Consumer Protection E-Commerce Rules - Need for More Clarity Blog

The Ministry of Consumer Affairs, Food and Public Distribution has, on July 23, 2020, notified the Consumer Protection (E-Commerce) Rules, 2020 (“Rules”) under the Consumer Protection Act, 2019 (“Act”), with an intent to prevent unfair trade practices in e-commerce and protect interests and rights of consumers.

Scope and Applicability 

The Rules are intended to apply to (i) all goods and services bought or sold over digital or electronic networks, (ii) all models of e-commerce, and (iii) all formats of e-commerce retail, with the exception of natural persons transacting in their personal capacity (which is not part of any professional or commercial activity undertaken on a regular or systematic basis). In the absence of any guidance on what ‘regular or systematic basis’ means, a plain reading of this exclusion makes it very narrow.

The Rules govern e-commerce entities (“Platforms”), which own, operate, or manage, a digital or electronic facility or platform for electronic commerce, and sellers of products and services.

More importantly, the Rules have been expressly made applicable to digital products, and e-commerce entities which, while not established in India, “systematically” offer goods or services to consumers in India.

The extent to which the Rules will apply to entities offering purely digital offerings such as over-the-top content provider platforms, edtech offerings, cab hailing/ sharing companies, event management/ ticket vending platforms, telemarketing channels, etc., or B2B businesses (which may not have been covered earlier), and entities based outside India, which may be subject to entirely contrary legal obligations, but may fall within the systematic offering exclusion mentioned above, is still unclear.

Obligations of Platforms

The Rules prescribe a set of general conditions that Platforms have to adhere to. Some of the key ones are as follows:

  1. Compliance Officer: Platforms are required to appoint a nodal officer or an alternate senior functionary, an Indian resident, to ensure compliance with the Act and the Rules. No qualifications or duties (or liability) of such an officer have been prescribed. Additionally, what needs to be done to satisfy this requirement in substance remains unclear.
  1. Consumer Grievances: The Rules prescribe extensive requirements in relation to customer grievance redressal, including setting up a time-bound grievance redressal mechanism, appointing a grievance officer and setting up a process to allow consumers to track their complaints. Again, the Rules are silent on specifics of adequacy of the grievance redressal mechanism. This may be an opportunity for industry bodies or self-regulatory organisations to formulate a set of agreed upon standards to define the norm.
  1. Information Disclosure:
  • The Rules require Platforms to publish 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. The Rules are 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.
  • Marketplace Platforms are required to include (as part of the information furnished) the terms and conditions governing their relationships with sellers, a description of any differentiated treatment between goods and services or sellers under the same category. This requirement may prove tricky to satisfy in any substantive manner by Platforms, which use ranking and sorting algorithms, product targeting, varying advertising, or promotion schemes, support for order fulfilment, etc. Marketplaces with alpha/ key seller models will now need to effectively disclose if there is a criterion based on which a certain kind of treatment is meted out.
  • In case of a dispute, a marketplace Platform is required to assist customers by providing them with details of the relevant seller, necessary for effective dispute resolution. The extent of what or how much information is ‘necessary’ will have to be analysed, along with the scope of assistance that needs to be provided. An unfettered requirement, and the fact that gathering all the requisite data may be onerous, may incentivise marketplaces to reduce the number of sellers they host, or only sign up sellers, who are forthcoming with information and are trustworthy. This may have the unintended consequence of reducing the diversity of options available to consumers.
  1. Pricing, Purchases, Refunds and Cancellations:
  • Platforms are subject to a broadly worded restriction against manipulating prices of goods or services offered on them, so as to gain unreasonable profit by imposing any unjustified price on consumers. While the Rules prescribe criterion such as prevailing market conditions, nature of goods or services, and extraordinary circumstances in evaluating whether the pricing is unjustified, in the absence of clear parameters, this restriction will make implementation of well-known practices, ranging from surge pricing to preferred customer privileges and selective discounts, difficult.
  • No cancellation charges are permitted to be imposed unless similar charges are payable by the Platform entity for cancellation. This has the potential to impact many business models where there may not be onward cancellation charges payable, but the order cancellation itself leads to costs that cannot be recouped. 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.
  • In the case of inventory-based Platforms, there is a prohibition on refusing to accept a return or refund in case of defective/deficient/spurious goods/services, late deliveries (except delays due to force majeure), and on providing false consumer reviews. Inventory-based Platforms also have an obligation to ensure that details in advertising/marketing material are accurate. While this may be a welcome move for consumers, a trader or distributor of products operating a platform with products purchased on a wholesale basis would find itself under an absolute obligation to ensure quality and accuracy, irrespective of the quality of marketing material that it has access to.
  • If an inventory-based Platform explicitly or implicitly vouches for the authenticity of the goods/services sold by it, or guarantees that such goods/services are authentic, it would have to bear appropriate liability in any action related to the authenticity of such goods/services. Terms and conditions will need to be evolved to clearly bring out what is being endorsed by the Platform.
  1. Other obligations of Platforms include making reasonable efforts to maintain records of sellers, who have repeatedly offered goods or services in violation of trademarks, copyright, or the Information Technology Act. Platforms are also required to obtain undertakings from sellers in respect of ensuring description, images and other content pertaining to goods or services being accurate.

Obligations of Sellers on Platforms 

  1. 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.
  1. 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.
  1. While the large institutional sellers may still be able to put these in place, these conditions may prove onerous for small sellers.

In addition to the above, there are more fundamental questions that need to be answered on:

  • The application and implementation of these Rules, including, whether the Rules are ultra vires the Act, due to the extension of their applicability to e-commerce entities situated outside India,
  • Obligations being imposed on platforms that extend beyond the ambit of the relationship between a consumer and a seller,
  • Whether these Rules apply to B2B platforms or what are the kinds of digital product offerings that may not fall under the purview of the Rules.

Further, given their origins under Section 94 of the Act, it will also be interesting to determine whether all breaches of the Rules will have to satisfy the test of being “unfair” practices before they can be penalised, and whether a breach by a seller can result in liability for a Platform, which has otherwise complied with them.

While the nuances mentioned above are being considered, the industry will have little time to react and will need to get into implementation mode immediately.

* The author would like to thank Partner (Head – Corporate) Reeba Chacko for her inputs.


 

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Photo of Arun Prabhu Arun Prabhu

Partner in the General Corporate Practice at the Bengaluru office of Cyril Amarchand Mangaldas. Arun is part of the Technology, Media and Telecommunications (TMT) group and has special expertise in advising clients in the electronics, information technology enabled services, outsourcing and information technology…

Partner in the General Corporate Practice at the Bengaluru office of Cyril Amarchand Mangaldas. Arun is part of the Technology, Media and Telecommunications (TMT) group and has special expertise in advising clients in the electronics, information technology enabled services, outsourcing and information technology sectors. He was also a member of the Government of India’s working group on the legal enablement of information and communication technology systems.Arun was described as a “very effective and highly knowledgeable” lawyer by Chambers and Partners in 2011. He can be reached at arun.prabhu@cyrilshroff.com

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Partner in the General Corporate Practice at the Bangalore office of Cyril Amarchand Mangaldas. Harish specializes in venture capital, private equity and mergers & acquisitions, with sectoral expertise in retail, e-commerce, and commercial real estate. He can be reached at s.harish@cyrilshroff.com

Photo of Anirban Mohapatra Anirban Mohapatra

Principal Associate with the Bengaluru offices of Cyril Amarchand Mangaldas, and is part of the Technology, Media and Telecommunications practice of the Firm.

Anirban regularly advises clients across diverse sectors including healthcare, manufacturing, banking, information technology, automobile, financial services media and broadcasting on…

Principal Associate with the Bengaluru offices of Cyril Amarchand Mangaldas, and is part of the Technology, Media and Telecommunications practice of the Firm.

Anirban regularly advises clients across diverse sectors including healthcare, manufacturing, banking, information technology, automobile, financial services media and broadcasting on transactional as well as advisory matters. Anirban supports transactions by handling the entire documentation process for large scale technology transactions and advice on emerging trends in the data protection and privacy space. Anirban works with the business teams of clients closely to ideate and evolve legal documentation, policies and best practices based on commercial requirements of clients and interactions with regulators such as the Telecom Regulatory Authority of India (“TRAI”).

He graduated from West Bengal National University of Juridical Sciences, and first joined the firm in 2012. He can be reached at anirban.mohapatra@cyrilshroff.com.

Photo of Suvojit Halder Suvojit Halder

Principal Associate in the General Corporate Practice at the Bangalore office of Cyril Amarchand Mangaldas. Suvojit advises on mergers and acquisitions, private equity and venture capital investments with a focus on the technology sector. He can be reached at suvojit.halder@cyrilshroff.com