Consumer Protection (Direct Selling) Rules, 2021, A Step Towards Making Direct Selling Companies Accountable – Part III

This is part III of the series of three part blog posts on the relevance of making the direct selling companies accountable under the Consumer Protection (Direct Selling) Rules 2021 and providing relief to the consumers. This blog posts will discuss the obligation upon Direct Sellers laid down by the 2021 rules and the suggestions for the effective enactment and implementation of the Consumer Protection (Direct Selling) Rules 2021.

Part I of this series had dealt with the applicability of the 2021 rules and the obligations imposed on the direct selling entities regarding their management and conduct.

Part II of this series had dealt with the Grievance Redressal Mechanism and ways for the protection of the customers laid down by the 2021 rules.

The Rules provide for certain obligation upon Direct Sellers which have to be mandatorily followed by these direct sellers and are enumerated as follows : –
1. The direct sellers need to possess a prior written contract with the direct selling entity for undertaking the sale of any goods or services of such direct selling entity;

2. The direct sellers at the initiation of any sale representation of goods or services need to truthfully and clearly identify themselves and disclose the identity of the direct selling entity on behalf of whom they are selling the goods or service. The direct sellers also need to have complete details of the direct selling entity including but not limited to their address of place of business, the nature of goods or services sold and the purpose of such solicitation to the prospect consumer;

3. The direct sellers have to make an offer to the prospect only after providing accurate and complete information about the goods and services and also carry out the demonstration of goods and services, prices, credit terms, terms of payment, return, exchange, refund policy, return policy, terms of guarantee and after-sale service for the complete and informed decision by the consumer;

4. The direct sellers have to provide an order form to the consumer at or prior to the time of the initial sale, which shall identify the direct selling entity and the direct seller and shall contain the name, address, registration number or enrollment number, identity proof and contact number of the direct seller, complete description of the goods or services to be supplied, the country of origin of the goods, the order date, the total amount to be paid by the consumer, the time and place for inspection of the sample and delivery of goods, consumer’s rights to cancel the order or to return the product in saleable condition and avail full refund on sums paid and complete details regarding the complaint redressal mechanism of the direct selling entity;

5. The direct sellers have to obtain goods and service tax registration, Permanent Account Number registration, all applicable trade registrations and licenses and comply with the requirements of applicable laws, rules and regulations for sale of a product;

6. The direct sellers have to ensure that actual product delivered to the buyer matches with the description of the product given; they also have to take appropriate steps to ensure the protection of all sensitive personal information provided by the consumer in accordance with the applicable laws for the time being in force and ensure adequate safeguards to prevent access to, or misuse of, data by unauthorized persons.

7. Furthermore, the rules also lay down that a direct seller shall not: –

  • Visit a consumer’s premises without identity card and prior appointment or approval;
  • Provide any literature to a prospect, which has not been approved by the direct selling entity;
  • Require a prospect to purchase any literature or sales demonstration equipment;
  • In pursuance of a sale, make any claim that is not consistent with claims authorized by the direct selling entity.

8. The direct sellers as well as the direct selling entity have to ensure that the terms of the offer are clear, so as to enable the consumer to know the exact nature of offer being made and the commitment involved in placing any order;

9. The presentations and other representations used in direct selling shall not contain any product description, claim, illustration or other element which, directly or by implication, is likely to mislead the consumer;
10. The explanation and demonstration of the goods or services offered are accurate and complete, particularly with regard to price and, if applicable, to credit conditions, terms of payment, cooling-off periods or right to return, terms of guarantee, after-sales service and delivery;

11. The descriptions, claims, illustrations or other elements relating to verifiable facts are capable of substantiation;

12. Any misleading, deceptive or unfair trade practices are not used; Direct selling is not represented to the consumer as being a form of market research;

13. Direct selling shall not state or imply that a guarantee, warranty or other expression having substantially the same meaning, offers to the consumer any rights in additional to those provided by law, when it does not;

14. The remedial action open to the consumer shall be clearly set out in the order form or other accompanying literature provided with the goods or service;

15. The presentation of the offer does not contain or refer to any testimonial, endorsement or supportive documentation unless it is genuine, verifiable and relevant;

16. When after-sales service is offered, details of the service are included in the guarantee or stated elsewhere in the offer and if the consumer accepts the offer, information shall be given on how the consumer can activate the service and communicate with the service agent;

17. Unless otherwise stipulated in the offer, orders shall be fulfilled within the delivery date proposed to the consumer at the time of purchase and the consumer shall be informed of any undue delay as soon as it becomes apparent or comes within the knowledge of the direct selling entity or the concerned direct seller;

18. In cases of delay  any request for cancellation of the order by the consumer shall be granted, irrespective of whether the consumer has been informed of the delay, and the deposit, if any, shall be refunded as per the cancellation terms proposed to the consumer at the time of purchase, and if it is not possible to prevent delivery, the consumer shall be informed of the right to return the product at the direct selling company’s or the direct seller’s cost as per the procedure for return of the goods proposed to the consumer at the time of purchase;

19. Whether payment for the offer is on an immediate sale or installment basis, the price and terms of payment shall be clearly stated in the offer together with the nature of any additional charges such as postage, handling and taxes and, whenever possible, the amounts of such charges;

20. In the case of sales on the basis of an number of smaller installments, the amount and periodicity of such installments and the total price calculated after the payment of the installments when contrasted with the immediate selling price of the goods or services shall be displayed with the offer;

21. Any information needed by the consumer to understand the cost, interest and terms of any other form of credit is provided either in the offer or when the credit is offered;

22. Unless the duration of the offer and the price are clearly stated in the offer, prices shall be maintained for a reasonable period of time;

To ensure the protection of consumers, the rules lay down that a direct selling entity or direct seller shall not:

  1. Indulge in fraudulent activities or sales and shall take reasonable steps to ensure that participants do not indulge in false or misleading representations or any other form of fraud, coercion, harassment, or unconscionable or unlawful means;
  2. Engage in, or cause or permit, any conduct that is misleading or likely to mislead with regard to any material particulars relating to its direct selling business, or to the goods or services being sold by itself or by the direct seller;
  3. Indulge in mis-selling of products or services to consumers;
  4. Use, or cause or permit to be used, any fraudulent, coercive, unconscionable or unlawful means, or cause harassment, for promoting its direct selling business, or for sale of its goods or services;
  5. Refuse to take back spurious goods or deficient services and refund the consideration paid for goods and services provided;
  6. Charge any entry fee or subscription fee;
  7. The 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.

A few suggestions after the complete evaluation of the 2021 rules are as follows

  • Addition of ‘retailers’ in the ambit of “Direct Sellers”

The 2021 rules expressly exclude the retail shops from falling under the definition of direct sellers and hence they are not covered within the act. Therefore any direct selling entity can get away by portraying themselves as a retailer. This exclusion of retailers from the definition needs to be re-assessed to ensure that the liability is fixed on these sellers for their actions.

  • Inclusion of ‘promotional activities’ from “Direct Selling”

The rules mandate that the activity of selling must be from a principal to principal basis. This decreases the scope of the supervision by the authorities and any promotional activities fall outside the foray. The major consumer base is lured into these schemes on the basis of these promotional activities and hence there is an urgent need to include them within the definition to be adequately regulated.

  • Regulation of Insurance companies

The Insurance Companies are not covered under the rules because the benefit to the subscribers in these pyramid schemes is received only when the subscriber manages to enroll further subscribers and those further engage additional subscribers forming a chain. However, in the Insurance Industry the chain ends at the Insurance provider (agent) selling the insurance policy to the end consumer. There is no creation of an additional chain in this industry thereby leading to non fulfillment of the criteria laid down in the pyramid scheme. However, the behavior of certain insurance companies has been on similar fraudulent schemes as the pyramid schemes and hence there is a need to include them within the definition to be adequately regulated

The Consumer Protection (Direct Selling) Rules, 2021 are a much needed step in protecting these customers from fraudsters through supervision and transparency of these companies. The implementation strategies for these rules require a tactical approach with strong supervisory mechanisms.

Author: Shradha Pandey (intern)– a student of   Tamil Nadu National Law University (Tiruchirapalli), and Chhavi Pande – Sr. Associate Litigation  at Khurana & Khurana, Advocates and IP Attorney,  in case of any queries please contact/write back to us via email vidushi@khuranaandkhurana.com

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