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Govt bans direct selling entities from pyramid schemes and promoting money circulation schemes

Direct selling entities will have to comply with these rules within ninety days

Govt bans direct selling entities from pyramid schemes and promoting money circulation schemes
New Delhi, First Published Dec 28, 2021, 7:58 PM IST
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The central government on Tuesday came out with new guidelines with regard to direct selling companies, which sell products and services directly to consumers away from fixed retail locations. Unlike traditional retail where goods are sold online or at stores, direct selling depends massively on sales personnel who deal with customers at home, workplace, online and other non-store locations.

The government order states that entities involved in direct selling -- the mode which is used by global brands and firms to market products and services to consumers --  will have to comply with these rules within ninety days. The direct selling entities using e-commerce platforms for sale and direct sellers will have to comply with Consumer Protection (e-Commerce) Rules, 2020.

Going forward, direct selling entities and direct sellers will be prohibited from promoting a pyramid scheme or enrolling any person in such scheme or participating in such arrangement by any means on the pretext of doing direct selling business. They have also been barred from participating in money circulation schemes.

The rules provide for monitoring by the state ensure compliance with these rules by direct selling entities and direct sellers, every state government to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.

The rules impose a range of obligations on direct selling entities. These include incorporation under the Companies Act, 2013, registration under the Partnership Act, 1932, if in a partnership firm and registration under the Limited Liability Partnership Act, 2008 if in a limited liability partnership. They also need to have at least one physical location as a registered office within the country. 

The direct selling entities have further been told to give a self-declaration that it is complying with the provisions of the direct selling rules and not involved in any pyramid scheme or money circulation scheme. (Detailed list of obligations can be accessed HERE)

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