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Impact Of The New Consumer Protection Rules, 2021 On Direct-Selling

On Tuesday, the federal government announced new consumer protection guidelines for businesses, prohibiting direct-selling companies from promoting pyramid and money circulation schemes. The Centre stated under the new guidelines that companies must assure compliance with the standards within 90 days.

As part of the move, which attempts to protect consumers’ rights, direct-selling enterprises such as Tupperware, Amway, and Oriflame are prohibited from advertising money circulation plans as part of the move.

Such businesses will now be held liable for any complaints arising from their direct sellers’ sales of goods or services. The new legislation would require state governments to set up a system to monitor or oversee the activities of direct sellers and direct selling businesses.

According to the standards, direct selling firms and direct sellers are prohibited from promoting a pyramid scheme, enrolling anybody in such a scheme, or engaging in any arrangement in any manner with the intent of performing direct selling business. According to the new criteria, they are also barred from participating in money circulation schemes while claiming to be in the direct selling industry.

These laws will apply to all goods and services purchased or sold to Indian customers through direct selling, as well as to all direct selling models and businesses. They will also apply to direct-selling businesses that are not based in India but sell to Indian customers.

  1. According to the new laws, a direct salesperson should not visit a consumer’s home without an identity card and a prior appointment or authorization.
  2. A seller should not give a prospect any literature that has not been approved by the direct selling company. A seller should not make any statements during a sale that are inconsistent with claims authorised by the direct selling organization.
  3. Furthermore, the direct seller must have a prior written contract with the direct selling company before selling or offering to sell any of the entity’s goods or services.
  4. Direct selling businesses should be formed under the Companies Act of 2013, or registered as a partnership under the Partnership Act of 1932, or under the Limited Liability Partnership Act of 2008 as a limited liability partnership.
  5. Such companies must have at least one physical location in India as their registered office and make a self-declaration stating that the direct selling business has followed the direct selling guidelines and is not involved in any pyramid or money circulation scheme.
  6. They should ensure that all their direct sellers have verified identities and physical addresses and that only such direct sellers receive identification cards and paperwork.
  7. Direct selling companies must implement essential precautions to ensure that their direct sellers’ goods and services conform with applicable laws as well as be “responsible for any complaints originating from their direct merchants’ sales of products or services.”
  8. The companies have been instructed to establish an acceptable grievance redressal mechanism and to post on their websites the current and updated names and contact information (including phone number, e-mail address, and designation) of such officers.
  9. Information about the company’s website should be prominently included on the product information sheet or pamphlet.
  10. Any consumer complaint should be acknowledged by a grievance redressal officer within 48 working hours of receipt, and the complaint should be resolved within one month of receipt. In the event of a delay of more than a month, the complainant should be informed in writing of the reasons for the delay as well as the steps taken in response to the complaint.
  11. Furthermore, direct-selling companies must select a nodal person who will be responsible for ensuring that the Act’s and rules’ provisions are followed. Such businesses should be able to receive complaints from customers. 
  12. They should keep track of all their direct sellers, providing evidence of identity, address, e-mail, and other contact information. Both direct selling companies and direct sellers must guarantee that the conditions of the offer provided to consumers are transparent under the new laws.

According to government sources, if these requirements are not followed, the Act’s punitive measures will apply.

By Pragati Sengar