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VIABILITY OF THE CONSUMER PROTECTION (E-COMMERCE) (AMENDMENT) RULES, 2021

Authored by Palak Nangru, a 5th year law student at Symbiosis Law School, Pune



Summary

The Ministry of Consumer Affairs, Food, and Public Distribution has recently proposed certain amendments to the draft Consumer Protection (E-commerce) Rules, 2020. E-commerce giants like Tata, Flipkart and Amazon have contended that the proposed changes might have a detrimental impact on their business. Through this article I aim to critically analyze the proposed rules and their possible impact on consumers and e-commerce entities.


Introduction

The Ministry of Consumer Affairs, Food, and Public Distribution has recently proposed certain amendments to the draft Consumer Protection (E-commerce) Rules, 2020. The proposed amendments aim to introduce compliances, duties, and liability regimes for e-commerce entities. The new amendments to the rules also propose to impose regulations already imposed by other legislations like the Competition Act and the IT intermediary rules.

The Government has stated that the proposed changes would protect consumer interests, prevent unfair activities and encourage free and fair competition in the e-commerce market. However, these proposed changes have raised concerns that they might be counterintuitive to these objectives. This article aims to look at the key issues that may arise from the proposed changes in the Draft Consumer Protection (E-commerce) Rules, 2021.


Key Issues


1. Flash Sales

There has been an increasing number of flash sales offered by e-commerce websites like Flipkart, Amazon, and Myntra. These sales act as an effective way for the sellers to unload surplus inventory. However, several small businesses and organizations like the Confederation of All India Traders (CAIT)[i] have accused e-commerce giants like Amazon and Flipkart of carrying out predatory behaviour by offering deep discounts through flash sales.

The proposed amendment to the rules aims to prohibit e-commerce platforms from giving flash sales. The objective of the proposed prohibition is to protect the interests of the smaller retailers and consumers and provide a level playing field for all the sellers. Further, the proposed ban aims to protect consumers from flash sales carried out by shell companies that did not have any inventory.

The proposed amendment defines flash sale under Rule 3(e) as ‘a sale organized by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw large number of consumers.

Provided such sales are organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.

The Ministry further clarified the ban in a press release that stated that the ban did not extend to conventional flash sales by third-party sellers on e-commerce platforms. It provided that the ban was only on back-to-back sales or flash sales that limited consumer choice.

However, despite this clarification, the definition and ambit of the prohibition remain to be ambiguous and inadequate. It fails to provide the amount and frequency at which the e-commerce websites can offer discounts to their customers. Further, the Government has also failed to clarify what would constitute a ‘conventional flash sale’.


2. Compliances

The proposed amendments to the E-commerce rules seek to impose a wide set of compliances on e-commerce entities. Some of these compliances include the appointment of officers, compulsory registration, details about the origin of the imported goods, etc.

The Amendment Rules have taken a uniform approach and have imposed the liability of following the compliances on all the e-commerce entities irrespective of their size and scale of operations.

Large-scale e-commerce entities might be able to bear the expenses incurred for fulfilling the compliances. However, it may become difficult for small-scale or new e-commerce entities to bear such expenses, and this might force them to exit the market. Further, the imposition of such compliances may increase red-tapism and reduce the ease of doing business for e-commerce entities.

It is essential to take into consideration that the internet also provides MSMEs a wider audience to sell their products. However, an increase in the cost of compliances may discourage the MSMEs from providing offering their goods and services online.

While other jurisdictions like EU[ii] have also raised compliances for e-commerce entities, however, they are primarily applicable to giant e-commerce entities. Even the Indian legislature in the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, imposes regulations on intermediaries based on their size.


3. Liability

Certain liability regimes have also been proposed, one such regime is the fall-back liability. As per this proposed liability regime, market e-commerce entities can be held liable for any loss resulting from the failure of delivery of goods or services by a seller on their platform. Currently, the retailer selling his goods or services on the marketplace e-commerce website was held liable for any damages or loss caused by his product, however, if the proposed amendments are enacted, the e-commerce entity would be held liable in such circumstances.

Introduction of fall back liability does not align with the other laws that have forced the marketplace e-commerce entities to have less control over the inventory and supply chain. Additionally, this liability is against the safe harbour provisions for intermediaries under Section 79 of the IT Act.


4. Related Parties

The proposed amendment has included related parties within the ambit of e-commerce entities. Thus, the duties, obligations, and liabilities applicable to e-commerce entities under the rules would also apply to the related parties. The proposed definition of ‘Related Parties’ would be the same as provided under Section 2(76) of the Companies Act. This would result in extending the scope of the Act to delivery agents and entities proving services like warehousing, packaging, etc.


5. Associated enterprises

The Confederation of All India Traders (CAIT) has repeatedly highlighted that e-commerce giants like Amazon sell goods at deep discounts indirectly through related or associated sellers on their platforms. The Confederation has contended that this practice has gravely impacted their businesses since they cannot afford to offer such large discounts to customers. Further, an investigative report by Reuters[iii] had confirmed this contention by revealing that as per Amazon’s documents a large percentage of sales made on the platform are from merchants in which Amazon directly or indirectly has an equity stake.

Thus, to prevent such predatory behaviour, the proposed changes seek to prohibit marketplace e-commerce entities from enlisting related parties or associated enterprises as sellers on their platform.

While this step has been taken to prevent any malpractices and ensure fair competition in the market, it may have an impact on the operational structure of e-commerce entities that were permitted to sell products on their marketplace in terms of other applicable laws. Various companies like Flipkart and Amazon have a stake in the retailers that sell products on their marketplace. Thus, this regulation may result in disruption.


6. Overlap with the Competition Act

The proposed amendment to the draft rules aims to introduce a few rules that overlap with the provisions of the Competition Act, 2002. For instance, Rule 5(17) states that no e-commerce entity that would hold a dominant position in any market shall be allowed to abuse its position. This proposed rule coincides with Section 4 of the Competition Act.

Such overlap between the two legislations may raise the possibility of forums shopping that would make the enforcement of the rules difficult.


Conclusion

The amendments proposed to be made to the draft Consumer Protection (E-commerce) Rules, 2020 have failed to address the various issues raised with regards to the draft. The proposed amendments have raised more ambiguities and issues arising from the rules. The proposed changes are a clear case of excessive delegation as they go beyond the limit of the Consumer Protection Act and delve into issues dealt with in the IT Act and Competition Act. The enactment of the proposed changes in the draft rules would create confusion and have a detrimental impact on the enforcement of the Rules.

While there is a need to regulate the e-commerce entities and the Rules aim to take a positive step in imposing certain compliances, duties, and liabilities on the entities. However, the egalitarian approach adopted by the Rules may be detrimental to the smaller e-commerce entities and the consumer.

The issues in the proposed amendments can easily be rectified by the Ministry since they still have not been enacted.

__________________________________________________________________________________ [i] Regina Mihindukulasuriya, Ban or Monitor Amazon & Flipkart’s Festive Sales, they casue Tax Loss- Traders’ Body to FM, The Print, (July, 21, 2021, 10:00 AM), https://theprint.in/economy/ban-or-monitor-amazon-flipkarts-festive-sales-they-cause-tax-loss-traders-body-to-fm/518925/ [ii] Regulation on a Single Market for Digital Services, 2020 [iii] Aditya Kalra, Amazon Documents Reveal Company’s Secret Strategy to Dodge India’s Regulators, Reuters, (July, 19, 2021, 10:00 AM), https://www.reuters.com/investigates/special-report/amazon-india-operation/

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