Rules 8 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rules 8 to 13 are the closing rules of the Direct Selling Rules. They bar certain persons from direct selling, apply the E-Commerce Rules to online sales, prohibit pyramid and money circulation schemes, ask each State Government to set up a monitoring mechanism, give priority to RBI regulations in case of inconsistency and apply the Act to any contravention.
This article takes the rules as amended up to G.S.R. 454(E) dated 21 June 2023, which changed rule 3 only. Later amendments should be checked on the website of the Department of Consumer Affairs.
A person who is convicted, or bankrupt during the last five years before joining, or of unsound mind, cannot be engaged in direct selling (rule 8). Direct selling over e-commerce platforms must follow the E-Commerce Rules (rule 9). Promoting a Pyramid Scheme or taking part in a money circulation scheme "in the garb of" direct selling is prohibited (rule 10). Every State Government must set up a monitoring mechanism (rule 11). RBI Act regulations prevail to the extent of inconsistency (rule 12). The Act applies to any contravention (rule 13).
Rule 8: persons not to be engaged
Rule 8 reads: "No person who is convicted, or bankrupt during the last five years prior to his association with the business of direct selling, or a person of unsound mind, shall be engaged in the business of direct selling."
Three categories are barred: (1) a person who is convicted; (2) a person who was bankrupt during the last five years before associating with the business; and (3) a person of unsound mind. The five-year words sit within the sentence in a way that can be read as qualifying "bankrupt" alone or both "convicted" and "bankrupt"; the rule prints no offence, no minimum sentence and no definition of unsound mind, so the exact reach of the "convicted" limb should be checked against the official text and the facts of the case.
The Explanation says "Bankrupt" has the meaning in clause (3) of section 79 of the Insolvency and Bankruptcy Code, 2016. Our posts on disqualifications and restrictions on a bankrupt discuss the Code's consequences of bankruptcy, though not rule 8 itself.
For a direct selling entity, rule 8 means a checking step before taking on a seller. The entity already verifies identity and address under rule 5(1)(i); a declaration from each applicant about conviction and bankruptcy is a sensible addition, though the rule does not prescribe one. A compliance advisory review can help set up the onboarding process.
Rule 9: online sales follow the E-Commerce Rules
"The direct sellers as well as the direct selling entities using e-commerce platforms for sale shall comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020." A direct seller who lists goods on a marketplace therefore has two sets of duties: the Direct Selling Rules and the E-Commerce Rules. For the E-Commerce Rules start with rules 1 and 2, then the marketplace and seller rules in the series, and the changes from 1 January 2027 in our account of the 2026 amendment. Rule 9 refers to the Rules as a whole; it does not say which version applies to which date, so the version in force on the day of the sale governs.
Rule 10: no Pyramid Scheme, no money circulation scheme
No direct selling entity or direct seller shall:
- (a) "promote a Pyramid Scheme or enroll any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing direct selling business"; or
- (b) "participate in money circulation scheme in the garb of doing direct selling business".
The definitions are in rule 3(1)(i) and (f). The prohibition applies to both entities and sellers and reaches enrolling a person into the scheme, which means a seller who recruits people into a pyramid arrangement is directly caught. The words "in the garb of" show that the ban targets schemes dressed up as direct selling. Our post on chit funds and Ponzi schemes explains the wider legal difference without reference to these rules.
An invented example: a company tells new members that they earn most by enrolling others and receive a bonus each time their recruits enrol more members, while the goods sold are an afterthought. That has the multi-layered enrolment structure the Pyramid Scheme definition describes, and rule 10(a) bars the company and any seller who promotes or joins it.
Rule 11: monitoring by State Governments
"For ensuring compliance of these rules by direct selling entity and direct sellers, every State Government shall set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entity." Rule 3(1)(l) says "State" includes a Union territory. The rule does not say what the mechanism is or which department runs it; that is for each State. State rules under section 102 are not covered in this article.
Rule 12: RBI regulations
"Where any regulation made under the Reserve Bank of India Act, 1934 is applicable to a direct selling entity governed under these rules, the provisions of such regulations shall prevail over the provisions of these rules to the extent of inconsistency." The rule names no regulation. A direct selling entity that takes deposits or offers credit as part of its business should check which RBI regulations apply to it.
Rule 13: contravention
"The provisions of the Act shall apply for any contravention of these rules." No penalty is stated in the rules; consequences come from the Act. For unfair trade practices in direct selling see section 94.
The six rules at a glance
| Rule | Subject | Key point |
|---|---|---|
| 8 | Persons not to be engaged | Convicted, bankrupt in the last five years before joining, or of unsound mind |
| 9 | E-commerce | E-Commerce Rules, 2020 apply to online sales by direct sellers and entities |
| 10 | Pyramid and money circulation schemes | Prohibited for entities and sellers |
| 11 | State monitoring | Each State Government to set up a mechanism |
| 12 | RBI regulations | Prevail to the extent of inconsistency |
| 13 | Contravention | The Act applies |
For the opening rules see rules 1 and 2; for consumer duties see rule 7.
Need help with direct selling restrictions?
If you are unsure whether your remuneration plan, onboarding checks or online sales meet rules 8 to 13, our compliance advisory team can review them.
Key takeaways
- Convicted persons, those bankrupt during the last five years before joining and persons of unsound mind cannot be engaged.
- Online sales follow the E-Commerce Rules.
- Pyramid and money circulation schemes in the garb of direct selling are prohibited.
- Each State must set up a monitoring mechanism.
- RBI regulations prevail where inconsistent; the Act applies to any contravention.
Read next
- Rule 3: definitions including pyramid scheme and network of sellers
- Rules 1 and 2: commencement and application
- Consumer Protection (E-Commerce) (Amendment) Rules, 2026
- Chit Fund vs Ponzi Scheme: Legal Difference
Disclaimer: Based on the rules, regulations and guidelines named above as published in the Gazette of India or on the CCPA website, with the amending notifications the article names (consulted on 3 October 2026). Later amendments, the Consumer Protection Act, 2019 provisions referred to, State rules and CCPA advisories should be checked. This article is general information, not legal advice; check the official text before acting.