Note on Consumer Protection (Direct Selling) Rules, 2021
Note on Consumer Protection (Direct Selling) Rules, 2021
The Consumer Protection (Direct Selling) Rules, 2021 (Rules) were notified by the Government on December 28, 2021 to set out (i) the duties and obligations of direct selling entities and direct sellers using e-commerce platforms for sale and (ii) protect consumers from any unfair trade practices by such direct selling entities and direct sellers. The Rules seek to govern those entities who sell goods and services through direct sellers but do not engage in a pyramid scheme or money circulation scheme (Direct Selling Entities). Such entities are required to comply with the provisions of the Rules within March 28, 2022. Any Direct Selling Entities which are not established in India but sell goods and services to consumers in India are also required to comply with the provisions of the Rules.
Direct Selling Entities and direct sellers are prohibited from promoting and/or enrolling a person in a pyramid scheme (which is a scheme wherein subscribers enrol one or more further subscribers in order to receive any benefit, creating a multi-layered network) and/or money circulation schemes (any schemes that enables making of quick or easy money, for a promise to pay money, on any event or contingency related to enrolment of other members to such scheme).
Some of the key obligations and duties imposed on Direct Selling Entities are as follows:
Mandatory Maintenance of Records: Direct Selling Entities are required to maintain in its registered office physical or electronic records of the documents pertaining to incorporation, tax related documents, financial statements, certificate of importer-exporter code (in case of sale of imported goods), FSSAI certificates in case of sale of food items, certificates issued under Drugs and Cosmetics Act, 1940 in case of sale of drugs including ayurvedic, siddha and Unani drugs and homeopathic medicines and any other documents which will be notified by the Government from time to time.
Physical and Legal Presence in India – A Direct Selling Entity is required to incorporate/register themselves in India as per applicable laws and to establish minimum one physical office in India.
Disclosures and Declaration – The Rules mandate the maintenance of an updated website with all relevant details of the entity, contact details, information regarding return, refund, exchange, warranties, shipment, modes of payment, chargebacks, etc. Direct Selling Entities shall also specify detailed information pertaining to redressal of any grievances of a consumer, information regarding direct sellers and delisted direct sellers. Price of a commodity displayed on the website shall mention the break-up of price showing all compulsory and voluntary charges, including delivery charges, postage and handling charges, conveyance charges and the applicable tax.
Packaging and Advertisement – Direct Selling Entities shall comply with the declarations to be made under the Legal Metrology Act, 2009 and Legal Metrology (Packaged Commodities) Rules, 2011. Information pertaining to goods and services provided to the consumer must be such that helps the consumer make an informed purchase decision. Any advertisements for marketing of goods or services is required to be consistent with the actual characteristics, access and usage conditions of such goods or services. Any information provided to the consumer regarding the goods and/or services shall not be false or misleading quality of features of such goods and services.
Grievance Redressal Mechanism – Direct Selling Entities are required to establish an adequate grievance redressal mechanism and appoint one or more grievance redressal officers for redressal of consumers' grievances and provide contact details of the grievance redressal officers on the website, product information sheet and pamphlets. Complaints are required to be acknowledged within forty-eight (48) hours and resolved within a month from the date of receipt of complaint. Reasons will have to furnished to the complainant for any delay in resolving the complaint. Mechanism for filing of complaints by consumers through its offices or branches or direct sellers, either in person or through post, telephone, e-mail, or website. A nodal officer is also to be appointed who shall be responsible for ensuring compliance with the Rules.
Direct Seller – Direct Selling Entities shall have prior written contracts with its direct sellers and ensure their direct sellers have verified identities and issue identity cards only to authorised direct sellers. Direct Selling Entities shall be responsible to monitor the practices adopted by its direct sellers and ensure compliance with these rules by means of legally binding contract with such direct sellers and maintain a record of relevant information allowing for the identification of all direct sellers. Any person who have been convicted and/or declared bankrupt in the last five years prior association with the Direct Selling Entity and/or a person of unsound mind cannot be engaged as direct sellers.
Other Compliances – Direct Selling Entities shall store sensitive personal data within India, in accordance with the applicable laws. Entities are also required to become a partner in the convergence process of the National Consumer Helpline of the Central Government.
The Rules also lay down obligations of direct seller which include disclosing the identity of the direct selling entity, the address of place of business, the nature of goods or services sold and the purpose of such solicitation to the consumer. A direct seller shall not to visit a consumer’s premises without an identity card and prior appointment or approval and provide any literature to a consumer, which has not been approved by the direct selling entity.
Both Direct Selling Entities and direct sellers are prohibited from indulging in activities which mislead consumers or make false representation to consumers or coerce or harass consumers to purchase goods and consumers. Consumers shall not be enticed to refer prospective consumers by promising a recovery or reduction in price.
The Rules mandate every state government to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entity.