The last few years have seen customers and industry alike benefit from their increased focus on digital platforms in a changing world. Education technology, which is a prominent business vertical of the education sector, stands out for diversifying the means of learning and teaching to an extent that both students and parents have accepted online teaching models as supplement to the formal education system. While the Edutech space was steadily gaining traction, Covid’s sudden impact on physical learning afforded this sector an unparallel opportunity. The approximately USD 800 million investment into the sector in the first six months of 2020 justifies the narrative of emerging as the `next big thing.’
While digital businesses are spreading their wings, Indian regulators are feeling the need to have guardrails by way of regulations. The recent Consumer Protection (E-commerce) Rules, 2020 (Rules) signal a key shift in the regulatory approach towards e-commerce businesses. These Rules appear to have a wide-ranging impact on various e-commerce models across industries. In this piece, we seek to analyse the impact of the said Rules on the Edutech sector, given its digital underpinning.
Is Edutech an E-commerce Business?
The Rules regulate the e-commerce entities as well as certain participants of various e-commerce models. An ‘e-commerce entity’ has been defined as “any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity.”
In this context, the applicability of the Rules to Edutech business is worth considering. That is to say, while the Rules have been primarily formulated towards covering conventional e-tail businesses, the wide definition of ‘e-commerce entities’ could also capture intentionally or otherwise entities which create and disseminate products/ services over digital/ online media. This is a common business model in Edutech, where the Edutech entity is involved in the creation or aggregation of tutorial/ educational content, which is then distributed through its online website, mobile application, or similar digital platforms. Accordingly, every Edutech business will need to analyse its specific business structure to determine if the Rules apply to it.
The Rules recognise two kinds of e-commerce models — inventory-based e-commerce and marketplace e-commerce. Going by the wordings of the Rules, the question arises whether to consider an Edutech service provider offering its programs on its app/website as an inventory based e-commerce entity, while a platform that aggregates tutors or courses from various institutions as a marketplace based e-commerce entity. Depending on the category that an Edutech entity falls under, the specific parts of the applicable Rules will differ.
Obligations of E-commerce Entities under the Rules – An Edutech Consideration
The Rules prescribe a set of general obligations for e-commerce entities with a few specific provisions for inventory based and marketplace entities. Some of the key obligations, which would be relevant for Edutech entities, are below:
- Compliance Officer: Mandates appointment of a Compliance Officer resident in India, whose duty will be to ensure compliance with the Rules.
- Consumer Grievances: 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.
- Information Disclosure: The Rules require platforms to publish pertinent information such as country or origin of the services, arrangements with sellers, differentiations made between services or offerings of similar nature, details of a dispute resolution mechanism. The extent of the applicability of this will need to be considered, particularly in the context of Edutech platforms which aggregate courses/tutors.
- Pricing, Purchases, Refunds and Cancellations:
- Price Justification – Broadly worded restrictions against manipulating the price of goods or services offered on them so as not to gain unreasonable profit by imposing any unjustified price on consumers. This will have a bearing on digital product offerings on an Edutech platform and the prices charged thereunder. However, certain types of business models of Edutech companies may find themselves having some flexibility.
- Cancellation Charges – No cancellation charges are permitted to be imposed unless similar charges are payable by the entity for cancellation. This has the potential of impacting cancellation of Edutech service offerings once the costs have been incurred.
- Return of Products – Relevant for inventory based Edutech models, there is prohibition from refusing to accept a return or refund in case of defective/deficient/spurious goods/services, late deliveries (except delays due to force majeure), providing false consumer reviews and so on.
- Marketing and Warranties – All platforms will need to ensure accuracy of marketing/ advertising materials as well. While, this may be a welcome move for consumers, an Edutech entity, which utilises products purchased on a wholesale basis would find itself under an obligation to ensure quality and accuracy despite it not having access to the underlying material. For inventory platforms, which are also engaging in sale of books or sale of third-party material, warranting on the authenticity if applicable to them may become a challenge (specifically in the context of plagiarised materials).
- Obligations of service providers/ sellers on platforms: Obligations are imposed on sellers/ service providers against representing themselves as consumers, misrepresenting their quality, false advertising and back-to-back information disclosure as well as grievance redressal obligations. For Edutech platforms which are aggregators of tutors, third party course materials etc, the platforms will need to ensure that their service/ product providers adhere with these norms.
- Other obligations include taking reasonable efforts to maintain records of sellers/service providers who have repeatedly offered goods or services in violations 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.
The Rules are at their infancy but their interpretation and the scope of applicability is evolving across various industries and businesses. This will likely cause a shake up and maturing of the operational procedures of the digital/ecommerce industry. Edutech entities (that qualify as e-commerce entities under the Rules) will need to analyse the extent of the oversight of the Rules and put mechanisms in place to ensure they comply to the extent contextualizable.
*The authors thank Reeba Chacko, Partner (Head – Corporate) for her views.