By Stella Joseph, Prakhil Mishra, and Yash Desai
The Government of India circulated proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020 (“E-Commerce Rules”) which were notified in June last year. Each of the amendments suggested in the draft rules has far-reaching implications on various aspects including how related parties and associated enterprises are regulated and banned from offering the products on the e-commerce entities’ website, the ban on flash sales, or the ‘fall-back liability’ clause sought to be imposed on the e-commerce entity.
Further, some of the proposed amendments seem to regulate areas that are already regulated by other rules such as the FDI Policy, Competition Act, and data protection regulations. In this context, it is important to note Section 100 of the Consumer Protection Act, 2019 which provides that the provisions of the Act (which would include the Rules made thereunder) shall be in addition to and not in derogation of the provisions of any other law for the time being in force.
One will also have to see whether the ultimate objective of the CPA i.e. “protection of the interests of consumers” can be read to be so elastic so as to even cover aspects that are typically governed by other legislation.
The proposed changes also have a far-reaching impact on the basic business models of certain e-commerce entities and even connected entities such as related parties, associated enterprises (very broadly defined), entities fulfilling orders for such e-commerce entities, and logistics partners, ultimately threatening the very existence and viability of some of these entities.
In this context, it may also be deliberated upon whether the proposals survive the test of proportionality, and if they are seen to be violative of the fundamental right of business and profession for such entities guaranteed under Article 19(1)(g).
The analysis below captures the critical proposals, certain areas of ambiguities, and their overall impact, should these be enacted in the proposed form.
Definition of E-commerce Entity
Proposed amendment: Rule 3(b): “e-commerce entity” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, including any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform and any ‘related party’ as defined under Section 2(76) of the Companies Act, 2013, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity.”
- The definition is proposed to be amended to make it broad enough to bring within its ambit a “related party” as entities that are also engaged by an e-commerce entity for the fulfilment of orders.
- The implication of considering all such entities also as an “e-commerce entity” for the purposes of the E-Commerce Rules will have to be seen. It requires clarification on exactly how such entities need to undertake obligations cast on e-commerce entities under the E-Commerce Rules such as the requirement to display details on websites.
Proposed amendment: Rule 3(c): “Cross-selling” means sale of goods or services which are related, adjacent or complimentary to a purchase made by a consumer at a time from any ecommerce entity with an intent to maximise the revenue of such e-commerce entity.
An e-commerce entity which is engaged in cross-selling of goods or services shall provide adequate disclosure to its users displayed prominently in a clear and accessible manner on its platform:
(a) Name of the entity providing data for cross-selling
(b) Data of such entity used for cross-selling
- It is unclear which entity has been referred to under Rule 5(12). It could either be the seller of the goods or the e-commerce entity itself.
- Further, the type of data, alongside its parameters, which are required to be disclosed is also unclear.
Proposed amendment: Rule 3(d): “Fall back liability” means the liability of a marketplace e-commerce entity where a seller registered with such entity fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act 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.
A marketplace e-commerce entity shall be subject to a fall-back liability where a seller registered on its platform fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act 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.
- This rule appears to be against the popular legal maxim Nemopunitur pro alieno delicto i.e. “No one is to be punished for the crime or wrong of another ”.
- E-commerce entities may need to re-visit their contractual agreements with the respective sellers and arrange for an indemnity clause, with regards to the potential liabilities that may arise.
Proposed amendment: Rule 3(e) “Flash sale” means 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.
Provided such sales are organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.
Rule 5(16): No e-commerce entity shall organize a flash sale of goods or services offered on its platform.
- From the plain reading of Rule 5(16), it appears that there is a general ban on flash sales.
- However, the recent clarification via a press release, dated June 21, 2021, provided that, only specific flash sales or back-to-back sales, which limit customer choice, increase prices, and prevent a level playing field will be disallowed. The government will not seek disclosure of other flash sales from e-commerce companies.
- Specific clarifications should be built into the language of the draft rules.
Proposed amendment: Rule 3(k) “mis-selling” means an e-commerce entity selling goods or services by deliberate misrepresentation of information by such entity about such goods or services as suitable for the user who is purchasing it.
Rule 5(11): No e-commerce entity shall indulge in mis-selling of goods or services offered on its platform.
- Mis-selling is prohibited and it bolsters the intention of the rules, which seeks to protect the customers from deceptive practices.
- However, the provisions mostly require a “deliberate” or “positive” act on part of the e-commerce entity resulting in mis-selling.
- It thus would become crucial to keep sufficient documentary evidence indicating the absence of any mala fide intention or acts on part of the e-commerce entity to avoid liability under this provision.
Registration of E-Commerce Entities
Proposed amendment: Rule 4 (1) Every e-commerce entity which intends to operate in India shall register itself with the Department for Promotion of Industry and Internal Trade (DPIIT) within such period as prescribed by DPIIT for allotment of a registration number. Provided that the DPIIT may extend the period for registration of such e-commerce entity for sufficient reason, to be recorded in writing.
(2) Every e-commerce entity shall ensure that such registration number and invoice of everyday order is displayed prominently to its users in a clear and accessible manner on its platform.
- Every e-commerce entity is mandated to directly register itself with the Department for Promotion of Industry and Internal Trade (DPIIT).
- It is unclear whether this is a straightforward approval process or if the entity seeking registration will be subjected to any scrutiny or procedure.
- In addition to e-commerce entities, its related parties and associated parties may be subject to this Rule and accordingly, would be required to obtain the said registration, which results in added compliance for the group.
- It is the duty of the e-commerce entity to ensure the visibility and accessibility of the registration number to the users. [A user is any person who can access or avail any computer resource of an e-commerce entity].
- By the effect of this proposed provision, a foreign entity, who does not have a physical presence in India, but systematically sells goods in India, may also be required to obtain registration (being covered within the scope of the rules).
Proposed amendment: Rule 5(4): No e-commerce entity shall allow any display or promotion of misleading advertisement whether in the course of business on its platform or otherwise.
- The ambit of this clause is broad. The literal interpretation of “on its platform or otherwise” would likely bring online and offline channels of promotion and advertisement within its ambit.
Proposed amendment: Rule 5(5)
E-commerce entity is required to:
- appoint a Chief Compliance Officer who shall be responsible for ensuring compliance with the Act and rules made thereunder and shall be liable in any proceedings relating to any relevant third-party information, data or communication link made available or hosted by that e-commerce entity where he fails to ensure that such entity observes due diligence while discharging its duties under the Act and rules made there under:
Provided that no liability under the Act or rules made thereunder may be imposed on such e-commerce entities without being given an opportunity of being heard.
- appoint a nodal contact person for 24×7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions made in accordance with the provisions of law or rules made thereunder.
- Appoint a “Resident Grievance Officer”
- Grievance redressal mechanism of e-commerce entity:
(a)The e-commerce entity shall prominently publish on its website, mobile-based application, or both, as the case may be, the name of the Grievance Officer and his contact details as well as mechanism by which a user may make a complaint against violation of the provisions of this rule or any other matters pertaining to the resources and services made available by it on its platform, and the Grievance Officer shall –
(i) receive and acknowledge any order, notice or direction issued by the Appropriate Government, any competent authority or a court of competent jurisdiction.
- This rule is comparable to The Information Technology (Intermediary Guidelines And Digital Media Ethics Code) Rules, 2021 (“IT Rules”). The issue of the appointment of a Resident Grievance Officer has recently seen disagreements between the government and Twitter, and the issue may subsist for the purposes of the E-Commerce Rules as well.
Sale of imported goods and promotion of domestic goods
Proposed amendment: Rule 5(7)
Where an e-commerce entity offers imported goods or services for sale, it shall:-
(a) mention the name and details of any importer from whom it has purchased such goods or services, or who may be a seller on its platform;
(b) identify goods based on their country of origin, provide a filter mechanism on their e-commerce website and display notification regarding the origin of goods at the pre-purchase stage, at the time of goods being viewed for purchase, suggestions of alternatives to ensure a fair opportunity for domestic goods;
(c) provide ranking for goods and ensure that the ranking parameters do not discriminate against domestic goods and sellers.
- The underlying intention of this amendment appears to be the promotion of domestic goods and sellers over similar foreign goods/sellers, by ensuring visibility of alternatives. It attempts to ensure that the domestic goods are separately demarcated from the goods of foreign origin.
- The government has gone a step ahead by ensuring that the e-commerce entities provide alternatives to foreign goods, by way of displaying similar alternatives of domestic goods to the purchaser, at the pre-purchase stage.
- The ranking mechanism adopted by an e-commerce entity should not be biased towards domestic goods/sellers.
- The above proposals, if implemented, will involve the cumbersome task of information gathering for e-commerce entities. It is ideal that clear parameters are laid down to limit the subjectivity and any case of arbitrariness on part of the authorities while enforcing the rules.
Fair practices, sale of Co-associated goods/services, data privacy
Proposed amendment: Rule 5(14)
No e-commerce entity shall –
(c) mislead users by manipulating search result or search indexes having regard to the search query of the user;
(d) 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;
(e) make available any information pertaining to the consumer to any person other than the consumer without the express and affirmative consent of such consumer, no such entity shall record such consent automatically, including in the form of pre-ticked checkboxes;
(f) 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.
- The proposed amendment attempts to prohibit the offer of company-branded [E-commerce marketplace entity] goods or services. It prohibits the usage of the name/brand of an e-commerce entity to be associated with the goods/services sold on the e-commerce entity marketplace. [Eg: AmazonBasics, Amazon Brand – Solimo].
- The proposed clause (e) is broadly defined as it is not clear what type of information is intended to be covered by this clause.
- Further, there also seems to be an overlap on this subject vis-à-vis Data Protection regulations.
Proposed amendment: Rule 5(15): Every e-commerce entity shall ensure that sponsored listing of products and services are distinctly identified with clear and prominent disclosures.
- The rule attempts to ensure that the sponsored products/services are clearly identifiable by the consumers, in order to enable them to make an informed decision at the pre-purchase stage.
Abuse in Position
Proposed amendment: Rule 5(17) No e-commerce entity which holds a dominant position in any market shall be allowed to abuse its position.
Clause “abuse of dominant position” shall have the same meaning as prescribed under Section 4 of the Competition Act, 2002.
- This proposal is required to be appreciated in the context that the surge of e-commerce is built on the back of huge discounts offered, which cannot be matched by brick and mortar retailers, due to its significantly lower financial prowess.
- There is also an overlap of regulations and results in parallel avenues under consumer protection laws and the competition laws, to adjudicate on matters involving similar issues. This may result in a multiplicity of litigation for e-commerce entities before different authorities.
Sharing of information with Government Agencies
Proposed amendment: Rule 5(18) Every e-commerce entity shall, as soon as possible, but not later than seventy two hours of the receipt of an order, provide information under its control or possession, or assistance to the 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.
- The said rule is broad enough to encompass all the laws which are in force for the time being. It is comparable to the IT Rules 2021.
Display of brands
Proposed amendment: Rule 5(19) Every e-commerce entity shall display clearly and prominently in its invoice the name of the seller in the same font size as that of the e-commerce entity’s name
- The proposed rule would have the effect of bringing parity in terms of positioning of the name of an e-commerce entity with that of the sellers who are offering goods on the platform of such an e-commerce entity so that consumers are better informed.
Proposed amendment: Rule 6(5)
No logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.
Provided that each logistics service provider of a marketplace e-commerce entity shall provide a disclaimer including terms and conditions governing its relationship with sellers on the marketplace e-commerce entity platform, a description of any differentiated treatment which it gives or might give between sellers of the same category.
- The proposed rule appears to be contradictory to the proviso thereto. While the main clause prohibits any differentiated treatment between sellers of the same category by the logistics service provider, the proviso in a manner permits the same by requiring such differentiated treatment to be disclosed on the website of the e-commerce entity. It requires clarification if such differentiated treatment is altogether banned or permitted subject to necessary disclosures.
- Further, the meaning of “sellers of the same category” may also be clarified since while two sellers may broadly sell the same product, they may otherwise be differentiated in terms of other parameters such as geography, scale, frequency, etc. A disclosure to this extent may be viewed to violate the commercial rights of such logistics providers to keep commercially sensitive information private.
Related Parties, Associated Enterprises
Proposed amendment: Rule 6(6)
Every marketplace e-commerce entity shall—
(a) ensure that it does not use any information collected through its platform for unfair advantage of its related parties and associated enterprises;
(b) ensure that none of its related parties and associated enterprises are enlisted as sellers for sale to consumers directly;
(c) ensure that nothing is done by related parties or associated enterprises which the e-commerce entity cannot do itself;
- This rule is one of the most far-reaching proposals under the draft rule. The rule can ultimately involve tracing and understanding the complex web of ownership existing amongst prominent e-commerce marketplace entities as well as the sharing of consumer-related information amongst them.
- The definition of “associated enterprise” as incorporated under the proposed rules is unique in terms of its wide ambit, unlike the existing definitions under domestic legislation such as the GST laws or even the definition of the term that has been adopted globally. It will palpably bring within its ambit alpha sellers like Cloudtail, Appario, RetailNet, who are, in terms of their specific ownership structure, otherwise permitted to offer goods for sale on the e-commerce website in terms of the existing FDI norms.
- Under this far-reaching proposal, such alpha sellers will be barred from selling on the e-commerce website, which will impact the significant volume of sales on the website and may ultimately lead to an increase in prices for the consumers – a move contrary to the very consumer interests that the CPA and the Rules intend to safeguard.
Sale to sellers
Proposed amendment: Rule 6(7): No marketplace e-commerce entity shall sell goods or services to any person who is registered as seller on its platform
- This rule may ban the transactions happening between an e-commerce entity and the sellers registered on such a platform. For instance, AmazonBasics products [batteries, blankets, etc] are sold by Cloudtail (registered seller) on behalf of Amazon Brand on Amazon.in (marketplace e-commerce entity). Such a practice is likely to get impacted.
Stella Joseph (Partner), Prakhil Mishra (Associate), and Yash Desai (Associate) are lawyers from Economic Laws Practice, Mumbai. The views of the authors are strictly personal.