Compliance guide · updated for the 2021 Rules

Direct selling rules in India,
explained.

A plain-English guide to how direct selling and MLM are regulated in India: what the rules require, what they prohibit, and how the right software helps you stay compliant.

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How the law evolved

From advisory guidelines to binding rules.

The 2016 guidelines set out the principles. The Consumer Protection (Direct Selling) Rules, 2021 made direct selling regulation binding under the Consumer Protection Act, 2019.

  1. Direct Selling Guidelines

    Model framework issued by the Ministry of Consumer Affairs as guidance for state governments.

  2. Consumer Protection Act

    New consumer law covering unfair trade practices and e-commerce, with power to make direct selling rules.

  3. Direct Selling Rules

    Consumer Protection (Direct Selling) Rules, 2021 notified on 28 December 2021.

  4. Your obligations

    Direct selling entities and sellers must follow the 2021 Rules and related consumer law.

The key test

Legitimate direct selling vs a pyramid scheme.

The single most important question: does income come from selling real products to real customers, or from recruiting people?

Legitimate direct selling

  • Income comes from genuine sales of goods and services
  • No fee to join, register or renew
  • Written contract with clear terms
  • Cooling-off period and buy-back of unsold goods
  • Honest information about earnings

Pyramid or money circulation

  • Income comes mainly from recruiting new members
  • Entry fees or forced purchases to join
  • Guaranteed or fixed returns on "investment"
  • Little or no real product being sold
  • Pressure to recruit before you earn

Read more: How to spot an illegal pyramid scheme · Why to avoid MLM investment plans

Core provisions

Five principles every business must follow.

These principles run through both the 2016 guidelines and the 2021 Rules, and they shape how compliant MLM software has to work.

No pyramid schemes

Pyramid and money circulation schemes are prohibited, with clear definitions to stop fraudulent structures.

Written contracts

Every direct seller works under a written contract with all material terms defined.

Cooling-off period

Direct sellers can cancel participation without penalty within a set period.

Buy-back policy

Unsold, marketable goods can be returned on reasonable terms.

Grievance redressal

A complaint mechanism with tracking and resolution timelines is mandatory.

Obligations

What a direct selling entity must do.

Based on the 2016 guidelines. The 2021 Rules carry these principles forward with some changes, so check the current text for exact requirements.

  • Registered legal entity

    Incorporated and documented under Indian law.

  • Mandatory orientation

    Fair, accurate information on every aspect, including the remuneration system.

  • Buy-back guarantee

    Under the 2016 guidelines: full refund within 30 days of distribution to sellers.

  • Physical office

    An identified office in the state for consumer support and grievances.

  • Up-to-date website

    Products, income plan and complaint redressal details published.

  • Identity documents

    Branded ID cards for every direct seller.

  • Seller registry

    Verified proof of address, identity and PAN for every seller.

  • Clean background

    No criminal convictions for promoters or management in the last 5 years.

Strictly prohibited

Direct selling entities must not:

  • Misleading, deceptive or unfair recruiting practices
  • False claims about potential sales or earnings
  • Entry, registration or renewal fees for direct sellers
  • Benefits paid for recruiting or enrolling new participants
  • Pyramid schemes or money circulation schemes
  • Fraud, coercion, harassment or unconscionable conduct
How our software helps

Compliance features, mapped to the rules.

Our MLM platform is built with these requirements in mind, so the records and processes regulators expect are already in place.

Written contracts

Digital contracts

Contract management with material terms defined and signed digitally.

Seller records

Seller register & KYC

Automated register with verified KYC, PAN, address proof and activity history.

No pyramid structures

Product-based payouts

Remuneration logic driven by product sales, not by recruitment.

Cooling-off · buy-back

Cooling-off & buy-back

Tracks cooling-off windows and manages returns and refunds.

Grievance redressal

Grievance management

Complaints logged with unique numbers, escalation and resolution tracking.

Transparency

Audit-ready reporting

Transaction logs, income reports and audit trails on demand.

Our role: technology partner

SoftBuilders provides software with built-in compliance tools, transparency features and automated reporting.

Your responsibility: full compliance

The direct selling entity is solely responsible for making sure its business model, compensation plan and operations follow the law.

Consumer protection

Grievances and seller conduct.

Grievance redressal 2016 guidelines

  • A committee of at least 3 officers of the entity
  • Handles complaints from consumers and direct sellers
  • Every complaint tracked with a unique number
  • Resolved within 45 days of a website complaint
  • Accepted by phone, email, website, post and in person

Direct seller conduct

  • Carry an identity card at all times
  • No customer visits without an appointment
  • Truthfully identify themselves and their company
  • Give accurate product and price information
  • Explain the return policy before any sale
Key definitions

Terms you'll see in the rules.

Direct seller

A person appointed by a direct selling entity through a written contract to undertake direct selling on a principal-to-principal basis.

Direct selling entity

An entity, not engaged in pyramid schemes, that sells or offers goods and services through direct sellers.

Network of direct selling

Direct sellers at different levels who may recruit further levels, including multi-level marketing distribution.

Pyramid scheme

A multi-layered network where subscribers benefit from enrolling others rather than from selling goods or services. Prohibited.

Remuneration system

The compensation system, which must come from the sale of goods and services, not from recruiting participants.

Cooling-off period

The period during which a direct seller can cancel the agreement without penalty for breach of contract.

Official documents

Read the source text.

Always rely on the official text. Check the Department of Consumer Affairs for any later amendments.

Current · Gazette of India

Consumer Protection (Direct Selling) Rules, 2021

Gazette notification dated 28 December 2021 · PDF · 1.5 MB

Open PDF
Act

Consumer Protection Act, 2019

The parent law covering unfair trade practices and consumer rights · PDF · 1.2 MB

Open PDF
Historical

Direct Selling Guidelines, 2016

The earlier model framework for state governments · Web page

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