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NRAI’s suggested changes to e-commerce rules focus on food delivery platforms like Zomato and Swiggy

The NRAI reasoned that Zomato and Swiggy fall under the ambit of the rules by citing the platforms’ FDI funds and their recent moves to enter the grocery delivery market. 

The National Restaurant Association of India (NRAI), which represents over 5 lakh restaurants across India, appreciated the proposed amendments to e-commerce rules and suggested some modifications such as holding entities with significant market power responsible and not just ones that hold the dominant position, making restaurant-ranking policy clearly visible, disallowing promotions through loyalty programmes like Zomato Gold and Swiggy Super, and preventing the use of information collected on behalf of restaurants for the private gain of the platforms.

Background: The government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The changes include new rules to address abuse of FDI regulations, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, restrictions on promotions, fall-back liability, among other things.

Read: Summary of the proposed amendments to E-Commerce Rules, 2020

Why it matters? In addition to covering platforms like Amazon and Flipkart, the proposed rules cover online food delivery services like Zomato and Swiggy as well. While many stakeholders have submitted feedback concerning the former, NRAI’s submissions offer a different insight into the rules. NRAI recently asked the Competition Commission of India to look into the anti-competitive practices of Zomato and Swiggy.

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What NRAI submitted?

Zomato, Swiggy covered under the rules: While the broad definition of e-commerce entities in the rules appears to capture food delivery platforms, this category isn’t explicitly mentioned anywhere in the rules. To avoid any confusion as to whether they are covered or not, NRAI submitted that Zomato and Swiggy fall under the purview of the proposed rules for the following reasons:

  • Since these platforms enable buying and selling of food over a digital or electronic network, specifically by providing “a facility to search, compare, and order food from various restaurants,” they “fall squarely” under the rules.
  • Since these platforms are funded by Foreign Direct Investments, they are required to operate as marketplace e-commerce entities, which are covered under the proposed rules.
  • These platforms are also getting into grocery and logistics delivery, “which makes them a clear marketplace model.”
  • Food aggregators are also covered under the Consumer Protection Act, 2019 as service providers under the definition of “electronic service provider”.

Hold those with significant market power responsible, not just entities that hold the dominant position: One of the proposed rules state that an e-commerce entity that holds a dominant position must not abuse this position. NRAI submitted that in the dynamic digital market, gatekeepers, which are entities that have substantial and significant market power, possess “the same potential to disrupt the market and pass on the ultimate harm to end-consumers” as dominant entities. In view of this, the rule must be modified to state that “No e-commerce entity which holds a significant market power in any market shall be allowed to cause an appreciable adverse effect on competition in the market,” NRAI submitted.

“For example, Swiggy and Zomato are the only two major e-commerce entities in the market for online food-aggregators platform with a cumulative market share of almost 100%. They are in a position to adversely influence the market dynamics by entering into unilateral agreements with restaurant partners which results in non-accrual benefits to ultimate consumers. This is also a market reality which is currently taking place. However, they would go hands-free for their abusive conduct, because stricto sensu they may not qualify as a dominant entity under Section 4 of the Act.” — NRAI

Restaurant-ranking policy must be made visible to consumers: Alleging that food delivery platforms favour certain restaurants over others in search rankings by giving preferences to restaurants that have agreements with the platform or that offer higher discounts or that provide higher commissions to the platforms, NRAI submitted that a “clear, concise and easily comprehensible restaurant ranking policy, back-end algorithm/basis” must be made visible on the website to allow consumers to make a diligent choice.

Promotions through schemes like Zomato Gold and Swiggy Super must not be allowed: One of the proposed rules states that e-commerce entities cannot use their name or brand for the promotion of goods sold on the platform “in a manner so as to suggest that such goods or services are associated with the marketplace e-commerce entity.” Citing this rule, NRAI submitted that it should also apply to the promotions offered by food delivery platforms through schemes like “Zomato Gold” and “Swiggy Super.”

Information collected must not be used for private gain: NRAI alleged that food aggregators like Zomato and Swiggy use information collected on behalf of their restaurant partners to start private labels or to provide insight to select restaurants with whom they have agreements. In light of this, NRAI submitted that a rule must be added stating that “the information must not be used for the purpose of private gain by these marketplace e-commerce entities or any other company which is affiliated in any manner (directly or indirectly), through shareholding (direct or through some other group companies, control or otherwise).” NRAI also submitted that information collected should not be used for the unfair advantage of “any person having any shareholding or control or affiliation including, but not limited to, through its employees or relatives.”

No surrogate promotions: One of the proposed rules state that “no marketplace e-commerce entity shall advertise a body of sellers for the purpose of subsidizing a sale on its platform.” NRAI submitted that this should not just cover advertisements but also “surrogate promotions such as directly or indirectly promoting exclusivity through reduced commissions, better terms etc.”

Company should also be made liable along with CCO: The rules require e-commerce platforms to appoint a Chief Compliance Officer (CCO) who is responsible for ensuring compliance with the rules and is liable for failure to do so. NRAI submitted that the company should also be made liable for any violation of the rules and strong penalty provisions must be introduced to address these violations.

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Appoint an Ombudsman to adjudicate upon complaints: NRAI submitted that food delivery platforms must appoint an Ombudsman who would adjudicate upon complaints filed by customers as well as restaurants.

Details on any differentiated treatment must be made clearly visible: NRAI submitted that all details regarding preferential or differentiated treatment given to any sellers, such as ranking certain restaurants higher in the search ranking, must be displayed prominently on the e-commerce platform’s search results page so that consumers can identify them and make informed choices.

Also Read (feedbacks submitted by other stakeholders)

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