The emergence of global supply chains, rise in international trade and the rapid development of E-Commerce have led to new delivery systems for goods and services and have provided new opportunities for consumers. The E-Commerce Sector in India ("E-Commerce Sector") has been the backbone in the fight against the Covid-19 pandemic and it was because of this sector that the basic needs of the people could be met with. On the other hand, the development of the E-Commerce Sector has rendered the consumer vulnerable to new forms of unfair trade and unethical business practices and violation of personal data and information secrecy. Misleading advertisements, tele-marketing, multi-level marketing, direct selling, flash sales and e-tailing pose new challenges to consumer protection.
For redressal of such issues, the Consumer Protection Act, 2019 ("Consumer Act / Act") came into effect on 20 July, 2020 replacing the almost three decades old previous Consumer Protection Act, 1986 ("Erstwhile Act"). The Consumer Act also ensured to bring the E-Commerce Sector under its structured umbrella.
The introduction of the Consumer Protection (E-Commerce) Rules, 2020 on 23 July 2020 ("E - Commerce Consumer Rules / Rules") was intended to make a paradigm shift in the regulation of the E-Commerce Sector. However, recently the Government of India ("GOI") through the Ministry of Consumer Affairs, Food and Public Distribution (Department of Consumer Affairs) ("Ministry of Consumer Affairs") has felt the need to seek views / comments / suggestions on the proposed amendments to the Consumer Rules ("Proposed Amendment") because of multiple complaints being received against widespread cheating and unfair trade practices. The new draft proposes a host of changes such as:
- Mandatory registration requirements for online retailers;
- Greater scrutiny of flash sales;
- Enhanced liability of E-Commerce Entities;
- A stronger grievance redressal mechanism.
We appreciate the endeavours and intent of the GOI, as it has clearly recognised the urgency for reforms in the E-Commerce Sector. We hereby submit our views and observations with respect to E-Commerce Rules and more particularly to the Proposed Amendments. Our views and observations with respect to the Proposed Amendment are structured in two parts.
The First part discusses the existing framework of the E-Commerce Consumer Rules and the intent behind introducing such rules.
The Second part encapsulates our recommendations and suggestions to the Proposed Amendment.
A. Rationale, Objectives and Intended Outcome of the E-Commerce Consumer Rules, 2020
- The Consumer Act defines 'E-Commerce' under Section 2(16)1, as "buying or selling of goods or services including digital products over digital or electronic network".
- Furthermore, Section 94 of the Act allows the central government to regulate the unfair trade practices and protect / secure the rights of the consumers. Additionally, Section 101 (2) (zg) of the Act provides the central government to formulate rules by notification in furthering the objectives of Section 94 of the Act.
- The E-Commerce Consumer Rules were notified by the GOI on 23 July 2020. The E-Commerce Consumer Rules were framed under the Consumer Act to regulate all E-Commerce activities and transactions. The E-Commerce Consumer Rules have sought to govern all such E-Commerce activities by laying down duties and liabilities to be adhered to by E-Commerce Entities, marketplace for E-Commerce Entities, sellers on marketplace, and inventory E-Commerce Entities.
- The E-Commerce Consumer Rules are made applicable to (i) an E-Commerce Entity operating in India and also (ii) an E-Commerce Entity which 'systematically offers' goods and services to consumers in India. The Rules are expected to deter the E-Commerce Companies from indulging in unfair trade practices while protecting the rights of the consumers at the same time.
B. Salient Features of the E-Commerce Consumer Rules, 2020
- The E-Commerce Consumer Rules 2020 apply to all goods and services bought or sold over the digital or electronic network including digital products. However, they do not apply to any activity carried out in personal capacity not being part of any professional or commercial activity undertaken on a regular or systematic basis.
- Interestingly, E-Commerce Consumer Rules 2020 are also applicable to an E-Commerce Entity which is not established in India, but systematically offers goods or services to consumers in India. This would mean that the E-Commerce Rules 2020 would apply to both local and international E-Commerce Entities irrespective of where they are established.
- No amendments have been proposed with respect to this section of the E-Commerce Consumer Rules. However, as the Consumer Act does not envisage a specific section regarding its extraterritorial application, the E-Consumer Consumer Rules seems to apply to E-Commerce Entities situated outside India as well.
- Duties of E-Commerce Entities:
Entity2 means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce but does not include a seller offering his goods or services for sale on a marketplace E-Commerce Entity. In the Proposed Rules the definition is extended to include within its ambit any "related party" as defined under Section 2(76) of the Companies Act, 2013. The Rules provide for certain conditions which the E-Commerce Entities are required to comply with which are set out below:
- Nodal Officer: The Rules require an E-Commerce Entity to appoint a nodal person of contact or an alternate senior designated functionary who is a resident in India, to ensure compliance with the provisions of the Consumer Act or the Rules. The Rules do not, however, set out any qualifications of such nodal officer.
- Disclosure of Information: An E-Commerce Entity is required to provide the following information on its platform: (i) its legal name; (ii) principal address of its headquarters and all branches; (iii) name and details of its website; (iv) contact details of customer care as well as of grievance officer; and (v) details of the importer or seller of imported goods and services. This ensures that the customer has full disclosure of the E-Commerce Entity thereby reducing cases of fraud.
- Grievance Redressal: An E-Commerce Entity is required to establish a grievance redressal mechanism and to appoint a grievance officer for consumer grievance redressal. While this is a welcome move to protect the consumer's interest, it may be a challenge for small / micro businesses operating as E-Commerce Entities as it can increase the overall cost to set up such a mechanism.
- No manipulation of price: Further, an E-Commerce Entity is also prohibited from manipulating the price of the goods or services offered on its platform in such a manner as to gain unreasonable profit by imposing on consumers any unjustified price having regard to the prevailing market conditions. However, it remains unclear as to what constitutes price manipulation.
- Cancellation Charges and Consent of Consumers: An E-Commerce Entity is prohibited from imposing cancellation charges on consumers after confirming the purchase unless such charges are also borne by the E-Commerce Entities upon unilateral cancellations. Again, while such a move is quite welcome it may not be entirely feasible across the broad spectrum. It is recommended that the Rules should clarify or provide an exception for cancellation charges on consumers who cancel the order once it has been shipped by the E-Commerce Entity for certain cases. For instance, a grocery focussed platform or a food delivery service, having an order cancelled after perishable products are shipped for delivery, would be unable to recover the costs and may also be unable to penalise irresponsible consumer behaviour.
- Very specific amendments have been proposed with respect to appointment of Chief Compliance Officer, Nodal Contact Person for 24x7 coordination with law enforcement, establishment of Grievance Redressal Mechanism of E-Commerce Entity, prohibition with regard to mis-selling of goods or services, cross-selling of goods or services, abuse of dominant position, disclosure of relevant information, providing necessary information to government agency, prevention and detection of cyber security incidents. Interestingly, some of the proposed amendments such as appointment of Chief Compliance Officer etc. are similar to the new notified rules which have come into force i.e. Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021 ("IT Rules, 2021"). Additionally, keeping in mind the increasing number of cases of E-Commerce Giants obstructing competition laws in India, the proposed amendments also made an effort to reprimand E-Commerce Companies who are in violation of the Competition Act ("Competition Act").
- Duties and Liabilities of Marketplace E-Commerce
- Marketplace E-Commerce Entity3 means an E-Commerce Entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers. There are no amendments proposed to the definition of 'Marketplace E-Commerce Entity' in the Proposed Amendments.
- Every marketplace E-Commerce Entity is required to disclose and display information about the sellers offering goods and services on its platform including information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, and grievance redressal mechanism, for enabling the consumers to make informed decisions.
- The Rules require E-Commerce Platforms to publish a significant amount of information in a clear and accessible manner. The information requirements vary for inventory-based Platforms and marketplace Platforms, with the latter being required to publish information, including the country of origin of goods. However, the Rules are conspicuously silent on how this will be assessed, especially for assembled goods, repackaged goods, or goods manufactured in one country, under licence, by an entity in another country.
- Further, marketplace E-Commerce Entities are also required to display, inter alia, terms and conditions generally governing its relationship with sellers on its platform. Importantly, the Rules require a marketplace E-Commerce Entity to include in its terms and conditions governing its relationship with the sellers a description of any differentiated treatment which it gives or might give between goods and services or sellers of the same category.
- Duties of Sellers on Marketplace E-Commerce
- The Rules prohibit the sellers from adopting any unfair trade practice, representing themselves as consumers to post product reviews and misrepresenting the quality or features of any goods or services offered by them.
- The Rules impose obligations on sellers against representing themselves as consumers, posting reviews about goods or services, or misrepresenting their quality, along with back-to-back information disclosure obligations, including on pricing, mandatory notices and expiry dates, country of origin, details of goods and services, exchange, returns and refunds, shipping details, guarantees of authenticity or genuineness of imported goods, and other guarantees or warranties under applicable law.
- The obligations of Platforms with respect to appointing grievance officers, prohibitions, and restrictions with respect to returns and false advertising, also extend to sellers. Considerations mentioned above on these issues would also be relevant for sellers. While the large institutional sellers may still be able to put these in place, these conditions may prove onerous for small sellers.
- And also, the obligation on the sellers to provide the country of origin of the goods might be tricky in the case of assembled goods and the agency model of E-Commerce.
2. Rule 3(b) of the E-Commerce Consumer Rules
3. Rule 3 (g) of the E-Commerce Consumer Rules, Rule 3 (j) of the Proposed Amendment
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