The E-Commerce Rules: A digital disruption in the times of the Pandemic
– Sameer Avasarala & Shreya Mukherjee
The opinions expressed in this post are exclusively of the authors and do not reflect or express the views of Cyril Amarchand Mangaldas, Symbiosis Law School, Pune or any other organizations the authors are associated with.
The enactment of the Consumer Protection Act, 2019 (Act) and rules thereunder, including the Consumer Protection (E-Commerce) Rules, 2020 (Rules) have brought in significant changes to consumer law in India, and contributed to the discourse of regulation of e-commerce in India. While e-Commerce was likely an implied inclusion in the Consumer Protection Act, 1986 (1986 Act), the Act and Rules provide express recognition and introduce other key elements relevant to today’s context of e-Commerce. The Rules appear to be a revised version of the Draft Consumer Protection (e-Commerce) Guidelines, 2018 (Draft Guidelines) proposed by the Department of Consumer Affairs.
Scope and applicability
The Rules are applicable to all forms, models and formats of e-Commerce, except to natural persons who may sell products or services. The Rules recognize E-Commerce Entities, including Inventory E-Commerce Entities (Inventory Entity) which owns the goods or services sold to customers and Marketplace E-Commerce Entities (Marketplace), which provide technology platform for transaction between buyers and sellers apart from sellers on Marketplaces (Sellers). However, the Rules do not recognize or provide guidance around treatment of Marketplaces, where the Marketplace is also a seller. The Rules also apply squarely to digital goods and services, thereby affecting a range of service providers including over-the-top service providers, digital marketplaces, art and design platforms etc.
The Rules are applicable to all formats of e-Commerce which involve undertaking of commercial activity on a regular or systematic basis. One cannot help but compare the ‘regular and systematic’ basis with the targeting criterion under the European Union’s General Data Protection Regulation[i] in the absence of further guidance.
The Act establishes the Central Consumer Protection Authority, which ostensibly seems enabling and enforcing, in addition to conferring powers on district collectors, other regulators and retaining the National/State Consumer Disputes Redressal Commissions (as present under the 1986 Act).
Compliances for E-Commerce Entities
The Rules indicate general guidelines applicable to all E-Commerce Entities, notably:
- All E-Commerce Entities are required to comply with, inter alia, information disclosure obligations, appointment of compliance officers, establishment of grievance redressal mechanisms[ii], obtaining affirmative consent[iii], prevention of unfair trade practices[iv] and disclosure of specific product or service information,[v] such as country of origin, exchange terms etc.
- The Rules specify requirements applicable to Inventory Entities viz., clear and accessible disclosure of pricing and refund terms, payment methods and security apart from restrictions surrounding false representation as consumers for posting reviews, refusal to accept returns or refunds of spurious, deficient or mismatched goods or services. It also requires ensuring adequacy of advertisements and a liability regime if entities provide explicit or implicit recommendation of authenticity of goods sold, delivery schedule etc.
- Marketplaces have additional obligations, over the general obligations, to disclose differential treatment that may be accorded to goods or services in the same category, in addition to maintaining identification records of Sellers whose goods and services have been alleged to have contrary to intellectual property rights or information technology law.
- Sellers are required to comply with specific requirements surrounding prior agreements with Marketplaces, consistency and truth of advertisements, written contract with Marketplace, disclosure of address, email, website etc.
From Draft Guidelines to the Rules
The Rules indicate a departure from the positions adopted in Draft Guidelines in respect of many aspects which contribute to add value to informed choices made by consumers on E-Commerce platforms.
- The Rules include a requirement to obtain affirmative consent, including through check boxes, as opposed to implied or automated consent using pre-ticked consent forms. This is, ostensibly, in line with the consent requirements indicated under the Personal Data Protection Bill, 2019 (PDP Bill) and the forthcoming non-personal data regulatory regime. However, the Rules do not discuss the implications of and/or do not provide any special provisions relating to cross-border transfer of information specific to E-Commerce transactions, to circumvent or further provide guidance on the regulatory view on local storage and cross-border data transfer restrictions proposed under the PDP Bill or sectoral regulations, for instance payment system data.
- The Rules eliminate the uncertainty and potentiality of Marketplaces having to face secondary liability for content posted on their websites, in case of an assurance given by such entity, initially present under the Draft Guidelines.
- While there is little doubt that E-Commerce Entities are likely to qualify as intermediaries[vi] under the Information Technology Act, 2000 (IT Act), it is unclear whether satisfaction of the requirements indicated in the Rules in addition to those indicated under the Information Technology (Intermediaries Guidelines) Rules, 2011 (Intermediaries Guidelines) would apply over and above the due diligence conditions for safe harbour under the IT Act.
- Requirements relating to disclosure of the terms of the contract between Marketplaces and Sellers and entity localization of E-Commerce Entities have been done away with, presumably, on account of onerous liabilities on E-Commerce entities, especially ones which may not be based out of India.
Impact on Competition Law
While it is well-known that consumer protection and antitrust law are two sides of the same coin, the interface between the Rules and existing competition law regime is a matter of study. This is particularly relevant in the context of unfair trade practices, extensively dealt with, both under the Rules[vii] (given that the Act has widely defined unfair trade practices[viii]) and under competition law regime.
The Competition Commission of India’s (CCI) Market Study on E-Commerce dated 8th January 2020 (Study) outlines competition issues which may have consequent effects on consumers, including the practice of preferential treatment extended by various e-commerce websites to their ‘preferred sellers’ or themselves. This inevitably drives small businesses out of the marketplaces and reduces choices available, thereby impacting the level playing field. The Study also observed that these platforms often serve as the marketplace and the seller which raise concerns around platform neutrality.
The CCI has been cautious of preferential treatment by entities. It has ordered multiple inquiries into such preferential treatment and their potential impact on competition. Albeit the Karnataka High Court has stayed the investigation presently, the CCI had ordered an inquiry against preferential listing in relation to the Amazon marketplace.
Harmonization with Equalization levy
The Rules are in harmony with the equalization levy imposed under the Finance Act, 2020[ix]. It introduced equalisation levy for non-resident e-commerce operator, including for foreign E-Commerce Entities which may target offering of products and services to Indian consumers. This is in line with the Act and Rules which includes foreign E-Commerce Entities[x] within its ambit. This brings the benefit of consumers being presented with the opportunity of having a global choice in goods and services.
Run-in with Gambling law
The 1986 Act defined ‘unfair trade practices’ to be inclusive of trade practices which, for the purposes of promoting sale, use, or supply of goods or services, adopts any unfair or deceptive method, including conducting contest, lottery, game of chance or skill for the purposes of sale, use or supply of product, service or business interest. The Act empowers the Central Government to make an exemption to specific contests, lotteries, games of chance or skill which may not be considered unfair trade practices. The Central Government, prescribed, exceptions under the Consumer Protection (General) Rules, 2020 which includes, lotteries[xi], games of chance or skill which do not constitute gambling,[xii] and where success depends on a substantial degree of skill and not chance thereby endowing the Act the dynamic nature of gambling law.
While the E-Commerce Rules take a positive leap towards a consumer-first and protectionist approach in regulating the E-Commerce industry, there are other key issues which may be addressed by these Rules. Some of these include Marketplaces as Sellers in their domain, click-baits in online platforms, drip pricing, digital comparison tools, cross-border transfer of data, goods and services. It may be anticipated that the Government or an appropriate authority may fill these regulatory gaps through sub-delegated legislation in the future.
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[i] Article 3.2, General Data Protection Regulation
[ii] Rule 4(4), Consumer Protection (E-Commerce) Rules, 2020
[iii] Rule 4(9), Consumer Protection (E-Commerce) Rules, 2020
[iv] Rule 4(3), Consumer Protection (E-Commerce) Rules, 2020
[v] Rule 5(d), Consumer Protection (E-Commerce) Rules, 2020
[vi] Section 2(1)(w), Information Technology Act,2000
[vii] Rule 2(d), Consumer Protection (E-Commerce) Rules, 2020
[viii] Section 2(47), Consumer Protection Act, 2019
[ix] Section 153, Finance Act, 2020
[x] Rule 4(1)(a), Consumer Protection (E-Commerce) Rules, 2020
[xi] Section 2(b), The Lotteries (Regulation) Act, 1998
[xii] Section 13A, Public Gambling Act, 1867
This article is authored by Sameer Avasarala & Shreya Mukherjee. Sameer is an Associate at Cyril Amarchand Mangaldas, while Shreya is a fourth-year student of law at Symbiosis Law School, Pune.