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Draft rules for e-commerce companies: Taking consumer law oversight One Step forward.

In the backdrop of increasing number of cases related to unfair practices in online markets, and insufficient regulatory oversight in e-commerce, some urgent action was required. Thus, the Ministry of Consumer Affairs recently proposed Amendments to the Consumer Protection (E-commerce) Rules, 2020 to tackle the growing instances cheating and unfair trade practices in e-commerce ecosystem and protect the interests of consumers and encourage free and fair competition in the market. The bill is aimed to bring transparency in e-commerce platforms and strengthen the regulatory regime.



The Department of Consumer Affairs is seeking views/ comments/ suggestions on these proposed amendments by 6th July 2021. The main highlights of the proposed amendments are as follows-


Definition of “e-commerce entity”

The definition of “e-commerce entity” has been widened to also include any entity engaged by such platforms for the purpose of fulfilment of orders placed by a user on its platform and any ‘related party’.

So, for the purpose of consumer protection act, the liability would also be extended to all the related parties that are vertically integrated to such platforms. For instance, Amazon has several preferred sellers like ‘Cloudtail India’ and ‘Appario Retail’, which are related to Amazon, post this amendment these will also be treated as an e-commerce entity and be subject to these rules.


‘Related party” and “associated enterprise”

Taking on from the DPIIT’s foreign direct investment policy for e-commerce marketplaces, parties and associated enterprises related to e-commerce companies will not be allowed to be enlisted as sellers on the respective platform. Any entity having 10 per cent or more common ultimate beneficial ownership or having the ability to influence other entity’s decision will be considered an “associated enterprise”. It shall also be ensured that the entity does not use any information collected through its platform for unfair advantage of its related parties and associated enterprises.

Also, E-commerce entities shall not 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. Similarly, no logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.

It shall be noted that, although these amendments seem to be helpful in eliminating preferential treatment to related sellers by the ecommerce entity (and vice-versa), it shall also be noted that total prohibition may be a little overreaching as it may prevent the entities to reap out benefits of their vertical integrations in the market, even if it doesn’t have any appreciable adverse effect on the market, and is allowed under competition law. For instance, a seller would not be allowed to offer its product on its related e-commerce party at a lower rate, even if there is some commercial advantage arising out of the vertical integration, in terms of reduced costs of advertising, logistics etc. by selling it on the related platform.


Flash Sales

It was observed that certain e-commerce entities were engaged in limiting consumer choice by indulging in “back-to-back” or “flash” sales. The bill recognizes “Flash sale” as 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. The problem with such modus-operandi is that, one seller selling on platform does not carry any inventory or order fulfilment capability but merely places such back-to-back order with another seller controlled by platform which as a result limits customer choice, increase prices and prevents a level playing field.

Thus, the bill proposes to ban such flash sales or back-to-back sales, that use technological means to fraudulently intercept the ordinary course of business, benefiting specified sellers to sell goods or services on its platform. Thus, the bona-fide conventional flash sales are not prohibited.

Akshay Hegde, co-founder and managing director of ShakeDeal, a B2B e-commerce and supply chain company stated that;

“Though the proposed changes say that conventional flash sales by third party sellers are not being targeted, there is a lot of grey area because of the intricate operating structures created by big e-commerce players, which enable them to circumvent restrictions on inventory control by them. Even if the proposed changes come into effect, unless there is clarification on this grey area, the intended fair and level-playing field will remain elusive.”

“Fall back liability”

The bill has also introduced “Fall back liability” of a marketplace e-commerce entity, in case the seller registered with such entity fails to deliver, due to negligent conduct 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. Thus, e-commerce platforms would not direct the consumers to the respective sellers to solve any grievance, rather consumers will be able to reach out to the platform itself.

It is one step ahead from the intermediary’s liability under the Consumer protection Act, as the seller is liable for a product liability claim if it has failed to exercise reasonable case in assembling, inspecting or maintaining the product or it did not follow the warnings or instructions for the product provided by the manufacturer while selling such product and such failure was the proximate cause of the harm caused to such product. But by imposing fall back liability, the e-commerce marketplace would be held liable even if the negligence was on the part of the seller.


Mis-selling

To protect the interests of consumers, mis-selling has been prohibited i.e selling goods and services entities selling goods or services by deliberate misrepresentation of information by e-commerce entities about such goods or services.

It is noticeable that, the interpretation of the term “Misrepresentation” here as also been widened to include-

  1. the positive assertion, in a manner not warranted by the information of any entity making it, of that which is not true;

  2. any display of wrong information, with an intent to deceive, gain an advantage to the e-commerce entity committing it, or any seller claiming under it; by misleading consumer to the prejudice of e-commerce entity, or to the prejudice of anyone claiming under it;

  3. causing, however innocently, a consumer to purchase such goods or services, to make a mistake as to the substance of the thing which is the subject of the purchase

The usage of words like “however innocently” makes it virtually impossible to escape the liability, and thus put heavy burden on the e-commerce platform to not just be cognizant while listing sellers on its platform, but also monitoring timely delivery by the seller for every transaction made on its platform.

Privacy of Consumer-data

E-commerce companies will also be restricted from making available to any person information pertaining to the consumer without express and affirmative consent. No entity shall record consent automatically, including in the form of pre-ticked checkboxes.

The bill also proposes to prohibit the e-commerce platforms to 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.

Grievance redressal mechanism

To strengthen the grievance redressal mechanism on e-commerce entities and ensure compliance of the Consumer Protection Act, the bill mandates appointment of Chief Compliance Officer, a nodal contact person for 24x7 coordination with law enforcement agencies, officers to ensure compliance to their orders and Resident Grievance Officer for redressing of the grievances of the consumers on the e-commerce platform.

The provisions also look to ask e-commerce companies to share information with a “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”.


Compulsory registration


The bill also proposes compulsory registration of every e-commerce entity with the Department for Promotion of Industry and Internal Trade (DPIIT). Such registration would help create a database of genuine e-commerce entities and ensure that the consumers are able to verify the genuineness of an e-commerce entity before transacting through their platform.


Fair and equal treatment

To ensure that the domestic manufacturers and suppliers get a fair and equal treatment on the e-commerce platform it has been provided that where an e-commerce entity offers imported goods or services, it shall incorporate a filter mechanism to identify goods based on country of origin and suggest alternatives to ensure fair opportunity to domestic goods. The e-commerce entity shall also provide ranking for goods and ensure that the ranking parameters do not discriminate against domestic goods and sellers.


Comment-

Although, these amendments are welcomed by some for bringing transparency in operations of e-commerce platforms and strengthen the regulatory regime, many legal experts have also criticized the proposed amendments to be over reaching. Pradeep S Mehta, Secretary General, CUTS International said, “The spirit of the consumer protection regime in India is to protect the end consumers and to that end provide a layman friendly legal process. But the proposed amendments, which include many elements of Platform-to-Business (P2B) and Business-to-Business (B2B) regulations, will add to the complexity and go against the spirit of the Consumer Protection Act.”

From competition law point of view, provided that there are ongoing investigations against the big e-commerce platforms by the Enforcement Directorate and the Competition Commission of India on concerns like ‘preferential treatment’ and ‘deep discounting’, the impugned proposal seems to come at a premature stage and should have waited for the findings of these investigations before take any further policy decisions.

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