The Consumer Protection Act, 2019 (“Act”) received the assent of the President of India and was published in the official gazette on August 9, 2019. The Act came into force on July 20, 2020. It supersedes the three decade old Consumer Protection Act, 1986. In furtherance to the provisions of the Act1, the Ministry of Consumer Affairs, Food and Public Distribution, on July 23, 2020, notified the Consumer Protection (E-Commerce) Rules, 2020 (“Rules”) to prevent unfair trade practices in e-commerce and facilitate consumer welfare.
The below paragraphs set out an analysis of the Rules summarizing its applicability as well as certain duties and liabilities prescribed in the Rules.
Applicability of the Rules
Rules set out that they apply to: (a) all goods and services available over the digital or electronic network including digital products; (b) all models of e-commerce entity2 such as marketplace e-commerce entity3 and inventory e-commerce entity4; (c) all e-commerce retail like 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 do not apply to any activity of a natural person carried out in a personal capacity not being part of any ‘professional or commercial activity' undertaken on a regular or systematic basis. Further, the Rules have been expressly made applicable to an e-commerce entity which is not established in India but systematically offers goods and services to consumers in India. This aspect, however, leaves room for interpretation as to what would mean by ‘systematically'. For example, a foreign website selling goods with an option to ship its product around the world, including in India, but does not specifically or categorically offer the product to consumers in India, would such website also need to comply with the provisions of the Rules.
Duties of E-commerce Entities
Rules provide for certain conditions which the e-commerce entities are required to comply with which are set out below.
Corporate Entity: Rule 4(1) of the Rules sets out that an e-commerce entity shall be a corporate entity under the Companies Act 2013 (whether an Indian company or foreign company) or an office, branch or agency outside India owned or controlled by a person resident in India as provided in the Foreign Exchange Management Act, 1999. It is noteworthy that this provision is extremely restrictive and does not take into account any other form of a legal entity in India. It severely impacts enterprises operating as sole proprietorship, partnership or any other form of a recognised body corporate as they could potentially be restricted from operating an e-commerce platform for their goods and services. Given the current market situation, various micro businesses are coming online and not taking the route of a seller under a market place e-commerce entity. Such micro businesses are generally not set up in the form of a company and it would be relevant to determine whether such a micro business can fall within the ambit of an ‘e-commerce entity' or if they would have to rely on a marketplace e-commerce entity as a seller. Further, the Rules lack clarity with respect to applicability to B2B business, social media websites, digital products, digital services and agency model of e-commerce where the e-commerce entity merely acts as a facilitator between the buyer and the seller of goods or services. While the Rules are applicable to digital products, what constitutes ‘digital product' is uncertain.
Nodal Officer: The Rules require an e-commerce entity to appoint a nodal person of contact or an alternate senior designated functionary who is resident in India, to ensure compliance with the provisions of the 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 platform5: (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 required to establish a grievance redressal mechanism and 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.
Unfair Trade Practice: An e-commerce entity is prohibited from adopting any unfair trade practice whether in the course of business on its platform or otherwise. 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. For instance, food and taxi aggregators justify any increase or decrease in the price depending on the market demand, and the question arises is that could such an increase imply price manipulation in terms of the Rules.
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. For instance, such a stipulation can adversely affect the e-commerce entities offering perishable goods on their platform or services, for which costs have already been incurred. Further, at the very least the Rules should have clarified or provided an exception for cancellation charges on consumers who cancel the order once it has been shipped by the ecommerce entity for certain cases. Additionally, the Rules also bar an ecommerce entity from automatically recording consent of a consumer for purchase including in the form of pre-ticked checkboxes.
Duties and Liabilities of Marketplace E-commerce Entities
In addition to the duties relating to e-commerce entities, the Rules provide the marketplace e-commerce entities to ensure that sellers on their platform undertake that the description pertaining to the goods or services on their platform is accurate and corresponds directly with the general features of such goods or services. 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. 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 market place 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 Entities
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. Further, the sellers offering goods or services through a marketplace e-commerce entity cannot refuse to take back goods or discontinue the services purchased or agreed to be purchased, if such goods or services were defective or delivered late. The Rules also impose obligations on the sellers to appoint a grievance officer for consumer grievance redressal, to ensure that the advertisements for the goods and services are accurate and to disclose information to the e-commerce entity including price of the goods and services, expiry dates of the goods, country of origin of the goods and services, 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. However, the obligation on the sellers to provide country of origin of the goods might be tricky in case of assembled goods and agency model of e-commerce.
Duties of Inventory E-Commerce Entities
The duties and obligations of the inventory e-commerce entities are similar to those applicable to the sellers on marketplace e-commerce entities such as information disclosure obligations except country of origin of the goods and services. The inventory e-commerce entities are required to deliver their goods on time and to have to guarantee the authenticity of the goods, except if the late delivery was due to a force majeure event. The Rules further set out that the inventory ecommerce entity which vouches for authenticity or guarantees such authenticity in relation to the goods / services provided by it, are required to bear the appropriate liability in any action related to the authenticity of such good/service. It may be noted that in instances where the e-commerce entity is offering second hand products, it would be difficult to guarantee the genuineness and authenticity of the product.
It can be said that Rules aim to bring transparency and accountability in provision of information and disclosure by e-commerce platforms to consumers. Rules also seek to put a check and provide for disclosure on the practice of preferential treatment being accorded to some sellers reducing possibility of unfair trade practices by large sellers. With increase in ecommerce activity especially in present times, the Rules are a step to address consumer grievances and prescribe certain best practices for benefit of consumers.
However, there are many grey areas as well as discussed above. With several obligations to comply with, it might have an adverse impact on small businesses operating as an e-commerce entity. Given that non-compliance of the Rules would have penal provisions as set out in the Act, it could be an excessive deterrent for small business. Further, these Rules neither deal with consumer data protection nor storage of confidential information especially for ecommerce entities operating as payment aggregators. Aspects relating to enforceability of the provisions of the Rules to the foreign business also remain to be clarified given that handling a dispute involving a foreign entity may have territorial and jurisdictional constraints. A pre-defined procedure for resolving these types of disputes may be required. It remains to be seen if the government comes out with any clarification and allow for a bit more balance between consumer protection and commercial interests.
1 Section 94 and 101(1)(zg) of the Act
2 The Rules define ‘e-commerce entity' as “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”.
3 The Rules define ‘marketplace e-commerce entity' as “an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers”.
4 The Rules define ‘inventory e-commerce entity' as “an e-commerce entity which owns the inventory of goods or services and sells such goods or services directly to the consumers and shall include single brand retailers and multi-channel single brand retailers”.
5 The Rules define ‘platform' as “an online interface in the form of any software including a website or a part thereof and applications including mobile applications”.
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.