The Central Government had notified the Consumer Protection (E-Commerce) Rules, 2020 ("Rules") with effect from 23 July 2020. However, since the notification of the Rules, the Government received several representations from aggrieved consumers, traders and associations complaining against widespread cheating and unfair trade practices being observed in the e-commerce ecosystem.
Prevalence of such unfortunate incidents has negatively impacted the consumer and business sentiment in the market, causing immense distress and anguish to many. This led to the Government proposing amendments to the Rules ("Proposed Amendments") in order to protect the interest of the consumers. The Proposed Amendments were available on the website of Department of Consumer Affairs for views / comments / suggestions till 6 July 2021 which was extended by the Government till 21 July 2021. The Proposed Amendments are yet to be implemented.
The Rules apply to: (a) all goods and services bought or sold over digital or electronic network including digital products; (b) all models of e-commerce, including marketplace and inventory models of e-commerce; (c) all e-commerce retail, including multi-channel single brand retailers and single brand retailers in single or multiple formats; and (d) all forms of unfair trade practices across all models of e-commerce.
The Rules also apply to an e-commerce entity which is not established in India, but systematically offers goods or services to consumers in India.
New definitions proposed to be added to the Rules in terms of the Proposed Amendments
The Rules provide certain new definitions such as -
- Cross-selling – which means sale of goods or services which are related, adjacent or complimentary to a purchase made by a consumer at a time from any ecommerce entity with an intent to maximise the revenue of such e-commerce entity;
- Fall back liability - which means the liability of a
marketplace e-commerce entity where a seller registered with such
entity fails to deliver the goods or services ordered by a consumer
due to negligent conduct, omission or commission of any act by such
seller in fulfilling the duties and liabilities in the manner as
prescribed by the marketplace e-commerce entity which causes loss
to the consumer.
This amendment goes against the philosophy of a popular legal maxim "Nemopunitur pro alieno delicto" that is no one is to be punished for the crime or wrong of another. E-commerce entities may need to recalibrate their contractual agreements with the sellers and have protective clauses in place (such as indemnity), in terms of any potential liabilities that may arise. Any amendment related to 'fall-back liability' in the Rules needs to be considered in a wholesome manner.
- Flash sale - which means a sale organized by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw large number of consumers. Provided such sales are organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.
- Mis-selling - which means an e-commerce entity selling goods or
services by deliberate misrepresentation of information by such
entity about such goods or services as suitable for the user who is
Mis-selling requires a "deliberate" or "positive" act on part of the e-commerce entity. Thus, it would be of vital importance to keep sufficient documentary evidence indicating the absence of any malafide intention or acts on part of the e-commerce entity to avoid liability under this proposed provision.
Further, the definition of "e-commerce" has also been broadened in its scope and includes "any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform and any related party as defined under section 2 (76) of the Companies Act 2013".
Additional compliances and requirements of an e-commerce entity and a marketplace e-commerce entity in terms of the Proposed Amendments
- Registration of e-commerce entities - The Proposed Amendments provide that every e-commerce entity which intends to operate in India shall register itself with the Department for Promotion of Industry and Internal Trade ("DPIIT") within such period as prescribed by DPIIT for allotment of a registration number. Every e-commerce entity shall ensure that such registration number and invoice of everyday order is displayed prominently to its users in a clear and accessible manner on its platform. This was not the case earlier and increases compliances for the e-commerce entity irrespective of its size and number. Further, it is unclear whether this is a straightforward approval process or if the entity seeking registration will be subjected to any scrutiny or procedure. In addition to e-commerce entities, its related parties and associated parties may be subject to this registration requirement, and accordingly, would be required to obtain the said registration, which results in added compliance for the group which could be a draconian ask.
- Appointment of a Chief Compliance Officer and Grievance
Redressal method – While the Rules only provide for the
appointment of a Grievance officer for consumer grievance
redressal, the Proposed Amendments go a step further and provide
for an elaborate system of checks. In terms of the Proposed
Amendments, every e-commerce entity is required to establish an
adequate grievance redressal mechanism having regard to the number
of grievances ordinarily received by such entity from India, and is
- appoint a Chief Compliance Officer who shall be responsible for ensuring compliance with the Consumer Protection Act, 2019 ("Act") and Rules and shall be liable in any proceedings relating to any relevant third-party information, data or communication link made available or hosted by that e-commerce entity where he fails to ensure that such entity observes due diligence while discharging its duties under the Act and Rules. The "Chief Compliance Officer" may be a managerial personnel or such other senior employee of an e-commerce entity who is a resident and citizen of India;
- appoint a nodal contact person for 24x7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions made in accordance with the provisions of law or rules made thereunder. The "nodal contact person" may be an employee of an e-commerce entity, other than the Chief Compliance Officer, who is resident in India and a citizen of India;
- appoint a "Resident Grievance Officer", who shall, be an employee of the e-commerce entity, and shall be a resident and a citizen of India;
- The e-commerce entity is also required to provide a grievance redressal mechanism which it shall prominently publish on its website, mobile based application or both, as the case may be. It shall also provide the name of the Grievance Officer and his/her contact details as well as mechanism by which a user may make complaint against violation of the provisions of this rule or any other matters pertaining to the resources and services made available by it on its platform, and the Grievance Officer shall receive and acknowledge any order, notice or direction issued by the Appropriate Government, any competent authority or a court of competent jurisdiction.
- Imported goods on offer – While the Rules provide for a
simple clause on imported goods and requirements of having the name
and details of the importer on such imported goods, the Proposed
Amendments go a step further and provide that where an e-commerce
entity offers imported goods or services for sale, it shall:
- mention the name and details of any importer from whom it has purchased such goods or services, or who may be a seller on its platform;
- identify goods based on their country of origin, provide a filter mechanism on their e-commerce website and display notification regarding the origin of goods at the pre-purchase stage, at the time of goods being viewed for purchase, suggestions of alternatives to ensure a fair opportunity for domestic goods;
- provide ranking for goods and ensure that the ranking parameters do not discriminate against domestic goods and sellers.
- Information for cyber security incidents – While such a requirement is not present in the Rules, the Proposed Amendments provide that every e-commerce entity shall, as soon as possible, but not later than 72 (seventy two) hours of the receipt of an order, provide information under its control or possession, or assistance to the Government agency which is lawfully authorised for investigative or protective or cyber security activities, for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cyber security incidents.
- Partner in National Consumer Helpline - It has become mandatory within these Proposed Amendments for each and every e-commerce entity to become a partner in the convergence process of the National Consumer Helpline of the Central Government whereas previously it was on a best effort basis.
- Display name of seller in invoice - The Proposed Amendments requires an e-commerce entity to clearly and prominently display in its invoice the name of the seller in the same font size as the name of the e-commerce entity.
- Sponsored listing of products - The Proposed Amendments require every e-commerce entity to ensure that sponsored listing of products or services are distinctly identified with clear and prominent disclosures.
- Cross-selling of goods or services - The Proposed Amendments require an e-commerce entity which engages in cross-selling of goods or services to provide adequate disclosure to its users in regards to (i) name of the entity providing data for the purpose of cross-selling; and (ii) data of such entity used for cross-selling, on its platform in a clear and accessible manner.
- Best before date - The Proposed Amendments require every e-commerce to prominently display on its platform the "best before" or "use before date" of the product.
- Logistics service provider of a marketplace e-commerce entity -
No logistics service provider of a marketplace e-commerce entity
shall provide differentiated treatment between sellers of the same
category. Provided that each logistics service provider of a
marketplace e-commerce entity shall provide a disclaimer including
terms and conditions governing its relationship with sellers on the
marketplace e-commerce entity platform, a description of any
differentiated treatment which it gives or might give between
sellers of the same category. Logistics service provider shall be a
company engaged in the business of providing any one or more
services, which include rail/road/sea/air transportation, air
cargo, cargo consolidation, ware housing, Inland Container depot,
cold chain services, port terminal services or any other such
services for the goods and services sold on any marketplace
ecommerce entity platform.
The proposed rule appears to be contradictory to the proviso thereto. While the main clause prohibits any differentiated treatment between sellers of the same category by the logistics service provider, the proviso in a manner permits the same by requiring such differentiated treatment to be disclosed on the website of the e-commerce entity. It requires clarification if such differentiated treatment is altogether banned or permitted subject to necessary disclosures. Further, the meaning of "sellers of the same category" needs clarification since while two sellers may broadly sell the same product, they may otherwise be differentiated in terms of other parameters such as geography, scale, frequency, etc. A disclosure to this extent may be viewed to violate the commercial rights of such logistics providers to keep commercially sensitive information private.
- Ban on enlisting Related parties1 and Associated enterprises2 as sellers for sale directly to consumers or to do acts which the e-commerce entity cannot do itself - This rule is one of the most far-reaching proposals under the Proposed Amendments as it can ultimately uncover the intricate web of ownership existing amongst prominent e-commerce marketplace entities as well as the sharing of consumer-related information amongst them. This amendment, if implemented, will tangibly bring within its ambit alpha sellers like Cloudtail, Appario, RetailNet, who are, in terms of their specific ownership structure, otherwise permitted to offer goods for sale on the e-commerce website in terms of the existing foreign direct investment norms. Under this far-reaching proposal, such alpha sellers will be barred from selling on the e-commerce platform, which will have an effect on the substantial volume of sales on the platform and may eventually lead to an increase in prices for the consumers – a move contrary to the very consumer interests that the Act and the Rules intend to safeguard.
- No marketplace e-commerce entity shall sell goods or services to any person who is registered as seller on its platform. Such an amendment shall impose restrictions on transactions between an e-commerce entity and the sellers registered on its platform. For instance, AmazonBasics products are sold by Cloudtail (registered seller) on behalf of Amazon Brand on Amazon.in (marketplace e-commerce entity). Such practices across the board are likely to get impacted once this amendment is implemented.
- No marketplace e-commerce entity shall advertise a body of sellers for the purpose of subsidizing a sale on its platform.
- A marketplace e-commerce entity shall be subject to a fall-back liability where a seller registered on its platform fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity which causes loss to the consumer.
Prohibited activities in terms of the Proposed Amendments
In terms of the Proposed Amendments, an e-commerce entity cannot undertake the following activities:
- indulge in mis-selling of goods or services offered on its platform;
- mislead users by manipulating search results or search indexes having regard to the search query of the user;
- permit usage of the name or brand associated with that of the marketplace e-commerce entity for promotion or offer for sale of goods or services on its platform in a manner so as to suggest that such goods or services are associated with the marketplace e-commerce entity. Basically, this amendment will prohibit the usage of the name/brand of an e-commerce entity to be associated with the goods/services sold on the e-commerce entity marketplace. For instance - AmazonBasics, Amazon Brand – Solimo;
- allow any display or promotion of any advertising that may be misleading in nature either in the course of its business on its platform or otherwise;
- make available any information pertaining to the consumer to any person other than the consumer without the express and affirmative consent of such consumer, no such entity shall record such consent automatically, including in the form of pre-ticked checkboxes;
- use information collected by marketplace e-commerce entities, for sale of goods bearing a brand or name which is common with that of the marketplace e-commerce entity or promote or advertise as being associated with the marketplace e-commerce entity, if such practices amount to unfair trade practice and impinges on the interests of consumers.
- organize a flash sale of goods or services offered on its platform. Having said that, the Government issued a press release on 21 June 2021 clarifying that conventional e-commerce flash sales are not banned however, only specific flash sales or back-to-back sales which limit customer choice, increase prices and prevents a level playing field are not allowed.
- No e-commerce entity which holds a dominant position in any market shall be allowed to abuse its position. The term "abuse of dominant position" shall have the same meaning as prescribed under Section 4 of the Competition Act, 2002. This proposal must be analysed in light of the surge of e-commerce which is built on the back of huge discounts offered, that cannot be matched by brick and mortar retailers, due to their considerably lower financial capability. There is also an overlap of regulations and results in parallel avenues under consumer protection laws and the competition laws, to adjudicate on matters involving similar issues. This may result in a multiplicity of litigation before different authorities for e-commerce entities which shall be counter-productive.
The Proposed Amendments, if implemented, will result in a drastic increase in compliances thereby placing greater responsibility on e-retailers and ensuring protection of consumer interests. However, a cause of concern is the 'one-size fits all' approach to the compliance mechanism which may pose more problems than it attempts to solve. A parallel may be drawn from the proposed EU law - Digital Markets Act, which seeks to regulate online platforms and services. In terms of the EU law, some of the online platforms have been classified as 'gatekeepers', which are companies that have a strong economic position, a significant impact on the internal market and a strong intermediation position (meaning that it links a large user base to a large number of businesses). These 'gatekeepers' have to fulfil greater procedural requirements so that fair play and healthy competition is maintained in the market. The problem with the Proposed Amendments is that smaller e-commerce retailers will also be unduly impacted by such burdensome compliances. Fulfilling such compliances will cost money and resources, and many e-commerce entities do not have such deep pockets, nor is it necessary to mandate them to meet such high compliance standards. Such regulatory obligations can also deter new players from entering the market and might even force certain companies to leave the market especially the smaller home grown brands thereby defeating the purpose of the "Made in India" initiative.
1. "Related parties" shall have the same meaning as assigned to it in section 2(76) of the Companies Act, 2013.
2. Two enterprises shall be deemed to be "associated enterprises", if- (a) enterprises are related to each other through a common chain of directors or managing partners; (b) enterprises are related to each other through a common chain of shareholders, where such shareholders hold not less than 5 per cent of the shareholding in the related enterprises; (c) enterprises having 10 per cent or more common ultimate beneficial ownership; (d) where one enterprise can exercise a right to veto any decision, appoint one or more director(s) or in any other manner influence other entity's decision making on any matter either through its shareholding or through an agreement including a shareholders' agreement; (e) where one enterprise holds, directly or indirectly, shares carrying the voting power in the related entities; (f) where any person or enterprise holds, directly or indirectly, shares carrying the voting power in the related entities; (g) there exists between the enterprises, any relationship of mutual interest, as may be prescribed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.