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The draft E-Commerce Rules - Moving towards protectionism

09 December 2019

by Nayanika Majumdar

The Ministry of Consumer Affairs, recently, on November 11, 2019, under Section 101(1)(zg) of the Consumer Protection Act, 2019 issued a draft set of rules on e-commerce titled the Consumer Protection (e-commerce) Rules, 2019 (“Draft Rules”). The contents of the Draft Rules are akin to the E-Commerce Guidelines for Consumer Protection 2019 which were released on August 02, 2019, with the difference being that the aforementioned guidelines were framed under the Consumer Protection Act, 1986 whereas the Draft Rules have been framed under the Consumer Protection Act, 2019.

In the advent of numerous complaints being made by local players of unfair practices being adopted and deep discounts being offered by e-commerce players, a need was felt to regulate the e-commerce sector. Regulation of business practices of foreign investment based e-commerce entities was attempted by way of Press Note 3 of 2016 (PN 3 of 2016) and Press Note 2 of 2018 (PN 2 of 2018) issued by the Department for Promotion of Industry and International Trade (DPIIT) (erstwhile Department of Industrial Policy and Promotion (DIPP)). Despite the direction issued by the press notes on maintenance of level playing field by e-commerce entities there was apparently no, or hardly any, initiative taken by e-commerce giants in toning down deep discounts being offered on their platforms.

Features:

These Draft Rules appear to have been framed with the idea of bringing some parity between e-commerce players and their brick-and-mortar counterparts. They place a set of roles, responsibilities and liabilities on e-commerce entities in the following manner:

Quality Control

E-commerce entities are required to ensure that the advertisements for marketing of goods/services are consistent with the actual characteristics and usage conditions of such goods/services. E-commerce entities are also required to mention safety and health care information on the goods and services advertised for sale. In addition to this, an e-commerce entity may be held guilty of contributory or secondary liability in the event it makes an assurance about the authenticity of the goods sold on its platform.

Counterfeits

With rampant reports of counterfeit products being sold on e-commerce websites, the Draft Rules have attempted to address the issue. Upon being informed by a consumer, or upon getting to know on its own, of any counterfeit product/s being sold on its platform, the e-commerce entity is required to notify the seller after conducting due-diligence. In case the seller is unable to provide evidence regarding genuineness of the product, the listing of the product will be taken down and the consumers will be notified of the same.

Return

Upon goods being delivered later than the stated date of delivery, upon delivery of defective, wrong/spurious products, or upon delivery of goods not matching the characteristics/features as advertised, the e-commerce entity involved would be required to accept the return of goods and effect returns within a maximum period of 14 days.

Safe payment and data protection

E-commerce entities are required to provide: (i) information on available payment methods; (ii) security of those payment methods; (iii) instructions regarding usage and cancellation of payment under the available payment methods along with information on charge back options and costs applicable to those payment methods. Additionally, e-commerce entities are required to ensure that personally identifiable information of customers is protected and also ensure that data collection, storage and use is in compliance with the Information Technology (Amendment) Act, 2008.

Liabilities

To assuage concerns of local players, e-commerce entities have been given a mandate to not indulge in certain activities. Primarily, as provided under PN 3 of 2016 and PN 2 of 2018, an e-commerce entity is required to maintain a level playing field and not directly/indirectly influence the price of goods/services displayed on its platform. This can effectively mean the end of discounts/deep discounts offered by e-commerce giants presently in the market, which has been the bone of contention between local traders and e-commerce entities since time immemorial. E-commerce entities are also not to adopt unfair methods or deceptive practices which may influence transactional decisions of the consumers. Further, e-commerce entities cannot falsely represent themselves as consumers, post false reviews, misrepresent or exaggerate the quality of the goods/services displayed on their platform.

In addition to liabilities being set out for e-commerce entities, the Draft Rules also provide for liabilities of the sellers. Any seller selling/advertising his product/services through an e-commerce platform is required to have a prior written contract with the e-commerce entity. A seller is also required to provide all the necessary information required by law or under a mandatory regime for disclosing contractual information. A seller is to ensure that he complies with mandatory display requirements as per the Legal Metrology Rules 2017 for packaged commodities and also ensure that mandatory safety and healthcare warnings along with shelf-life which a consumer would get at any physical point of sale are provided to the consumer on e-commerce platforms as well. Additionally, a seller is mandated to provide fair and reasonable delivery terms or directly reference the shipping policy and be responsible for warranty/guarantee obligation of the goods and services sold.

Issues not addressed:

Section 94 of the Act provides that the Central Government may take measures in order to prevent unfair trade practices in e-commerce, direct selling and also to protect the interest and rights of consumers. The Act and the Draft Rules are silent on the specific penalty leviable in case of counterfeit products being made available on the platform of the e-commerce entity or in case deep discounts are offered by these entities in the future. These may or may not fall within the regime of penalties leviable in case of Section 20 (issuance of directions in case of unfair practices being carried on) or Section 21 (issuance of directions/imposition of penalties in case of false/misleading advertisements) of the Act, but a clarification on this front is much needed.

Absence of specific penalties in the form of fine or imprisonment, or clarity on the penalties leviable in case of non-compliance with the Draft Rules, may lead us back to the situation that occurred after the release of PN 3 of 2016 or PN 2 of 2018 - wherein despite clear guidelines being issued to create a level playing field and not indulge in unfair practices, the same were not adhered to. Further, the draft e-commerce policy released by the DPIIT on February 23, 2019 (“Draft Policy”) while laying down guidelines to regulate the e-commerce practice came out with a wide array of measures which could be undertaken to tackle various issues. An example of the same would be marketplaces being advised to create financial disincentives for sellers found selling counterfeit products and blacklisting the seller from the platform for a certain period. Such guidelines have not found their way into the Draft Rules.

Conclusion

In the wake of increase in complaints by the local traders against e-commerce entities, there has been a need to regulate the practices undertaken by these entities. The Draft Rules have attempted to address most of the issues plaguing the local traders and consumers alike. However, prescribing specific penalties which the e-commerce entities may face for not adhering to the Draft Rules will create a deterring factor for the e-commerce players. How far the measures will be implemented in creating a level playing field need to be further examined going forward.

[The author is an Associate in Corporate Advisory team, Lakshmikumaran & Sridharan, New Delhi]