Direct selling companies are not banned and the Company Secretaries (CS) are ready to hold the new responsibility entrusted to upon them by the central government.
We are well aware that with the changing business environment direct selling businesses were awaiting some reform in their supervision environment so that they can well protect themselves from some scrupulous business entity trying to defame the industry with their malpractices like Pyramid schemes or money circulation schemes.
Now to put an end to these practices government notified new rules
Earlier there were only guidelines for such direct selling entities Direct selling guidelines 2016
(Guidelines are recommendatory hence failed tremendously to give effective results
Later in 2021, we saw a rule
Draft Consumer Protection (Direct Selling) Rules, 2021: A much-awaited step towards regulating direct selling businesses came in July 2021.
On 28th December 2021 Centre notifies the Consumer Protection (Direct Selling) Rules, 2021.
The burning questions under these rules are what is Pyramid Scheme or money circulation which is prohibited and why?
MLM- multi-level marketing or we can say direct selling companies often lure people in several ways. Some are legitimate players whereas others are not
Have you ever heard Invest now and your money gets doubled in a month this is a classic example of a money circulation scheme that has spoiled life of so many innocent people?
Let’s understand this with an example we must have heard of some companies products that are not available in a general store rather they are generally sold through some agents like Amway products there is no harm in the practice of selling products through agents however there also some other players in direct selling which charm the buyer by asking them to join by paying some fees or buy the product to become an agent(where the product is just for namesake and the real intention is to make them members and ask them to recruit more people in lieu of some commission this structure looks like a pyramid.
Below is a diagram of a pyramid structure and money circulation.
This structure ensures the person at the top enjoys high earnings whereas the person lower to him is at the top person’s disposal. This at many times seen to be detrimental to consumers cum agents.
To usurp these malpractices government introduced the above scheme according to which no direct selling entities will promote a Pyramid scheme or money circulation scheme
One must keep in mind that direct selling companies and their direct sellers are not banned rather this rule provide ways and casts responsibility on both of them to work as per said rules without any dishonest practices. Companies that don’t sell any goods or services but merely the pyramid and money circulation scheme are banned 🚫
Key Points
The rules lay down duties and obligations of both direct selling entities and their direct sellers to “safeguard the interest of consumers’’.
The existing direct selling companies will need to ensure they comply with the rules within 90 days.
Both Direct sellers as well, as well as the direct selling entities using e-commerce platforms for sale, comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020.
Both Direct selling entity and direct sellers are prohibited from promoting Pyramid Scheme or money circulation scheme
Let’s us see, responsibility on CS which is prescribed in the above rules.
“5. Obligations of direct selling entity.-
(1) Every direct selling entity shall-
(g) get all information provided by it on its website duly certified by a Company Secretary.
Explanation-For the purposes of this clause, “Company Secretary” means a person as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 (56 of 1980);”
The notified rules are available on the website of the Ministry of Consumer Affairs Food & Public Distribution at the following link:
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