud, coercion and harassment. The direct selling entity is prohibited from charge any entry fee or subscription fee.

 

The rules further prescribe that no person who is convicted, or bankrupt during the last five years prior to his association with the business of direct selling, or is of person of unsound mind, shall be engaged in the business of direct selling.

The rules further state that the direct sellers as well as the direct selling entities using e-commerce platforms for sale will have comply with the requirements of the Consumer Protection (e- Commerce) Rules, 2020.  The rules state that a direct selling entity cannot promote a Pyramid Scheme or enroll any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing direct selling business. The rules state that the direct selling entity cannot encourage its members to participate in any money circulation scheme under the garb of direct selling.

As for the monitoring of the State government, the rules state that the State Government shall set up set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entity in order to ensure that they are complaint with the rules.

It is to be noted that prior to these rules being notified the direct selling entities were regulated by the Direct Selling Guidelines of 2016. These guidelines were in the nature of an office memorandum and instructions to States and Union Territories.

Many direct selling companies like Amway and Modicare  approached the Delhi High Court via a commercial suit for induction on the ground that e commerce giants like Amazon and Flipkart were selling their products in violation of the direct selling guidelines.

Amazon and Flipkart before a single judge of Delhi High Court contended that direct selling guidelines are mere directions and are not enforceable in the court of law. A single judge of Delhi High Court was pleased to grant an injunction against Amazon and Flipkart asking them not to sell the products manufactured and/or marketed by the direct selling entities.

The matter reached the Division Bench of Delhi High Court which overruled the order of the single bench. The matter is still pending before the single judge of Delhi High Court.