The erstwhile Consumer Protection Act, 1986 and the rules and regulations framed thereunder (the "CPA 1986") were formulated with a view to protect the interests of the consumers and prescribed a mechanism for settlement of consumer disputes.
With the dynamics revolving around buying and selling of products and services changing rapidly in light of advancement in technology and increasing use of e-commerce, there was a dire need to suitably amend and update the laws pertaining to consumer protection in India. Accordingly, on August 06, 2019, the Parliament of India passed the landmark Consumer Protection Bill, 2019, with the objective of providing timely and effective administration of both consumers and sellers, taking into account modern advancements in the mediums of commerce. The Consumer Protection Act, 2019 (the "CPA 2019") was published in the official gazette of India on August 09, 2019. However, the provisions of the CPA 2019 did not immediately come into effect.
On July 15, 2020, the Ministry of Consumer Affairs, Food and Public Distribution (the "Ministry"), through the Department of Consumer Affairs (the "DCA"), issued a notification appointing July 20, 2020 as the date from which certain provisions of the CPA 2019 shall come into effect. Thereafter, on July 23, 2020, the Ministry through the DCA issued another notification, appointing July 24, 2020 as the date from which the remaining provisions of the CPA 2019 shall come into effect (the July 15, 2020 and July 23, 2020 notifications, collectively the "Enforcement Notifications"). Effectively, by virtue of the Enforcement Notifications, all the provisions of the CPA 2019 have now been notified and are effective. The CPA 2019 amends and replaces the CPA 1986 in its entirety.
Further, for the purposes of preventing unfair trade practices in e-commerce, direct selling and also to protect the interest and rights of consumers, the CPA 2019 allows the Central Government to take such measures as may be required1. Pursuant to the aforesaid powers, the Central Government has notified the Consumer Protection (E-Commerce) Rules, 2020, on July 23, 2020 (the "E-Commerce Rules").
2. CHANGES BROUGHT ABOUT BY THE CPA 2019
Some of the major overhauls that have been brought forth in the CPA 2019 read with the E-Commerce Rules have been provided below:
2.1. Providing more teeth to e-commerce transactions
Although the provisions of CPA 1986 were deemed comprehensive enough to also apply to e-commerce entities, there were no specific provisions in this respect under CPA 1986. The CPA 2019 defines 'ecommerce' as the buying or selling of goods or services including digital products over digital or electronic network, which is further categorised into marketplace and inventory-based models of e-commerce. This definition is aligned with the present definition of 'e-commerce' under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the "NDI Rules"). It is important to note that the CPA 2019 defines 'services' to include, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information. Accordingly, among other platforms, platforms providing services such as ride-hailing and hospitality may also be governed by the provisions of CPA 2019 and the E-Commerce Rules, if such services are provided for a fee.
A variety of welfare-oriented provisions have been implemented by the E-Commerce Rules by imposing duties and liabilities on: (i) e-commerce entities – both marketplace-based (the "Marketplace Entities") and inventory-based; and (ii) the sellers on Marketplace Entities. We have categorized the impact on these entities in further detail below:
2.1.1. E-commerce entities
All e-commerce entities are required to be incorporated in the form of a company under the Companies Act, 2013 or a foreign company or an office, branch or agency outside India owned or controlled by a person resident in India. It may be worthwhile to note that the E-Commerce Rules also apply to an e-commerce entity which is not established in India, but systematically offers goods or services to consumers in India, thereby expanding the scope of applicability of these rules to foreign owned e-commerce platforms. All e-commerce entities are required to comply with a host of obligations, including the following2:
- Unfair trade practise: E-Commerce entities are required to refrain from any unfair trade practice3, whether in the course of business on its platform or otherwise. In this context, unfair trade practice refers to such trade practice which adopts any unfair method or unfair or deceptive practice for the purpose of promoting the sale, use or supply of any goods or for the provision of any service. Such practices may include: (a) manipulating the price of goods or services offered on the e-commerce platform in such a manner so as to gain unreasonable profit; (b) making arbitrary classification of consumers to offer discounts; (c) publishing misleading representations concerning the characteristics of products; (d) refusing to take back or withdraw defective goods or deficient services and refusing to refund the consideration; or (e) disclosing to third parties any personal information given in confidence by the consumer unless such disclosure is made in accordance with the provisions of applicable law (this may also lead to consequences under the Information Technology Act, 2000 (the "IT Act") and its corresponding Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011). Considering that the definition of 'unfair trade practices' includes a host of practices/ actions pertaining to a buy and sale transaction, e-commerce entities need to be careful about any statement, information or representation about a product being sold through their platforms.
- Level playing field: E-commerce entities can neither manipulate the price of the goods or services offered on its platform in such a manner as to gain unreasonable profit, nor discriminate between consumers of the same class or make any arbitrary classification of consumers. This is in line with the NDI Rules which state that e-commerce entities providing marketplace shall not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. The aspect of ensuring a level playing field by the e-commerce entities is further reinforced by the fact that the obligations of the e-commerce entities to maintain a level playing field is not only vis-à-vis the sellers on their platform, but also the consumers who purchase goods or avail services through their platform.
- Grievance redressal: E-commerce entities are required to establish an adequate grievance redressal mechanism and appoint a grievance officer for consumer grievance redressal in a time efficient manner. This may however lead to some anomaly in the manner of resolving the grievances of the consumers, as even the sellers operating on the Marketplace Entity's platform are required to establish a similar grievance redressal mechanism. This may potentially lead to a situation of passing the buck and shirking of responsibility amongst the seller and the e-commerce entity. It would be beneficial if the Ministry comes up with adequate clarifications in this respect in order to distinguish the circumstances under which a consumer would have recourse to the grievance redressal mechanism of the seller and of the e-commerce entity, as currently, these aspects remain unanswered.
- Cancellation charges: E-commerce entities are prohibited from imposing cancellation charges on consumers who choose to cancel their order after confirming purchase unless similar charges are also borne by the e-commerce entity, if they cancel the purchase order unilaterally for any reason. To this end, the e-commerce entities (specifically, Marketplace Entities) may need to enter into back to back arrangements with the seller under the terms of contracts with the sellers, vis-a-vis the cancellation terms offered to the consumers, so that such e-commerce entities are able to recover such charges from the sellers, in the event the cancellation was necessitated due to defaults on the part of the seller or the seller's inability to supply such products or services.
- Affirmative consent: E-commerce entities must only record the consent of a consumer for the purchase of any goods or service offered on its platform where such consent is expressed through an explicit affirmative action, and no such consent should be recorded automatically, including in the form of pre-ticked checkboxes. This draws special attention to the aspect of 'suggested products' or 'you may also want to buy' options which are provided by e-commerce platforms to the consumers with pre-ticked check boxes on those products, to lure consumers into buying such products in the course of placing their orders. With the introduction of these obligations, the e-commerce entities may not be allowed to bundle such products automatically with pre-ticked options other than for the products specifically opted for by the consumer.
- Payment methods: E-commerce entities are required to effect all payments towards accepted refund requests of the consumers as prescribed by the Reserve Bank of India or any other competent authority within reasonable timelines and furnish exhaustive information on available payment methods, the security of those payment methods, any fees or charges payable by users, the procedure to cancel regular payments under those methods, charge-back options, if any, and the contact information of the relevant payment service provider. In this regard, the actual processing of the refund within the required time frame shall be the duty of the seller. The e-commerce entity's role shall stand restricted to facilitating the refund and returns process and effecting payments for accepted refunds (by the seller) in accordance with the guidelines of the Reserve Bank of India. This is also in line with the provisions contained in the NDI Rules.
1. Please refer Section 94 of CPA 2019.
2. Please refer Rule 4 of E-Commerce Rules.
3. Please refer Section 2(47) of CPA 2019.
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