Direct selling enterprises such as Amway and Tupperware will not be permitted to provide pyramid and money circulation schemes, as the government has issued a draft rule to regulate such businesses and safeguard the interests of consumers in the country.
For the first time, the Union Consumer Affairs Ministry drafted the Consumer Protection (Direct Selling) Rules, 2021, and requested public feedback by July 21. Previously, in 2016, the government issued a set of advising recommendations for these firms. Penalties for infractions are currently proposed in the draft rules.
Direct selling firms are prohibited from marketing a pyramid scheme or a money circulation plan under the proposed guidelines. A pyramid is a multi-layered network of scheme subscribers established by subscribers enrolling one or more subscribers to obtain any advantage, directly or indirectly, for enrollment of more plan subscribers.
Direct selling firms must register under applicable Indian legislation as well as with the Department of Promotion of Industry and Internal Trade (DPIIT) for the allocation of a registration number. They must have at least one physical location in India as their registered office. Companies must select a chief compliance officer, a grievance redressal officer, and a point of contact for law enforcement authorities.
Companies must have a proper and up-to-date website with all necessary information about the business, contact information, product information, pricing, and a grievance redressal method for consumers. Companies should provide suitable identification cards and papers to their direct sellers to meet KYC verification standards. They should keep track of any direct sellers who have frequently sold faulty or bogus items.
The draught rules stated that “a direct selling entity and a direct seller shall not induce consumers to make a purchase based on the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases if such reductions or recovery are contingent upon some uncertain, future event.”
To control direct salespeople, the government has suggested that they not visit a consumer’s home unless they have an identity card and a previous appointment or clearance. Direct sellers should not give a prospect any literature that has not been approved by the parent direct selling company.
Furthermore, any individual who offers a direct selling business’s goods or services through an e-commerce platform must have prior written approval from the direct selling entity. A convicted person or a bankrupt should not participate in direct marketing, according to the draft guidelines.
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