Draft rules for direct selling industry will bring in accountability, regulatory clarity: Experts

The Consumer Affairs Ministry is proposing to make it mandatory for direct selling companies to register with the Department of Promotion of Industry and Internal Trade, bring in norms for grievance redressal and prohibit charging of entry or registration fee from sellers. These are among the various provisions proposed by the Ministry in the draft rules for direct selling companies under the Consumer Protection Act.

Experts said the norms are expected to make direct selling industry more accountable and transparent.

Greater transparency

Neeraj Dubey, Partner, Singh & Associates, said, “The draft rules would help in subjecting the direct selling entities to greater transparency and accountability towards consumers. They will need to establish adequate grievance redressal mechanism and fulfil other obligations such as ensuring that clear offer terms are made to consumers. Detailed obligations have been set out in the draft rules for direct selling entities towards direct sellers, and of direct sellers towards consumers.”

The proposed rules also said that direct selling companies will need to appoint a Chief Compliance Officer, Grievance Officer and a nodal officer. It has also proposed that direct selling companies or their sellers cannot induce consumers to make a purchase based upon “the representation that they can reduce or recover the price by referring prospective customers”. It has also stressed that no direct selling company will promote a pyramid scheme or a money circulation scheme among other provisions.

Rishi Anand, Partner, DSK Legal said, “Unlike its predecessor guideline of 2016 which was issued as an advisory to State Governments and held as such by the Delhi High Court in 2020, the draft rules come with a definitive authority under the newly enacted Consumer Protection Act, 2019 and propose to streamline the regulatory framework for direct selling industry.”

The draft rules also state that products of direct selling companies cannot be sold on e-commerce channel by sellers without due consent. However, Anand pointed out that the rules do not clarify if e-commerce rules will apply to direct selling entities or direct sellers if they undertake sale through online platforms.

According to industry estimates, there are over 400 direct selling companies in the country. Some of the leading players include Amway, Tupperware, Oriflame and Herbalife.

Curbing unauthorised sales

Deepak Chhabra, MD, Tupperware India, said: “For a long time now, direct selling industry has borne the brunt of a few spoilt apples and these unauthorised and unlawful players who have earned a bad name for the entire sector. Steps like these will work for the interest of honest and ethical direct selling players who have worked tirelessly to clear the clutter and bring in transparency.” He added that some more stringent and enforceable clauses are required to curb unauthorised sales of products of direct selling companies on e-commerce.

Rajat Banerjee, Vice-Chairman, Indian Direct Selling Association, added that the industry body has been closely working with the Ministry over the years and the rules are a step in the right direction. “This will help formalise the direct selling industry in the country and bring in regulatory clarity,” he added.

COMMENT NOW