The Government has proposed changes to the e-commerce rules under the Consumer Protection Act to make the framework under which these platforms operate more rigid.
Presently, E-commerce businesses are incorporated as Companies, Partnerships or LLPs under the Companies Act, Indian Partnership Act or Limited Liability Partnership Act respectively and are not registered independently with the Department for Promotion of Industry and Internal Trade (DPIIT). The government has recommended that these platforms / entities ought to register with DPIIT so that they can be allotted a registration number which shall be displayed with the invoices to the users of the platform.
What are the E-commerce rules ?
The E-Commerce Rules provide a framework to regulate the marketing, sale and purchase of goods and services online pursuant to which all e-commerce entities, including B2B ecommerce entities and sellers using e-commerce are required to follow a set of obligations in respect of consumers and end-users of an e-commerce platform.
An E-commerce Entity:
The amendment proposes to include an entity engaged by a person for fulfillment of orders placed by a user on its platform and any related party.
Related party has the same meaning as under Section 2(76) of the Companies Act 2013, which states:
“Section 2(76) “related party”, with reference to a company, means—
1. a director or his relative;
2. a key managerial personnel or his relative;
3. a firm, in which a director, manager or his relative is a partner;
4. a private company in which a director or manager or his relative is a member or director;
5. a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital;
6. anybody corporate whose Board of Directors, managing director or manager is accustomed to act
in accordance with the advice, directions or instructions of a director or manager;
7. any person on whose advice, directions or instructions a director or manager is accustomed to act:
that nothing in sub-clauses (6) and (7) shall apply to the advice, directions or instructions given in a professional capacity;
8. any company which is— – a holding, subsidiary or an associate company of such company; or – a subsidiary of a holding company to which it is also a subsidiary; * ** included in Amendment 2017
9. such other person as may be prescribed;
*An investing company or the venturer of the company.
**private companies & units of an unlisted public company in an International Financial
Services Centre in SEZs the above mentioned relationships (given in point 8) are outside the scope of RPTs.
Now Father incl. step father, Mother incl. step mother Son incl. step son, Son’s wife, Daughter Daughter’s husband, Brother incl. step brother, Sister incl. step sister are included.”
Duties and Obligations of Marketplace E-Commerce Entities:
In addition to the duties relating to e-commerce entities, the Rules prescribe the marketplace e-commerce entities to ensure that sellers on their platform undertake that the information pertaining to the goods and services corresponds directly with the general features of such goods or services. Marketplace e-commerce entities are also required to display, inter alia, terms and conditions generally governing its relationship with sellers on its platform including description of any differentiated treatment; modes of payment methods, and details (including address and contact information) of the sellers.
Marketplace e-commerce entities cannot claim immunity under the safe harbor provision of Section 79(1) of the Information Technology Act, 2000 ("IT Act") in relation to any liability for any third party information, made available on its platform unless they observe due diligence while providing such information to the consumers on their platforms in accordance with Section 79(2) and (3) of the IT Act.
What has the Government proposed ?
The Union Government has additionally proposed a prohibition in plain view and advancement of misleading advertisements. E-commerce businesses have to substantiate offering imported merchandise/administrations will likewise need to specify the name and subtleties of the shippers and the 'country of origin.' Besides, it has proposed 'ranking' for goods and services offered on the platforms while guaranteeing that the positioning boundaries don't victimize homegrown products and merchants.
While a number of new provisions are similar to what the Centre sought of social media companies through the IT intermediary rules announced earlier this year, several proposals in the e-commerce rules are aimed at increasing liabilities for online retailers for goods and services purchased on their platforms.
Among the key amendments, the government has proposed a ban on mis-selling of goods and services offered on such platforms. Those engaged in 'cross-selling' will have to provide adequate disclosures to the users, which shall be displayed prominently on the platform. The definitions of mis-selling and cross-selling have accordingly been proposed. “Cross-selling” means sale of goods/services which are related or complimentary to a purchase made by a consumer at a time from any e-commerce entity with an intent to maximise the revenue of such entity.''Mis-selling'' means an e-commerce entity selling goods/services by deliberate misrepresentation of information.
The proposed amendment also defines ''flash sale'' as that organised by an e-commerce entity at significantly reduced prices, high discounts or any other such promotional offers for a predetermined period of time.
Are there any changes that could impact the shopping experience of users?
Firstly, the draft rules issued by the Consumer Affairs Ministry seek to ban “specific flash sales” by e-commerce entities. While as per the draft rules, conventional e-commerce flash sales are not banned, specific flash sales or back-to-back sales “which limit customer choice, increase prices and prevent a level playing field are not allowed”.
The proposed rules have also introduced the concept of “fall-back liability”, which says that e-commerce firms will be held liable in case a seller on their platform fails to deliver goods or services due to negligent conduct, which causes loss to the customer. In several cases, when problems arise with goods purchased from their marketplaces, e-commerce platforms direct the consumers to the respective sellers to solve any grievance. With fall-back liability, consumers will be able to reach out to the platform itself.
The rules also propose to restrict e-commerce companies from “manipulating search results or search indexes”, in what comes as a response to a long-standing demand from sellers and traders to prevent preferential treatment to certain platforms.
Further, the government has proposed amending the Rules to ensure ''sponsored'' listing of products and services are distinctly identified with clear and prominent disclosures, and entities are banned from using any information collected through their platform for ''unfair'' advantage of related parties or associated enterprises.
The Proposed Rules seek to amend the Grievance redressal mechanism. According to which, every e-commerce entity is required to appoint a Chief Compliance Officer who shall be responsible for ensuring compliance with the Act and rules made thereunder and shall be liable in any proceedings relating to any relevant third-party information, data or communication link made available or hosted by that e-commerce entity where he/she fails to ensure that such entity observes due diligence while discharging its duties under the Act and rules made there under. “Chief Compliance Officer” would be managerial personnel or such other senior employee of an e-commerce entity who is a resident and citizen of India.
An e-commerce entity shall also appoint a nodal contact person for 24x7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions made in accordance with the provisions of law or rules made thereunder. The “nodal contact person” would be an employee of an e-commerce entity, other than the Chief Compliance Officer, who is resident in India and a citizen of India.
Further, an e-commerce entity shall also appoint a “Resident Grievance Officer” who would be an employee of an e-commerce entity, who is resident and a citizen of India.
E-commerce entities are prohibited from:
Adoption of unfair trade practice, whether in the course of business or otherwise.
Levying cancellation charges on consumers after confirming purchase, unless similar charges are borne by the entity itself, if they cancel orders unilaterally.
Manipulating the price of the goods or services offered on its platform so as to gain unreasonable profit by imposing any unjustified price on consumers.
Discriminating between consumers of the same class or making any arbitrary classification of consumers which affects their rights under the Act.
Recording the consent of its consumers for purchase of goods/services on its platform by automatically including these in the form of pre-ticked boxes.
Any E-Commerce Entity shall be liable for penalty and shall be liable to provide redressal if found to be guilty of any act mentioned above.
What else do these new rules change for consumers?
E-commerce companies will also be restricted from making available to any person information pertaining to the consumer without express and affirmative consent. No entity shall record consent automatically, including in the form of pre-ticked checkboxes.
Further, the companies will have to provide domestic alternatives to imported goods, adding to the government’s push for made-in-India products. The draft amendment also proposes to ask e-commerce firms to mandatorily become a part of the National Consumer Helpline. The rules propose mandating that no logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.
The provisions also look to ask e-commerce companies to share information with a “government agency which is lawfully authorised for investigative or protective or cyber security activities, for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cyber security incidents”.
The draft rules propose that the information sought by the government agency will have to be produced by the e-commerce company “within 72 hours of the receipt of an order from the said authority”
Analysis
We all are dealing with the pandemic. Buying and selling on e-commerce websites is no more a luxury but has become a necessity for the consumers as well as the sellers who require a marketplace to sell their products. Since more and more consumers are relying on the e-commerce marketplace for even their basic necessities, it becomes all the more important to regulate these entities in terms of what they sell through their platform, whom they allow to sell through their platform, and what grievance mechanism they have in place to ensure speedy redressal of consumer grievances.
Definitely, the rules proposed will not only increase the obligations and duties of an e-commerce entity but also will increase the liability in case of non-accessibility of a seller on the e-commerce platform. It would ensure that these e-commerce entities conduct proper due diligence of a seller, before they allow him/her to sell through their platform. Thus, protecting the rights of the consumers.
Moreover it may seem like that the Government seeks to prohibit abuse of dominant power and prevent preferential treatment through the Consumer Protection Rules. But considering the consequence of the proposed provisions to keep a check on the abuse of dominant position and preferential treatment one can say that these provisions will give consumers a larger choice and will save them from any deceiving promotion.
All in all, these proposed amendments would ensure more accountability for e-commerce companies. Which indeed is a requirement in the times to come.
Authored by:
1) Pratik Jain- Managing Associate
2) Muskaan Ajitsaria- Legal Intern
© N.C. Jain Advocate & Associates