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The government has made it illegal for the direct selling industry to promote pyramid and money circulation schemes.

The Union government has banned companies like Amway from marketing pyramid schemes or enrolling people in them under the guise of pursuing direct-selling business on Tuesday.

The consumer affairs ministry also forbade such sellers from participating in money circulation schemes, notifying the Consumer Protection (direct selling) regulations and ordered them to comply with the rules within three months after they have been published in the Official Gazette.

"These rules shall apply to all goods and services purchased or sold through direct selling, all models of direct selling, all direct-selling entities offering goods and services to consumers in India, all forms of unfair trade practises across all models of direct selling, and also to a direct selling entity not established in India but offering goods or services to consumers in India," the ministry said in a statement.

"This will aid in the prevention of Ponzi schemes in both the financial and consumer markets, as well as provide some consumer protection."

"There are several established genuine enterprises that could be impacted by this rule, and accurate interpretation of the laws would be vital for their operation going forward," according to Dhanraj Bhagat, partner at Grant Thornton Bharat LLP.

The proposed restrictions were applauded by Indian Direct Selling Association Chairman Rajat Banerji, who is also the vice-president of corporate relations for Amway India. "For the past two years, we have been closely engaging with the government and providing our thoughts. The new rules have our full support. These new laws would also offer clarity to the marketplace and give a boost to an industry that already employs over 7 million Indians, with more than half of them being women."

The Consumer Protection (e-Commerce) Rules, 2020 will apply to direct sellers as well as direct-selling businesses who use e-commerce platforms to market their products.

"The state government is responsible for enforcing the rules." Every state must establish a method to monitor or regulate the actions of direct sellers and direct selling firms in order to ensure compliance with these rules, according to the statement.

Direct-selling companies must now be formed in India and have at least one physical presence in the country as their registered office. They will be responsible for any complaints arising from the sale of goods or services by its direct sellers, and will be required to provide information on return, refund, exchange, warranty and guarantee, delivery and shipment, payment methods, grievance redressal mechanisms, and any other information that consumers may require in order to make informed decisions.

"The grievance redressal officer acknowledges receipt of any consumer complaint within 48 working hours of receipt of such complaint and redresses the complaint normally within one month of receipt of the complaint; in the event of a delay of more than a month, the reasons for the delay, as well as the actions taken on the complaint, are informed to the complainant in writing," according to the statement.

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