Flipping the cart: Consumer Protection (E-Commerce) Rules, 2020

Flipping the cart: Consumer Protection (E-Commerce) Rules, 2020

The Consumer Protection (E-Commerce) Rules, 2020 (“the Rules”)were notified by the Central Government on 23rd July 2020 by virtue of the powers granted to it under Section 101(1)(zg) of the Consumer Protection Act, 2019 (“the Act”). The Rules had been under deliberation for over a year and were finally brought in to augment the scope of consumer laws in India. The Rules expand the scope of Section 94 of the Act which enables the Central Government to take measures to protect consumers from unfair trade practices of e-commerce entities.

Key takeaways

The Rules enlist the duties and liabilities of an e-commerce entity as well as any seller conducting sale on an e-commerce marketplace. The former is defined to include any person who is the owner, operator or manager of any electronic platform created for electronic commerce (Rule 3(1)(b)). Further, the Rules encompass the duties and liabilities of an ‘inventory e-commerce entity’ (Rule 7) and a ‘marketplace e-commerce entity’ (Rule 5). Some of the salient features of the Rules are as follows:

Scope and Applicability

The Rules apply to all forms of e-commerce businesses, including entities adopting both the marketplace as well as the inventory-based model of e-commerce. The Rules further encompass all kinds of multi-brand and single brand retail carried out online. The Rules and the liabilities imposed thereunder are however, not applicable to any activity carried out by a natural person, which does not form a part of his professional or commercial activities undertaken on a regular or systematic basis (Rule 2). Thus, for instance, people selling goods on online portals like E-Bay, OLX, etc., would be exempt from these rules if the same does not form part of activities undertaken by them on a regular commercial basis.

Further, Rule 4(1)(a) mandates that the e-commerce entity must be a registered company under the Companies Act, 2013, or a foreign company covered under the Companies Act, or a branch, office or an agency outside India owned or controlled by a person in India as per Section 2 of the Foreign Exchange and Management Act, 1999.  Thus, the Rules prohibit any e-commerce entity to run as a sole proprietorship or a partnership or in any other business form in India.

Mandatory Disclosures

The Rules accord immense importance to transparency and accountability by making it mandatory for the e-commerce entity as well as the sellers to furnish certain basic information on the portal (Rule 4(2)). These mandatory disclosures, with respect to all e-commerce entities, include a duty to provide their legal name, address, details of their website, important contact details and details of the importer (in case of imported goods) to the consumer in an unambiguous manner.

Further, the Rules impose a liability on the marketplace e-commerce entities to lay out details of the seller and product related information provided by the sellers to them, information relating to guarantee, warrantee, return, refund, available payment methods, etc., and an explanation to the parameters which determine the rank of the product on their platforms to enable the consumer to make an informed choice at the pre-purchase stage (Rule 5(3)). The seller is also responsible to furnish similar details to the e-commerce entity (Rule 6(5)). Further, the Rules confer upon the consumer, the right to demand information after the purchase has been made, primarily to facilitate dispute resolution (Rule 5(3)(a)).

The seller is mandatorily required to mention the country of origin of the product (Rule 6(5)(d)). This obligation recently sought enforcement through a petition citing Rule 6(10) of the Legal Metrology (Packaged Commodities) Rules, 2011 but was contested on grounds of its inapplicability to e-commerce entities. The Rules thus settle any debate regarding such disclosure obligations.Similar disclosure liabilities are imposed upon inventory e-commerce entities with the exception of intricate product details demanded from the seller (Rule 7(1)). Lastly, marketplace e-commerce entities are to maintain a record of sellers who offer goods or services that had been previously removed under the Copyright Act, 1957, the Trade Marks Act, 1999, or the Information Technology Act, 2000.

Prohibition on Deceptive, Manipulative and other Unfair Trade Practices

The Consumer Protection Act, coupled with the Rules, prohibits the e-commerce entities as well as the sellers conducting sale on their platforms from engaging in any unfair trade practice in the conduct of their businesses. While the Act itself provides for a rather expansive interpretation of what constitutes an unfair trade practice, the Rules further impose the following duties and liabilities to address any deceptive, manipulative or any other unfair trade practices that may be adopted by players in the e-commerce business:

1. Prohibition of False Reviews and Ratings: Various market studies conducted on the e-commerce spectrum have shown that customer reviews and ratings play a key role in a consumer’s decision making process. Fake reviews and ratings have the potential of fundamentally distorting a consumer’s right to an informed choice. Thus, the Rules prohibit any inventory-based e-commerce entity as well as any seller selling on any e-commerce platform from falsely representing itself as a consumer and posting reviews or ratings about the goods or services(Rule 6(2),7(2)).

2. Product Authenticity and Content Liability: The E-Commerce Rules mandate all inventory-based e-commerce entities and sellers on all e-commerce platforms to ensure that their advertisements marketing their goods and services are consistent with their actual quality (Rules 6(4)(c) & 7(3)).

Further, it is pertinent to note that the Rules also impose an obligation on all marketplace e-commerce entities to require undertakings from the sellers confirming the accuracy of the disclosures made on their platform (Rule 5(2)).This is in addition to the obligations imposed on them by Section 79 of the Information Technology Act, 2000 which exonerates them from content liability only if the platform merely acts as an information system between the buyer and the sellers, and exercises due diligence in complying with his duties under the Information Technology Act and any other guidelines prescribed by the Central Government.

3. Prohibition on Price Manipulation: The Rules prohibit the e-commerce entity from gaining any unreasonable profits by engaging in manipulation of the prices of the goods and services offered on its platform (Rule4(11)(a)). However, the application of such prohibition is triggered after giving due regard to the market conditions, essentiality of the goods or services offered and any other extraordinary circumstances at the time.

4. Prohibition of Discriminatory Practices: The Rules prohibit any e-commerce entity from discriminating between consumers of the same class or creating arbitrary distinction between consumers that might affect their rights (Rule 4(11)(b)). Further, the Rules also mandate all online marketplace entities to inform sellers of any differential treatment that they or their goods or services might be subjected to (Rule 5(4)).

E-Contract Issues

The Rules briefly touch upon certain e-contract issues that commonly arise between enterprises and consumers while dealing with such transactions. The Rules mandate the entities to take an ‘explicit and affirmative’ consent of the consumer rather than recording it in an automatic manner or through pre-ticked checkboxes (Rule4(9)).

The prima facie intent behind the addition of this provision could be to nullify the unestablished validity of browse-wrap agreements wherein consent is ‘presumed’ upon the mere use of the website and that of shrink-wrap agreements wherein the terms and conditions of the product purchase are communicated at a post-purchase state. The provision seems to strongly uphold the validity of click-wrap agreements wherein contracts are only concluded after obtaining the desired ‘explicit and affirmative’ consent of the consumer. It could, however, also address the need to offer to the consumer an opportunity to thoroughly review the order before the purchase is processed so as to avoid the occurrence of mistakenly placed orders.

Welfare and Redressal Mechanism

The Rules lay down comprehensive duties and liabilities that offer to the consumers an extensive grievance redressal mechanism and call for the appointment of a functionary with his/her place of residence in India to oversee the compliance with the Act and the Rules (Rule 4(1)(a)). Further, every e-commerce entity is duty bound to establish such grievance redressal mechanism headed by a grievance officer whose contact details should be clearly listed on the e-commerce platform (Rule 4(4)). The officer is bound by a limitation period of 48 hours to acknowledge the receipt of the complaint and further one month from the date of the receipt to redress the complaint. Consumers are also relieved of any cancellation charge unless such charges are borne by the e-commerce entity itself.

Payments arising out of accepted refund requests are to be paid within a reasonable period as prescribed by the Reserve Bank of India or any other competent authority (Rule 4(10)). In order to enable the consumer to track the progress of his/her complaint, the Rules mandate all e-commerce entities to generate a ticket number for each complaint (Rule 5(3)(b), 7(1)(f)). The Rules proscribe the seller and inventory e-commerce entities from refusing to refund payment, accept returned goods or to discontinue purchased services if such goods and services turn out to be defective, deficient, delivered late or lacking of the characteristics as advertised (Rule 6(3), 7(4)).

Conclusion

The recently enacted Rules mark a paradigm shift in the regulation of the e-commerce entities in India, who up till now remained largely self-regulated. While the rules do cover a broad spectrum of unfair trade practices and offer much needed certainty in e-commerce regulation, there are certain problematic aspects as well.

Firstly, the obligation that all e-commerce entities have to be run in the form of a company can cause significant disruptions in the market, given that a lot of these entities are also run as limited liability partnerships and in other business forms.

Secondly, subjecting the prohibition on price manipulation by e-commerce entities to ‘market considerations’ creates an ambiguity in its enforcement. For instance, e-commerce entities like Zomato, Swiggy, etc., and cab aggregators like Ola and Uber could conveniently justify their surge pricing strategyon the grounds of being guided by market demand considerations. Further, tasking consumer redressal authorities with the job of assessing market conditions would significantly intensify the already blurred line of distinction between competition and consumer protection laws. Consequently, it would pave the way for potential jurisdictional overlaps with the Competition Commission of India.

Further, even though the Draft National E-Commerce Policy recognized the need to remove promotional reviews as well as ratings and reviews from unverified purchasers, the Rules only prohibit the e-commerce entities and the sellers from posting such reviews themselves. It therefore unfavorably narrows down the scope of regulation of paid reviews, thereby ignoring instances of sellers incentivizing consumers in exchange for paid reviews. The Rules should have thus imposed an obligation on the e-commerce entities to devise mechanisms to prevent fraudulent reviews and ratings by the sellers as well as their affiliates.

However, despite the aforementioned limitations, the Consumer Protection (E-Commerce) Rules, 2020 act as a landmark legislation in regulating the formerly unchecked practices of e-commerce entities and securing consumer interest in India’s digital economy.


This article has been authored by Krimul Malhotra and Anchit Nayyar, students at Symbiosis Law School, Pune.

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