India: Views On The Proposed Amendments To Consumer Protection (E-Commerce) Rules, 2020 – AnantLaw

India:

Views On The Proposed Amendments To Consumer Protection (E-Commerce) Rules, 2020

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.

PART 1

A. Rationale, Objectives and Intended Outcome of the E-Commerce
Consumer Rules, 2020

1. 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”.

2. 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.

3. 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.

4. 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

5. Applicability:
   1. 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.
   2. 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.
   3. 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.

6. 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:

   1. 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.
   2. 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.
   3. 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.
   4. 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.
   5. 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.
   6. Very specific amendments have been proposed with respect to
      appointment of Chief Compliance Officer, Nodal Contact Person for
      24×7 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“).

7. Duties and Liabilities of Marketplace E-Commerce
   Entities
   1. 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.
   2. 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.
   3. 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.
   4. 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.

8. Duties of Sellers on Marketplace E-Commerce
   Entities
   1. 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.
   2. 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.
   3. 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.
   4. 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.

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Footnotes

1. https://egazette.nic.in/WriteReadData/2019/210422.pdf

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

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.

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