Indian Govt Bans Pyramid or MLM Schemes under New Consumer Protection Rules
Moneylife Digital Team / IANS 29 December 2021
The Union government has notified the Consumer Protection Rules, 2021, and asked the direct selling companies to comply with these rules within 90 days.
According to the ministry of consumer affairs, food and public distribution, the new rules will be applicable to all goods and services bought or sold through direct selling, all direct selling companies offering goods and services to consumers in India, including a direct selling entity, which is not established in India, but offers goods or services to consumers.
Under the new norms, all direct selling companies and sellers are prohibited from promoting a pyramid scheme or enrolling any person on such scheme or participating in such arrangement, in any manner whatsoever, in the garb of doing direct selling business or participating in money circulation scheme in the garb of doing direct selling business.
The ministry says, "Direct selling entity and a direct seller shall not induce consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases."

"Direct selling entity and direct sellers are prohibited from, promoting a Pyramid scheme or enrol any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing direct selling business and participate in money circulation scheme in the garb of doing direct selling business," it says.
The new rules direct the state governments to set up a mechanism to monitor and supervise the activities of direct sellers and direct selling entities, while making it mandatory for direct selling entities to register themselves—like incorporation under the Companies Act, 2013, or if a partnership firm is registered under the Partnership Act, 1932, or if a limited liability partnership be registered under the Limited Liability Partnership Act, 2008.
It is also now mandatory to have a minimum of one physical location as its registered office within India and the companies to make a self-declaration that a direct selling entity has complied with the provisions of the direct selling rules.
The entities must have a prior written contract with its direct sellers in order to authorise them to sell or offer to sell its goods or services, and the terms of such agreement will be just, fair and equitable, ensure that all its direct sellers have verified identities and physical addresses, issue identity cards and documents only to such direct sellers and also be liable for the grievances arising out of the sale of goods or services by its direct sellers.
Every direct selling entity must establish a mechanism for filing complaints by consumers through its offices or branches or direct sellers, either in person or through the post, telephone, e-mail or website whereas all direct selling entities must maintain a record of all its direct sellers, including their identity proof, address proof, e-mail and other such information.
Every direct selling entity, on the request in writing made by a consumer after the purchase of any goods or services, provides him with the information regarding any direct seller from whom such consumer has made a purchase, and such information must include the name, address, e-mail, contact number and any other information which is necessary for making communication with such direct seller for effective dispute resolution.
The new rules also specify that every direct selling entity must ensure that the advertisements for marketing of goods or services are consistent with the actual characteristics, access and usage conditions of such goods or services, while no direct selling entity should directly or indirectly, falsely represent itself as a consumer and post reviews about its goods or services or misrepresent the quality or features of any of its goods or services.
Every direct selling entity must maintain a record of relevant information allowing for the identification of all direct sellers who have been delisted by the direct selling entity and such list must be publicly shared on its website and all direct selling entities must become a partner in the convergence process of the national consumer helpline of the Central government, the new norms added.
1 year ago
Direct Selling Entities like Amway, Tupperware, etc. should mend ways and be transparent, so that customers, public and even their enlisted Agents do not get deceived any more because of treacherous designs and mode of business.
1 year ago
The author has to read the government gazette properly and understand what regulation is brought in.
1 year ago
Good measure,
1 year ago
Excellent decision.
1 year ago
Free Helpline
Legal Credit