Proposed changes to the Consumer Protection (Ecommerce) Rules, 2020

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Introduction

The Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution, Government of India (Ministry) has, through a notification issued on 21 June 2021, proposed changes to the Consumer Protection (Ecommerce) Rules, 2020 (Ecommerce Rules).

The Ministry had published the proposed changes on its website seeking comments from all stakeholders. While the initial time period allowed for submitting comments was 6 July 2021, this period was subsequently extended to 21 July 2021 through another subsequent notification issued on 5 July 2021.

In this legal update, we take a look at the various changes proposed to the Ecommerce Rules and their impact.

Background

The Consumer Protection Act, 2019 (‘CPA’) was enacted to provide for the interests of consumers and also for administration and settlement of consumer disputes.

With the rise of ecommerce businesses in India and the growing need for regulation of these entities from a consumer standpoint, the Government of India issued Ecommerce Rules through notification number G.S.R. 462(E) dated 23 July 2020, published in the Official Gazette of India.

The Minstry has now proposed changes to the Ecommerce Rules (Proposed Amendment) which are subject to public comments.

Key Changes Proposed

The key changes brought about in Ecommerce Rules by the Proposed Amendment are set out below:

Expansion of definition of “e-commerce entiy”: The definition of “e-commerce entity has been expanded under the Proposed Amendment to include entities engaged in order fulfilment as well as related parties (related to the entity owning/ operating the digital plaform for electronic commerce) under the Companies Act, 2013.

Registration requirement with the DPIIT: The Proposed Amendment states that all entities that intend to operate in india in the e-commerce space would need to register themselves with the Department for Promotion of Industry and Internal Trade (DPIIT) and obtain a registeration number.

As the phrase used in relation to this requirement is “intends to operate in India”, this requirement appears to apply to ecommerce entities resident outside India but which ship products/ offer services to India (i.e. effectively having some operations in India).

Restrictions on Affiliates as Sellers: The Proposed Amendment requires marketplace e-commerce entities to ensure that none of their related parties and associated enterprises are listed as sellers for sale to consumers directly on their platform. It further stipulates that information collected through the platform is not used for the unfair advantage of any related parties and associated enterprises.

The term ‘associated enterprises’ is quite wide and includes companies: (i) that have a common chain of directors or managing partners; (ii) that have a common chain of shareholders, where such shareholders hold not less than 5% of the shareholding in the related enterprises (iii) that have 10% or more common ultimate beneficial ownership (iv) where one enterprise holds, directly or indirectly, shares carrying the voting power in the related entities; and (v) where one entity has the power to exercise control over the other’s decision making process including by way of veto rights or right to appoint director(s).

These restrictions could cause marketplace ecommerce entitites to reconsider their structure to bring it in compliance with the norms prescribed.

Restrictions on sales to, and services provided to Sellers: The Proposed Amendment prescribes that marketplace e-commerce entities shall not sell goods or services to any person who is registered as a seller on their platform. Further, it also prescribes that no logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.

This provision could lead to disruptions to the business models of large ecommerce entities which have their in-house (or affiliated) logistics providers.

Bar on conducting Flash Sales: As per the Proposed Amendment, flash sales of goods and services (i.e. those offering high discounts or attractive offers for a predetermined period of time in order to draw large number of consumers) are prohibited on an e-commerce entity’s platform if they 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.

As per news reports , government sources have clarified that only impractical, predatory deep-discounted sales meant to benefit only certain pre-fixed businesses through the use of back-end IT mechanisms and that prevent other businesses from participating in selling to consumers will be banned. However, no formal communication/ clarification to this regard has been issued.

Associated brands/ private label products: As per the Proposed Amendment, market place e-commerce entities are prohibited from permitting usage of their name/ brand 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.

Ecommerce entities which have invested tremendously on private label products as part of their long term growth strategy may need to undertake a re-branding exercise in this regard.

Imported Goods: Under the Proposed Amendment, in order to ensure that domestic manufacturers and suppliers get fair and equal treatment, ecommerce entities are required to implement a a filter mechanism with respect to the country of origin on the website and display notifications regarding the country of origin at various stages in the purchase process.

Further, when imported products are offered for sale, e-commerce entities are also required to suggest domestic alternatives to ensure fair opportunity for domestic goods and to ensure that any parameters used for ranking of the goods do not discriminate against domestic goods and sellers.

These requirements would need ecommerce entities to either employ human resources to catalogue domestic alternatives to imported products or invest time and money in the creation of algorithms that undertake this process automatically.

Fall-back liability: The Proposed Amendment stipulates that marketplace e-commerce entities will be liable if a seller registered on their 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 would mean that marketplace ecommerce entities might need to have stricter controls in place for their sellers to offset the risk of such liability. These controls may include a delayed payment cycle, strict background check, detailed rules and regulations in relation to the process of fulfilment of orders.

Prohibition on Mis-selling: Under the Proposed Amendment, mis-selling has been prohibited i.e. selling goods and services by deliberate misrepresentation of information by such entities about such goods or services.

Cross-Selling and its restrictions: The Proposed Amendment defines “cross-selling” to mean sale of complimentary, related or adjacent goods to a purchase made by a customer, intended to maximize the revenue of the ecommerce entity.

The Proposed Amendment requires adequate disclosures such as the name of the entity providing the data for cross-selling and the data of the entity used for cross-selling are required to be made when an entity engages in cross-selling.

Setting up a Grievance Redressal Mechanism and appointment of officers: As prescribed under the Proposed Amendment, e-commerce entities will need to appoint a chief compliance officer and a resident grievance redressal officer and ensure that a grievance redressal mechanism is published on their website. Further, e-commerce entities are also required to appoint a nodal contact person for 24×7 co-ordination with law enforcement agencies.

Conclusion

Some of the changes proposed in the Amendments are welcome changes that will strengthen the consumer protection regime in India and provide resolution to some of the biggest problems in this sector such as mis-selling and grievance redressal.

However there are many changes proposed that, while intended to serve customer interests, may foist a burden on ecommerce entities in India.

While the large and dominant ecommerce players may still be able to comply with these new requirements, smaller e-commerce entities may face difficulties in compliance.