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Consumer Protection (E-Commerce) Rules, 2020

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Consumer Protection (E-Commerce) Rules, 2020

December 7, 2020

A. INTRODUCTION

The Consumer Protection Act, 2019 (“Act”) and the Consumer Protection (E-Commerce) Rules, 2020 (“Rules”) have been recently notified by the Ministry of Consumer Affairs, Food and Public Distribution. The Rules have come into effect from 23rd July 2020 and have been framed to complement the provisions laid down in the Act. Significant changes have been made to the Consumer Protection Act, 1986 by the Act for the purpose of addressing various issues arising in these times of prevalence of e-commerce and digitization. The Rules provide a regulatory framework for the purchase, sale and the marketing of various goods and services through online platforms, for the purpose of which, all the e-commerce entities and the sellers making use of these entities shall be required to follow and abide by certain obligations with respect to the use of the e-commerce platforms.

This article emphasizes on providing an analysis of the essential provisions of the Rules.

B. APPLICABILITY AND SCOPE

The Rules apply to (a) all goods and services bought or sold over the digital or electronic network including digital products; (b) all models of e-commerce, including marketplace and inventory models of e-commerce; (c) all e-commerce retail, including multi-channel single-brand retailers and single-brand retailers in single or multiple formats; and (d) all forms of unfair trade practices across all models of e-commerce.[1]

Marketplace models are entities providing information technology-based platform for the purpose of facilitation of transactions whereas inventory models are entities which have their own set of goods and services and these entities sell their goods/services directly to the customers. These Rules also apply to those entities which are not established in India but rather provide their goods and services to various Indian customers.

C. EFFECTS ON B2C AND B2B ENTITIES

The Act and the Rules regulate and govern the purchases made by consumers. The Act defines a “consumer” as any person who buys goods or services for consideration but excludes any person who makes a purchase for commercial use, with the exception of goods bought for the purpose of earning a livelihood by means of self-employment. From this definition of the consumer, pursuant to the Act, it can be deduced that the Act and the Rules do not regulate and govern the purchases of goods and services made by companies for such of their commercial requirements and operations. Taking into consideration the aforementioned definition, entrepreneurs and sole partnerships fall within the scope of the definition and are not excluded from this purview. It would be pertinent to note here that if any customer would purchase goods/services for the purpose of self-employment on a B2B platform, such a customer would be considered as a consumer for the purpose of the Act and the Rules and the B2B platform would be held responsible and liable under the Rules, with respect to and the extent of the sale made.

The term “user” has been introduced in the Rules, which has a broad definition, than that of a consumer, as defined hereinabove. A user, pursuant to the Rules, includes any person who accesses or avails any computer resource of an e-commerce entity. Considering the definition of user, the Act includes body corporate in the definition of person, whereby a user may be an individual or a company. The e-commerce entities are required to provide information regarding the sellers on the platform, the details of the goods and services which are available on the platform and the mechanisms of payment which are available on the platform.[2]

From the above, it can be deduced that the introduction of the definition of the term “user” gives creates a window and scope for ambiguity as the Act and the Rules focus towards the governing of consumers. The confusion would be in relation to whether a B2B e-commerce entity would also be required to provide such specific information to users who do not fall within the purview and scope of the definition of a consumer.

D. OFFSHORE ENTITIES HAVING THEIR PRESENCE IN INDIA

The Rules provide for the governing and recognition of entities which are not established in India but offer their goods and services to consumers in India in a systematic manner through offshore online marketplaces. Such offshore entities, pursuant to the Rules, are required to have: (a) a company which in incorporated in India; or (b) a company which is incorporated outside India, having its place of business in India, including through electronic mode, and conducts business activities in India; or (c) an office or branch or an agency outside India owned or controlled by a person resident in India. An Indian resident shall be appointed by such e-commerce entities as a nodal person of contact or an alternate senior designated functionary for the purpose of ensuring the compliance with the Act and the Rules.

The aforementioned lays down that the existing e-commerce entities shall necessarily fall within the scope as mentioned hereinabove and it fails to provide clarity in relation to the e-commerce platforms which are operating in the form of limited liability partnerships and the question here would be as to whether the limited liability partnerships would be required to convert into companies or be incorporated as companies.

E. E-COMMERCE ENTITIES DUTIES AND OBLIGATIONS

Pursuant to the E-Commerce Rules, e-commerce entities are required to (a) display names, addresses and details of contact on the e-commerce platform; (b) grievance redressal mechanisms by having a grievance officer in place; (c) in case of imported goods, the details of the importer; (d) obtaining express consumer consent with respect to the purchase of the goods and services by way of affirmative action rather than an automatic mode of consent which may include pre-ticked checkboxes; (e) appropriate refund mechanism as per RBI rules and paying them within reasonable timelines. Pursuant to the provisions of the Act and the Rules, e-commerce entities shall not indulge in or adopt in unfair trade practices, shall not impose cancellation charges, shall not indulge in any form of price manipulation for the purpose of making unreasonable profits and gains, shall not indulge in arbitrary discrimination of the consumers.

The Rules have failed to provide clarity in relation to which activities would result in the constitution of “unreasonable” or amount to “unjustified profits”. Such a lack of clarity and the existence of ambiguity would result in the consumer protection authority to supervise and scrutinize the pricing mechanisms which are undertaken by the e-commerce entities.  Usually, various entities undertake the use of various algorithms for the purpose of determination of prices which are in-turn based on various factors and the same would be difficult to determine as to whether such profits which arise from such mechanisms of pricing might be considered unreasonable. Due to this lack of clarity, e-commerce entities would now be required to make sure that they are strictly in compliance with their internal compliances and shall have appropriate price justifications in place so as to ensure that their algorithm-based pricing mechanism and pricing decisions would not fall prey to such a restriction. One more such consequence would be that, there would be a discrepancy with respect to the regulation in relation to the same product throughout the various distribution channels with such a strict restriction in relation to the online retail platforms, however, the offline stores are subject to be regulated and governed by the free-market mechanism and such discrepancy would adversely impact the e-commerce entities.

The mechanism of pricing which would be considered a data-driven mechanism may also cause an issue as to the provision of various discounts and offers to a certain class of customers. The Rules do not provide clarity on what shall be considered as a reasonable basis for the purpose of classification of a certain class of customers and the same might lead to unreliability and uncertainty with regard to use of such algorithms for customization of various offers.

F. LIABILITIES OF THE MARKETPLACE MODEL ENTITIES

There are certain specific requirements which need to be fulfilled by marketplace models, in addition to the aforementioned duties, which include the following:

  • Conducting due-diligence of the intermediaries pursuant to the provisions of the Information Technology Act, 2000.
  • Keeping a record of the sellers who have offered their goods repeatedly which have been removed from the online platform pursuant to the intellectual property laws and the Information Technology Act, 2000.
  • Making certain that the descriptions in relation to the goods and services being offered by the sellers are correct and are in consonance with the features and characteristics of the goods being offered by the seller.
  • Providing an appropriate description of any form of differential treatment in relation to the goods, services or the sellers of certain similar category.

The Act has introduced a product seller concept which enables entities to market and put up a product for a commercial purpose on the platform and such entities shall be held liable for any damage caused to the consumers. The marketplace model entities usually also provide certain additional services such as logistics, warehouse, dealing with payment collections etc, however, the Rules are silent in relation to these additional services and such a situation would classify the marketplace entities as sellers, making them liable for the product sold.

Further, marketplace model entities shall be required to put forth and display certain information for the users on their online platform, which would enable the consumers to make decisions, which shall include: (a) all the information which is provided by the sellers shall be provided to the users by displaying it on the platform; (b) modes and methods of payment; (c) refunds, shipments, exchanges, redressal mechanism, warranties etc. (d) feedbacks in relation to the sellers.

G. SELLER DUTIES USING MARKETPLACE MODELS

The sellers which use the marketplace model entities to sell their products online shall ensure that they have a proper contract in place with such e-commerce entities. The sellers shall provide their complete and correct information, the details of the products and services, price details, the country to which they belong, manufacturing details, guarantees, details of delivery, warranties, notices and any such information which would be required to be provided under applicable laws. The sellers shall be required to appoint grievance redressal officers for the purpose of redressal of grievances of any consumers. Pursuant to the provisions of the Act, the sellers shall not indulge in unfair trade practices, shall not refuse to provide refunds and shall not make any false representations.

Hence, the marketplace model entities shall ensure that the sellers are in compliance with the aforementioned requirements for the purpose of adherence with the E-Commerce Rules, which can be done through contractual obligations.

H. INVENTORY MODEL ENTITY LIABILITIES

All the obligations as imposed on the marketplace model entities shall be complied with by the inventory model entities, pursuant to the provisions of the E-Commerce Rules. All the inventory model entities shall strictly comply with the display requirements as mentioned above in the aforementioned parts of this article. The inventory model entities, will not be required to conduct any due-diligence of the sellers pursuant to provisions under the Information Technology Act, 2000. Similar to the marketplace model entities, the inventory model entities shall provide their complete and correct information, the details of the products and services, price details, the country to which they belong, manufacturing details, guarantees, details of delivery, warranties etc. They shall not adopt any such unfair trade practices, shall not refuse to provide refunds and shall not make any false representations pursuant to the provisions of the Act. These entities would be held liable as they affirm the quality and the authenticity of goods and services provided by them and any such action in relation to any losses incurred can be brought against such entities.

I. RAISING TICKETS FOR COMPLAINTS

The e-commerce entities are now required to allocate ticket numbers to consumers in relation to any complaints so that the same would enable the consumers to track their complaints status. Even though this was prevalent, however, these Rules have made it mandatory and compulsory for the e-commerce entities.

J. GRIEVANCE OFFICER

The obligation with respect to the appointment of a grievance officer has now been extended to the sellers as well and the same shall be ensured by the e-commerce entities, while onboarding such sellers for the purpose of provision of their goods and services on their platforms. The grievance officer shall be required to acknowledge the receipt of the complaint within 48 hours and shall redress the complaint within one month from the date of receipt of the complaint.

K. CENTRAL CONSUMER PROTECTION AUTHORITY

The Act has put forth the establishment of a Central Consumer Protection Authority (“CCPA”). An investigation wing shall be constituted in the CCPA which would be headed by Director-General, who shall be responsible for conducting an inquiry and conduct such investigations into any violations of the consumer protection laws. CCPA has the power to cancel licenses, file suits including class action suits, order the entities to reimburse the price of the goods or services, take such suo-moto actions and recall the products.

L. CONTRAVENTION

In the event of contravention of the Act and the Rules, the fine ranges from Rs. 10,000/- to Rs. 50,00,000/- for various events. The Act also imposes imprisonment for a period ranging between 6 months to imprisonment for life, in the event of contravention of different provisions as laid down in the Act.

M. CONCLUSION

With the growth in the use of technology and the prevalence of various online platforms for the purpose of provision of various goods and services including but not limited to e-pharmacies for the provision of medicines, it was mandatory to ensure that a robust law was to be enforced for the purpose of regulating the same and avoiding any form of unfair trade and causing of losses or damages to the consumers. Hence, the implementation of these Rules has played a vital role in bringing about appropriate regulation of e-commerce entities but there are a few ambiguities which still need to be addressed and the Rules shall further be made robust.

Author: Prashant Jain, Co-Founder & Partner; Kriti Sanghi, Associate.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. For any queries, the authors can be reached at (i) prashant@samistilegal.in (ii) kritisanghi@samistilegal.in.

[1] Rule 2 of the Consumer Protection (E-Commerce) Rules, 2020

[2] Section 5 and 7 of the Consumer Protection Act, 2019

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