Consumer protection earns consumer trust, making it one of cornerstones of a credible e-commerce marketplace in India. As appreciative as one may be about the efforts to curb fraudulent business practices, there is a glaring imbalance when protection of consumer interests are juxtaposed with industry interests and internationally accepted business practices.
With the advent of new trends in purchase and sales, a balance in consumer-seller policies and regulations would be achieved if fair business practices are upheld. To this end, many regulatory changes applicable to online businesses have been effected, but the ‘balance' quotient remains to be seen. One major change was the introduction of Consumer Protection (E-Commerce) Rules[Rules], under the Consumer Protection Act 2019, that came into force in 2020. While the other is the Draft Consumer Protection E-Commerce (Amendment) Rules, 2021 [Draft Rules], which seeks to amend the existing Rules to include certain changes. However, the latter has not been well-received by many industry players.
Duties & Liabilities Of Marketplace E-commerce Entities, E-Commerce Entities And Sellers On A Marketplace Under The Existing Rules
The Rules has also empowered the Central Government to protect consumers against any direct selling or unfair trade practices on these platforms. Let's now explore the new obligations introduced under the Rules:
- Duties of E-commerce Entities
As per Rule 4 of the Rules, e-commerce entities are required to inter alia ensure easy product returns, customer grievance redressal, etc. They are not allowed to levy cancellation charges on consumers who cancel after their purchase in confirmed, unless similar charges have also been borne by the e-commerce entity. Further, they are barred from engaging in manipulating any prices of goods or services offered on their platform, to gain unreasonable profit by imposing any unjustified price that does not correlate to prevailing market conditions.
- Liabilities of Marketplace E-commerce Entities
A marketplace e-commerce entity means “an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers”.1 According to Rule 5 of the Rules, these entities should ensure that all sellers should provide accurate descriptions, images, and other content pertaining to goods or services on their platform. It should match with the appearance, nature, quality, purpose and other general features of such good or service that is offered. The terms and conditions between the seller and the marketplace should include, a description of any differentiated treatment, which it gives or might give, between goods or services or sellers of the same category.
- Duties of Sellers on a Marketplace
According to Rule 6, sellers on marketplaces are not allowed to falsely present themselves as a consumer and post fake reviews about the goods and services or about the features or qualities of those goods and services. Furthermore, sellers cannot refuse to take back goods, or withdraw or discontinue services purchased or agreed to be purchased. They also cannot refuse to refund money if the goods or services sold are defective, or do not correspond to the qualities or features mentioned by the seller on the website, or if they are delivered later than the expected delivery date.
While some Rules uphold the sanctity of ethical practices, some would inevitably hike up costs for an online business to run its operations, including extra maintenance costs. Therein lies the imbalance of consumer interests and industry interests.
Changes Proposed Under The Draft Rules
The potential release of the Draft Rules will have wide implications on online businesses, inter alia including the restriction on the direct sale of an e-commerce entity's related parties. These Draft Rules aim to implement the following changes2:
- Registration of E-commerce Entities
There is mandatory registration of the e-commerce entity with the Department for Promotion of Industry and Internal Trade (DPIIT).
- New Definitions
The Draft Rules have introduced new definitions such as cross-selling, fall-back liability, flash sale and mis-selling. It has also made a change to the existing definition of an ecommerce entity to include any entity engaged for the purpose of fulfilment of orders placed by a user on its platform and any ‘related party'.
- Misleading Advertisements
There is a specific prohibition of any misleading advertisements on its platform.
- Grievance Redressal Mechanism
The following should be prominently published on its website, mobile-based application or both, as the case may be:
- the name of the Grievance Officer
- his contact details
- mechanism by which a user may make complaint against violation of the provisions or resources and services made available by it on its platform
Grievance Officer is to receive and acknowledge any order, notice or direction issued by the Appropriate Government, any competent authority or a court of competent jurisdiction.
- Resident Grievance Officer: This role is held by an employee of the e-commerce entity who is a resident of India.
- Chief Compliance Officer: A grievance redressal measure is to be set up by the ecommerce entities, headed by the CCO, who is either managerial personnel or a senior employee of the entity. He will be appointed to inter alia ensure that there is compliance with the Consumer Protection Act, 2019.
- Nodal Contact Person: The entity should appoint a nodal contact person who is to 24×7 coordinate with law enforcement agencies and officers. They are also to ensure compliance to their orders or requisitions made in accordance with the provisions of law or rules made thereunder.
- Mis-selling and Cross-selling
Mis-selling is “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 purchasing it”.3 While, Cross-selling means “sale of goods or services which are related, adjacent or complimentary to a purchase made by a consumer at a time from any e-commerce entity with an intent to maximise the revenue of such e-commerce entity”4. Mis-selling and Cross-selling are not permitted practises for e-commerce entities. Entities are also prohibited from manipulating search results or search indexes based on a user's search query.
- Flash Sales
Flash sales 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.”5 This has been expressly banned in the Draft Rules.
- Fallback Liability Clause
The Draft Rules states that “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.”6
- Abuse of Dominant Position
An e-commerce entity which holds a dominant position in any market is not allowed to abuse its position.
Industry Criticisms On The Balance Of Interests
There has already been pushback from many online businesses and government departments regarding these draft rules. Some of the objections by different stakeholders are given below:
- Unreasonable Ban on Flash Sales
Most of the criticism has been towards the ban of Flash Sales, which is actually an internationally-accepted practice among e-commerce entities. This was pointed out by the Australian Government while seeking clarity on “how fraudulent interception could be determined in practice, and what “technological means” might encompass.”7 They also mentioned “The Rules would impose unreasonable compliance costs and be particularly onerous for SMEs, which would likely have implications on competition and consumer choice in India,”8. In India, the Finance Ministry made several objections, among which with respect to flash sales it stated “This is a normal trade practice. The proposed restriction … seems without economic rationale,”9
- Unjustified Fall-back Liability Clause
The Draft Rules dictate that the marketplace e-commerce entity would be made liable in case a seller fails to fulfil the obligations. This was rightly objected by K Ganesh, entrepreneur and promoter, BigBasket, Portea Medical, HomeLane who said, “A mall owner cannot be held responsible for the defective product sold by the stores. They can at best ensure that the items sold online are legal and things like drugs, tobacco or alcohol are not sold on their platforms. Other than that specific product fall-back liability it is unfair to expect. It will get difficult for them to survive. Definitely they shouldn't be 100 percent absolved of liabilities, but things like deficiency of service or refund cannot be counted as their responsibility. If they start doing that, they become the seller themselves,“10 This clause is also counter-effective to the DPIIT's policy for foreign funding of e-commerce companies, that disallows these firms from having control over their inventory11. Since these marketplaces only connect the buyers and sellers, they do not hold control over inventory. So, holding them liable for non-delivery of a product or service is by far, unfair.
- Abuse of Dominant Position Clause Unnecessary
The Corporate Affairs Ministry objected to the clause on abuse of dominant position by stating that it is “unnecessary and superfluous, and that the subject was best handled by India's antitrust watchdog”. Adding to which, they said “it is undesirable to introduce a mini-competition law regime in the consumer”.12
In conclusion, if all the objections are constructively taken by the Ministry, the Draft Rules could potentially be a well-balanced framework. If on the contrary, the present Draft Rules are effected without any changes, it could result in the exit of many e-commerce giants from the sector. Which, in turn, could result in a serious economic blow to the country. However, recent assurance was given by Union minister Piyush Goyal on 3rd October 2021, stating, “The consumer rules around the e-commerce are under public consultation. I warmly welcome feedback from various stakeholders, but I have to protect everybody's interest and balance consumers' interest, e-commerce interests, retailers' interests; everybody's interest will be taken into consideration and a balanced and a very robust policy will be finalized.”
1 Section 3(g) of the Rules
3 Rule 3(k)
4 Rule 3(c)
5 Rule 3(e)
6 Rule 6(9)
12 Id n.9
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.