Draft norms to regulate Direct Selling Companies

July 6, 2021

Government has notified a draft norm to regulate direct selling firms like Amway and Tupperware to protect the interest of consumers in India.

Key Facts

Under the norms, these direct selling firms will not be allowed to offer pyramid and money circulation scheme.
Union consumer affairs ministry has framed Consumer Protection (Direct Selling) Rules, 2021.
In 2016, ministry had set of guidelines for such direct selling firms or companies which were advisory in nature.

What are the new rules?

New draft rules propose penalties for violations.
As per new norms, direct selling companies are banned from promoting pyramid scheme and money circulation scheme.
Direct selling companies will have to register themselves under relevant Indian laws and with Department of Promotion of Industry and Internal Trade (DPIIT) to get a registration number.
These companies should have minimum one physical location as registered office in India.
The companies are required to appoint chief compliance officer, grievance redressal officer and a nodal contact person for coordination with law enforcement agencies.
Companies are required to maintain proper and updated website with all the details of entity, contact information, price, product information and grievance redressal mechanism for consumers.
They should also issue proper identity cards and documents to its direct sellers along with KYC verification requirements. They will have to maintain the record of all direct sellers offering defective or spurious goods.
To regulate direct sellers, draft rule proposes that, sellers will not visit consumer’s premises without identity card and prior appointment or approval.
Direct sellers should not provide any literature to prospect, which has not been approved by parent direct selling entity.
Any person who sells any product or service of direct selling entity by e-commerce platform must get prior written consent from direct selling entity.

What is pyramid scheme?

Pyramid is a multi-layered network of subscribers in scheme which is formed by subscribers enrolling one or more subscribers to receive any benefit. Benefits are received directly or indirectly while enrolment of additional subscribers under the scheme.

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