Draft E-commerce (Amendment) Rules, 2021

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Draft E-commerce (Amendment) Rules, 2021

The Ministry of Consumer Affairs, Food and Public Distribution notified and made effective the provisions of the Consumer Protection (E-Commerce) Rules, 2020 (hereinafter referred to as ‘E-commerce Rules, 2020’) under the Consumer Protection Act, 2019 (hereinafter referred to as the ‘COPA, 2019’) from 24th July 2020. On 21st June 2021, the Department of Consumer Affairs released the proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020 (hereinafter referred to as ‘Draft Rules, 2021’ or ‘Rules’), and have extended the timeline for receipt of comments and suggestions on the proposed amendments to be sent by the stakeholders by 21st July 2021.

The draft amendments in the recently notified E-commerce Rules, 2020 have been met with heavy backlash from the e-commerce entities, and on the other side have been applauded as a step in the right direction towards consumer and traders’ interest protection by the Confederation of All India Traders (CAIT).

SIGNIFICANT FEATURES OF THE DRAFT RULES, 2021

  • AMENDMENT OF THE DEFINITION ‘E-COMMERCE ENTITY’:

Under the earlier E-Commerce Rules, 2020, an ‘e-commerce entity’ meant any person who owns, operates, or manages a digital or electronic facility or platform for electronic commerce. However, the definition has been amended to include the following entities as well:

    1. Any entity engaged by such persons for the fulfillment of orders placed by a user on its platform
    2. Any related party as defined under Section 2(76) of the Companies Act, 2013.

The inclusion of the entities engaged by the e-commerce entities for the fulfillment of orders (which includes logistic service providers) as e-commerce entities has been criticized as a cumbersome move that would further delay the true implementation of the Draft Rules, 2021 as each and every e-commerce entity is required to be registered with the Department of Promotion of Industry and Internal Trade (‘DPIIT’). Additionally, the scope of obligations cast upon all such entities considered as ‘e-commerce entities’ have yet to be formalized.

Further, e-commerce entities incorporated under the Indian Partnership Act, 1932 or the Limited Liability Partnership Act, 2008 have also been included within the ambit of Draft Rules, 2021.

  • REGISTRATION OF E-COMMERCE ENTITIES:

Under a newly added Rule 4, it is now mandatory for every e-commerce entity which intends to operate in India to register itself with the DPIIT within the period prescribed by the DPIIT, and the registration number and invoice of everyday order is mandatory to be displayed prominently on its platform for the clarity of the users. However, it has not been clarified whether this rule is retrospective or prospective in nature, and what will be the consequences of non-registration of the e-commerce entities with the DPIIT.

  • APPOINTMENT OF OFFICERS:

Borrowing the provisions as proposed in the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, the Draft Rules, 2021 prescribe the appointment of the following officers to establish an adequate grievance redressal mechanism to address the number of grievances received from India:

    1. Chief Compliance Officer (CCO) – A person who shall be responsible for ensuring the compliance with the COPA, 2019 and the Rules made thereunder, and shall be liable in any proceedings related to third-party information, data or communication link made available on that e-commerce entity where he fails to ensure due-diligence while discharging his duties. Such CCO shall be managerial personnel or any other senior employee who shall be a resident and citizen of India.
    2. Nodal Contact Person – A person who shall be available 24×7 coordination with law enforcement agencies and officers to ensure compliance with their orders or requisitions made under the provisions of the law. Such person shall be any employee other than the CCO, resident, and citizen of India
    3. Resident Grievance Officer – A person who shall be responsible for redressing the grievances of the consumers on the e-commerce platform. Such person shall be the employee who shall be a resident and citizen of India.

The e-commerce entity is mandatorily required to publish on its website and mobile-based application, the name of the Grievance Officer along with their contact details as well as the Grievance mechanism by which the user can make the complaint against the violation of the provisions of the Draft Rules, 2021.

It is mandated that the e-commerce platforms ensure that it acknowledges the receipt of any consumer complaint within 48 hours and redresses the complaint within 1 month from the date of receipt of the complaint.

Rule 8 also mandates the e-commerce entity to become a partner in the convergence process of the National Consumer Helpline of the Central Government.

  • DETAILS IN CASE OF IMPORTED GOODS AND ‘DOMESTIC GOODS’ ALTERNATIVE:

In case an e-commerce entity offers imported goods or services for sale, it is required to mention the name and details of the importer from whom it has purchased such goods and services, and the details of the seller on its platform.

Additionally, as a measure to boost the ‘Make-in-India’ initiative and domestic producers and goods, the Draft Rules, 2021 mandate the e-commerce entities to:

    1. Provide a filter mechanism website to identify goods based on ‘country of origin’
    2. Display notification regarding the origin of goods at the pre-purchase stage
    3. Suggest domestic alternatives at the time of goods being viewed to ensure fair opportunity
    1. Provide ranking of goods and ensure that the ranking parameters do not discriminate against domestic goods and sellers.
  • NO INDULGENCE IN ‘FLASH SALES’:

The Draft Rules, 2021 has introduced a new definition of ‘flash sale’ meaning “those sales 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 to draw a large number of consumers, provided that such sales are organized 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 16 further puts an absolute restriction on the e-commerce to organize such a flash sale of goods or services on its platform. Due to the huge uproar caused due to the proposed amendment, the Ministry of Consumer Affairs clarified via a press release that the convention e-commerce flash sales are not banned, and only specific flash sales or back-to-back sales which limit consumer choice, increase prices, and prevents a level playing field are not allowed.

Furthermore, marketplace e-commerce entities cannot sell the goods and services to their registered sellers on their platforms or advertise a body of sellers for the purpose of subsidizing a sale on their platform.

  • SPECIFIC PROPOSED DUTIES OF E-COMMERCE ENTITIES:
  1. The e-commerce entities shall not indulge in ‘mis-selling’, i.e., the selling of goods and services by deliberate misrepresentation by such entity about the suitability of such goods or services to the consumers purchasing it.
  2. ‘Cross-selling’ has been defined as the sale of goods or services which are related, complementary, and adjacent to the purchase made by a consumer at a time from any e-commerce entity with an intent to maximize the revenue of such an e-commerce entity. For e.g., the sale of a water bottle along with a tiffin box set. Rule 12 mandates that the e-commerce entities indulging in ‘cross-selling’ shall provide adequate disclosure to its users and display the name of the entity providing data for cross-selling and data of such entity used for cross-selling prominently in a clear and accessible manner on its platform.
  3. The e-commerce entities are not allowed to display or promote any ‘misleading advertisement’ in the course of business on its platform or otherwise.
  4. Every e-commerce entity is required to ensure that a ‘sponsored’ listing of products and services are identified with clear and prominent disclosures.
  5. The name of the seller shall be displayed in the same font as the name of the e-commerce entity on the invoice generated by the e-commerce entity.
  6. Display of ‘best or use before date’, expiration date information on the platform which is necessary for enabling the consumer to make an informed decision at a pre-purchase stage.
  • DUTIES FOR LOGISTIC SERVICE PROVIDERS:

Logistic service provider means any company engaged in the business of providing any or more services, including rail/road/sea/air transportation, air cargo consolidation, warehousing, cold chain services, etc., for the goods and services sold on any marketplace e-commerce entity platform.

Logistic service providers of a marketplace e-commerce entity is restricted to provide differentiated treatment between sellers of the same category. Each logistic service provider shall provide a disclaimer including terms and conditions governing its relationship with sellers and the description of such differentiated treatment which it gives to sellers of the same category.

  • REGULATION OF RELATED PARTIES OF E-COMMERCE ENTITIES:

The Draft Rules, 2021 mandate every marketplace e-commerce entity to ensure that it does not use any information collected through its platform for the unfair advantage of its related parties and associated enterprises. Furthermore, it is to be ensured that none of the related parties and associated enterprises are enlisted as sellers for sale to consumers directly and that nothing is done by related parties which the e-commerce entity cannot do itself. The definition of ‘associated enterprises’ are given under the Draft Rules, 2021.

This Rule has been criticized for the vague imposition of limits on the e-commerce conglomerates, as it potentially has the effect of Reliance Trends being unable to sell its products as sellers on Jio Mart, etc. Furthermore, this will also result in de-linking the entire chain of corporate relations that are involved in the functioning of an e-commerce platform, i.e., sellers, logistics service providers, payment service providers, etc. It will prevent platforms to use collected from their platforms to provide effective services if such e-commerce platforms are being run on joint venture arrangements.

  • DATA PROTECTION BY E-COMMERCE ENTITIES:

The Draft Rules, 2021 in addition to the data protection rules already present in the E-Commerce Rules, 2020 provides that while making any information pertaining to the consumer to any other third-party, express and affirmative consent would be taken, and such consent shall not be recorded by way of ‘pre-ticked checkboxes’.

Furthermore, the e-commerce entities shall not use any information collected by the marketplace e-commerce entities for the sale of goods bearing a brand/name which is common with that of the marketplace e-commerce entity or promote themselves as being associated with the marketplace e-commerce entity if it amounts to an unfair trade practice. This aims to

address the concern of ‘private label brands’ which is a practice of selling goods manufactured by a third-party under the brand name of the platform, for e.g., Amazon Basics.

  • FALL BACK LIABILITY:

‘Fall Back Liability’ as introduced by the Draft Rules, 2021 refers to the liability of a marketplace e-commerce entity where a registered seller of 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 a manner as prescribed by the e-commerce entity.

Even though the definition of such liability has been provided in the Draft Rules, 2021, it does not provide any limits to such liability for the e-commerce entity, and the scenarios where the e-commerce entity can escape such liability. It also shifts the burden of ensuring compliance with the Draft Rules, 2021 onto the marketplace platforms which have little to no influence on the conduct of the sellers on their platforms.

  • PREVENTION OF ‘ABUSE OF DOMINANT POSITION

Rule 17 provides that no e-commerce entity which holds a dominant position in any market shall be allowed to abuse its position, which shall be accorded the same meaning as per Section 4 of the Competition Act, 2002.

This provision has been criticized as legal practitioners opine that the introduction of this provision might subvert the jurisdiction of the Competition Commission of India (CCI)’s jurisdiction to adjudicate cases of abuse of dominant position, and which expressly ousts the jurisdiction of all civil courts including the legal authorities under the COPA, 2019. This provision has the potential to create confusion about the rightful forum to approach in case of abuse of dominant position by an e-commerce entity as it does not clarify the scope of such restriction. It can also result in forum shopping and usage as a tactic to delay the process of investigation by bigger e-commerce entities.