What is the recent notification by the government for the Consumer Protection (Direct Selling) Rules, 2021? How has the industry reacted?
the story So Far: The government on December 28 notified the Consumer Protection (Direct Selling) Rules, 2021, which bars all direct selling entities such as Amway, Tupperware, Oriflame and Modicare from promoting pyramid schemes or money circulation schemes, while to prevent system also provides. Consumer complaints. Direct selling companies have been given 90 days to comply with the rules.
Summary
- In direct selling, goods or services are sold directly to consumers through vendors who act as personal representatives of the direct selling entities, rather than through retail premises. According to a report by IDSA, the number of active direct sellers in the country stood at around 7.4 million in 2019-20.
- The new rules were mainly introduced by the direct selling industry to prohibit the promotion of pyramids and money circulation schemes. In addition, entities are now required to be registered in the country. Further, to provide a redressal mechanism for consumers, the rules state that direct selling entities appoint grievance redressal officers who will put their contact details on the website.
- Direct selling entities that are not established in India but provide goods or services to consumers here will also have to comply with the newly notified rules. The industry has welcomed the new rules saying that it will bring much needed clarity to the entire sector.
How Big is the Indian Direct Selling Industry?
In direct selling, goods or services are sold directly to consumers through direct sellers who act as personal representatives of the direct selling entities, rather than as retail premises. As per the latest data available, the Indian direct selling industry stood at ₹1,67,762 million in 2019-20, a growth of nearly 28% from ₹1,30,800 million in 2018-19. The two big categories were ‘wellness and nutraceuticals’ – which accounted for 57% of sales, followed by cosmetics and personal care that contributed 22% to sales.
According to a report by the Indian Direct Selling Association (IDSA), the number of active direct sellers in the country stood at around 7.4 million in 2019-20 – with almost equal numbers of male and female direct sellers, up from 5.7 million in 2018- 19.
To whom do the rules apply and why have they been notified now?
These Terms apply to all models of Direct Selling and all goods and services purchased or sold through Direct Selling. Direct selling entities that are not established in India but provide goods or services to consumers in India will also have to comply with the newly notified rules.
The Ministry of Consumer Affairs had issued ‘Direct Selling Guidelines 2016’ to prevent frauds and protect consumer interests. However, these were not enforceable by law. With the powers conferred by the introduction of the Consumer Protection Act, 2019, the Ministry has now notified the Consumer Protection (Direct Selling) Rules, 2021. These rules are largely in line with the earlier guidelines with some additional compliance requirements.
What are the rules?
Every direct selling entity operating in India is required to be registered in the country, and must have at least one physical location in India as its registered office. Entities will be required to make a self-declaration that it is in compliance with these rules and is not involved in any pyramid scheme or money circulation scheme.
Additionally, such entities are required to store sensitive personal data within India and take steps to ensure the security of such data.
Further, to provide a redressal mechanism for consumers, the rules state that direct selling entities appoint one or more grievance redressal officers and put their details such as name, telephone number and email address on their website. The Grievance Redressal Officer has to intimate the receipt of any consumer complaint within forty-eight working hours and redress the complaint within one month. In case of delay, they will have to inform in writing the reasons for the delay. Every direct selling entity will be required to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act.
In addition, direct selling entities are now required to maintain records of all their direct sellers, including their identity proof, address proof, e-mail and other such contact information.
The rules also specify that a direct seller shall not enter a consumer’s premises without an identity card and prior appointment or approval, or provide any literature to a potential person that has not been approved by the direct selling entity. These rules also hold direct selling entities liable for complaints arising out of the sale of goods or services by their direct sellers.
A Direct Selling Entity or a Direct Seller may not refuse to take “counterfeit goods or defective services” and provide refunds, or charge consumers any entry fee or subscription fee. They cannot persuade consumers to make a purchase based on the representation that they can reduce or recover the price by referring potential customers to direct sellers for similar purchases.
These rules also provide for monitoring to ensure compliance. Every State Government shall, by regulation, establish a mechanism to monitor or supervise the activities of the State Direct Sellers and Direct Selling Entities.
What does the industry say?
The industry has welcomed the new rules saying that it will bring much-needed clarity to the sector, which is dealing with many speculations and allegations especially regarding the promotion of pyramid schemes. The industry has insisted that it insisted on these rules because serious players do not engage in pyramid schemes.
He said the rules give legitimacy to the industry, protect consumers from pyramids and money circulation schemes and also help in attracting more foreign direct investment (FDI).
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