The Consumer Protection (Direct Selling) Rules, 2021: Scope, Duties and Grievance Redressal

Notified on 28 December 2021 under Sections 94 and 101 of the Act, the Consumer Protection (Direct Selling) Rules, 2021 are the rule-book of the direct-selling channel: who they bind (every model, and foreign entities serving Indian consumers), what the direct selling entity must be and do, what the direct seller owes at the consumer's door, the records, transparency and grievance machinery that discipline the network, and the liability rule that holds the principal answerable. This note is the full map of the Rules.

1. Scope, Definitions and Commencement

• Application: all goods and services bought or sold through direct selling; all models of direct selling, multi-level marketing included; all direct selling entities, including an entity not established in India but offering goods or services to consumers in India; and all forms of unfair trade practice across the channel.
• Direct selling: marketing, distribution and sale of goods or provision of services through a network of sellers, other than through a permanent retail location.
• Direct selling entity: the principal entity which sells or offers to sell goods or services through direct sellers, the definition expressly excluding any entity engaged in a pyramid scheme or money circulation scheme.
• Direct seller: a person appointed or authorised, directly or indirectly, by a direct selling entity through a legally enforceable written contract to undertake direct selling business on its behalf.
• Commencement: existing direct selling entities were required to comply within ninety days of notification, the channel was given one quarter to come clean.

2. Duties and Obligations of the Direct Selling Entity

2.1 Constitution and presence

The entity must be incorporated or registered in India, a company under the Companies Act, a registered partnership or a limited liability partnership, and maintain at least one physical location as its registered office within India; it must hold the tax and regulatory registrations its trade requires, and operate through a legally enforceable written contract with every direct seller. It must maintain a website with complete, updated details: the entity's particulars, management, goods and prices, contact information, its grievance mechanism, and the terms on which its network sells.

2.2 Officers, records and transparency

• Grievance officer: appointed and displayed on the website; complaints acknowledged within forty-eight working hours and redressed ordinarily within one month of receipt, with reasons recorded where longer is needed; every complaint receives a trackable reference.
• Nodal contact: a nodal officer responsible for compliance with the Act and Rules, and for liaison with Government authorities, the named human behind the brand.
• Records and KYC: full records of the business, and of every direct seller, identity and address verification, the authorisation issued, and the contract, so the network is documented, not deniable.
• Truthful dealing: accurate and complete information to prospective sellers and consumers about prices, terms, buy-back and refund; no misleading, deceptive or unfair recruiting practices, and no misrepresentation of actual or potential earnings, the clause aimed at the income-dream pitch.
• Consumer information: confidentiality of the information consumers provide, and no disclosure without consent or legal requirement.

2.3 The money rules and the liability rule

• No price of joining: the entity shall not charge any entry fee, registration fee, or renewal charge, nor compel the purchase of sales demonstration equipment or materials, as a condition of becoming or remaining a direct seller, the clause that removes the pyramid's fuel.
• Buy-back and refund: a reasonable buy-back or repurchase policy for currently marketable goods held by sellers on exit, and a clear refund policy for consumers, disclosed in advance.
• Supervision: the entity must ensure that its direct sellers comply with the Rules, and must act on complaints against them.
• Deemed liability: the entity is liable for the grievances arising out of the sale of goods or services by its direct sellers, the consumer's complaint runs against the principal, whatever the individual seller's means.

3. Duties of Direct Sellers, and the Prohibitions

The direct seller must operate under the written contract and within the authorisation given; carry and produce the identity card issued by the entity; at the initiation of any sale interaction, disclose his identity, the entity's name, the nature of the goods or services and the purpose of the solicitation; provide the consumer an order form recording the particulars, the entity's and seller's details, the goods, price, terms of delivery and the rights of return; respect privacy, no uninvited intrusion, and visits or calls on prior appointment or consent; make no false, misleading or exaggerated representations about the goods, their prices or the earnings opportunity; charge nothing beyond what the entity authorises; and convey consumer grievances promptly. The prohibitions then close the Rules: no entity or seller shall promote a pyramid scheme or enrol anyone into one, or participate in a money circulation scheme, in the garb of direct selling (examined in the next note), and the State Governments are directed to set up a mechanism to monitor and supervise the activities of direct sellers and entities within the State. Contravention of the Rules is dealt with under the Act: unfair trade practice, the complaint grounds, the Commissions and the CCPA.

4. Related Topics and Provisions

• Direct selling complete notes (Topic 67): the channel in one place
• Pyramid and money-circulation schemes (Topic 69): the prohibition in detail
• Unfair trade practice (Topic 16): the enforcement route
• The CCPA (Topics 26 to 28): the regulator over the channel's advertising