Direct-selling companies can't promote pyramid scheme, says govt

The direct sellers as well as the direct-selling entities using e-commerce platforms for sale will also need to comply with the requirements of the Consumer Protection Rules, 2020.

The Union government on Tuesday prohibited entities such as Amway from promoting a pyramid scheme or enrolling any person to such a scheme in the garb of doing direct-selling business.

Notifying the Consumer Protection (direct selling) rules, the consumer affairs ministry also prohibited such sellers from participating in money circulation schemes, directing them to comply with the rules within three months from the date of publication of these rules in the Official Gazette.

“These 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, all forms of unfair trade practices across all models of direct selling and also to also to a direct selling entity which is not established in India, but offers goods or services to consumers in India,” the ministry said in a statement.

“This will help in restricting Ponzi schemes both in financial and consumer markets and, therefore, will provide some protection to the consumer. There are some established genuine companies who could get impacted by this rule and therefore proper interpretation of the rules will be important for their business going forward,” Dhanraj Bhagat, partner at Grant Thornton Bharat LLP, said.

Indian Direct Selling Association Chairman Rajat Banerji, who is also the vice-president of corporate affairs at Amway India, welcomed the proposed rules. “We have been closely working with the government for the past two years and providing our inputs. We support the new rules wholeheartedly. These new rules would also bring clarity in the marketplace and would give impetus to the industry, which is already providing livelihood to over 7 million Indians, in which more than 50 per cent are women.”

The direct sellers as well as the direct-selling entities using e-commerce platforms for sale will also need to comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020.

“Rules provide for monitoring by the state government. For ensuring compliance of these rules by direct selling entities and direct sellers, every state has to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities,” the statement said.

Direct-selling entities now need to be incorporated in India and have a minimum of one physical location as its registered office within India. They will be liable for the grievances arising out of the sale of goods or services by its direct sellers and need to provide information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, grievance redressal mechanism and such other information which may be required by the consumers to make informed decisions.

“Grievance redressal officer to acknowledge the receipt of any consumer complaint within 48 working hours of receipt of such complaint and redresses the complaint normally within a period of one month from the date of receipt of the complaint and in case of delay of more than a month, reasons for the delay, and the actions taken on the complaint, are informed to the complainant in writing,” the statement said. 

 (With contributions from Sharleen D'Souza and Shine Jacob)