New E-Commerce Rules Are Ambiguous, Onerous and Invite Unwarranted Regulatory Intervention
It has been a year now since the Indian government came out with Consumer Protection (E-Commerce) Rules, 2020 (Rules), which aim to establish a regulatory framework to monitor e-commerce entities and protect consumers engaging in e-commerce transactions.
The regulations apply to all goods and services bought or sold over digital and electronic networks and extend to e-commerce entities outside India that systematically offer goods or services to Indian consumers.
While they have not yet been subjected to much judicial scrutiny, there are some provisions that might eventually require judicial interpretation. Illustratively, the Rules proscribe e-commerce entities from manipulating the price of goods or services offered on their platforms to gain unreasonable profit by imposing an unjustified price on consumers. However, ‘unreasonable profit’ and ‘unjustified price’ have not been defined. The absence of clear definitions may result in unwarranted regulatory interference in e-commerce entities’ pricing models.
Several businesses (e.g. those in the hospitality and airline industries) use dynamic pricing models, where prices are adjusted based on prevailing market trends. While price modification is largely data driven, businesses may face action under the Rules as the Rules do not expressly exempt data driven revisions to pricing.
The Rules prohibit e-commerce entities from discriminating between consumers of the same class or making arbitrary classifications of consumers affecting their rights under the Consumer Protection Act, 2019 (Act). ‘Consumers of the same class’ and ‘arbitrary classification’ have not been defined and this could lead to excessive regulatory monitoring of market driven businesses. Additionally, preferential treatment to a select class of customers (e.g. through frequent flyer programmes and VIP schemes) is common practice across several industries. It will be interesting to see how regulators and, or, the judiciary evaluate special discounts and services offered to targeted customers.
More importantly, the government recently invited comments on proposed amendments to the Rules (Proposed Amendments). If implemented, they will require e-commerce entities to inter alia:
- Register with the Department for Promotion of Industry and Internal Trade;
- Not misrepresent or publish misleading advertisements;
- Obtain express and affirmative consent to share customer information (prohibiting pre-ticked checkboxes to assume implied consent);If engaged in cross-selling, disclose details in respect of the same.
- Establish a grievance redressal mechanism by appointing a Chief Compliance Officer (who will be liable for third party information on the platform), Nodal Contact Person (to coordinate with law enforcement), and a Grievance Officer.
The imposition of liability on the Chief Compliance Officer in proceeding(s) related to any third-party information, data or communication links is rather onerous.
The Proposed Amendments introduce ‘fall back liability’ on marketplace e-commerce entities whereby they will be held liable if a seller registered on their platform fails to deliver the goods or service ordered by a consumer. These entities are generally aggregators and only act as intermediaries facilitating the viewing and purchase of products and seldom establish contact with the seller or customer regarding the purchase of a particular product or service. To hold a marketplace entity liable for the acts of a seller is perverse to the principle of safe harbour for intermediaries. Therefore, fall back liability on aggregators should be restricted. In its current form, the fall back liability would make marketplace entities’ services commercially unviable.
The Proposed Amendments also seek to boost the sale of domestically manufactured products. Names and details of importers from whom e-commerce entities have purchased goods must be displayed and consumers should be able to filter goods by country of origin. Additionally, e-commerce entities must suggest domestic alternatives to imported goods and implement a ranking system which does not discriminate against domestic products.
Consumers are free to purchase domestic products should they choose to do so, and this will be made easier with the option to filter products by country of origin. To require platforms to suggest alternative domestic goods is onerous and, perhaps, unfeasible. E-commerce entities should not be responsible for the swadeshi push. Moreover, in the absence of clear guidelines, determination of a non-discriminatory ranking system is subjective and may lead to unnecessary regulatory intervention.
The Proposed Amendments prohibit flash sales (sales of select goods organised for short periods of time at significantly reduced prices). However, this proscription applies only to: (i) sales fraudulently intercepting the ordinary course of business using technology to enable only certain sellers to sell on the platform; and (ii) sales which limit customer choice, increase prices, and prevent a level playing field. Conventional flash sales (such as clearance sales and end of season sales) will not be affected.
Under the Proposed Amendments, an e-commerce entity holding a dominant position in the relevant market (as assessed under the Competition Act, 2002) cannot abuse its dominant position. This proscription overlaps with the existing competition law framework. The Government seems to be expanding the application of the Rules to ensure free and fair competition in the market while ignoring the fact that the Rules have been framed under the Act, solely intended to protect consumer interest and is not meant to regulate market conditions.
Further, e-commerce entities cannot enlist related parties or associates as sellers on their platforms. While this appears to be consistent with the extant FDI framework for e-commerce marketplace entities, the impact of this prohibition presently remains unclear.
Unfortunately, the Proposed Amendments do not address the existing ambiguities within the Rules. Therefore, its true impact will remain subject to judicial interpretation.
While such amendments may strengthen the regulatory framework, in their present form, they are ambiguous, onerous and invite unwarranted regulatory intervention. The Proposed Amendments should, therefore, be revised to: (i) provide greater clarity (including in respect of existing ambiguities in the Rules); (ii) remove onerous obligations on e-commerce marketplaces that serve as aggregators; and (iii) minimise the scope for regulatory and judicial discretion.
As the jurisprudence evolves, stakeholders should monitor the implementation of the Rules to ascertain their impact.
Shreya Sircar is Partner at Bharucha & Partners. Sanjukta Roy is an Associate atBharucha & Partners.
This article went live on July fifth, two thousand twenty one, at two minutes past four in the afternoon.The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.
