Comments on the Proposed Amendments to Consumer Protection (E-Commerce) Rules, 2020, Submitted to the Department of Consumer Affairs

R. No.

Provisions

Comments

Information Disclosure for Consumers

Such rules will enable useful transparent information disclosure to consumers, thereby helping them in making informed purchase decisions.

Furthermore, identifying goods on the basis of country of origin is not only useful information disclosure for consumers, but may also provide impetus to the government’s Make in India and Atmanirbhar Bharat initiatives.

Consumer Protection

Level Playing Field between Foreign and Domestic E-commerce Entities

R. No.

Issues requiring Attention

Comments/Suggestions

Hinderance to EoDB

Such requirements although well intentioned for protecting consumer interests, must also take into account a business perspective with respect to EoDB, given that they will add more layers of compliance for e-commerce entities. This may especially be burdensome for new entrants, who may not have the wherewithal to comply with more regulatory requirements.

Accordingly, it is suggested that thresholds of sale volume, or revenue, or years of operation, or the like may be prescribed, and e-commerce entities exceeding such thresholds may only be required to comply with such requirements. Furthermore, conducting a Cost-Benefit Analysis may also be useful, to ascertain that the envisaged benefits of these requirements, outweigh the possible costs of compliance. Alternatively, complying with these requirements may be made voluntary for small e-commerce entities.

These requirements appear to be stemming from the recently notified Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 (IT Rules 2021). It is to be noted that such requirements have only been imposed on ‘Significant Social Media Intermediaries’, i.e., those having more than 50 lakh users in India. A similar threshold on different parameters may also be prescribed for ecommerce entities, exceeding which these provisions may be made applicable. In its current form, the provisions risk hindering the EoDB for small and new ecommerce entities.

A possible solution in this regard, may be to allow smaller e-commerce entities to appoint one personnel for the three roles.

Lack of Clarity

While the intention of the rule appears to be valid for curbing practices of preferential treatment of select seller(s), there is lack of clarity on what may constitute ‘fraudulently intercepting the ordinary course of business using technological means’. This is likely to lead to regulatory ambiguity, which may impact the genuine operations of e-commerce entities.

While the Ministry of Consumer Affairs has clarified that ‘conventional flash sales’ would still be permitted, and only ‘those which are predatory in nature’ have been prohibited, there still exists a grey area on how to accurately and uniformly distinguish between the two. Clear definitions have not been provided as to what will constitute ‘conventional flash sale’ or ‘predatory flash sales’

Similarly, the term ‘managed by such entity’ is also not clear, i.e., whether it is to be interpreted to mean ‘related parties’, ‘associated enterprises’, or is to be interpreted to mean some other relationship between such seller and e-commerce entity. Deferred clarity in this regard would be akin to a knee jerk reaction for such sellers, forcing them to restructure their business or operational model for compliance, while also fuelling regulatory uncertainty.

There appears to be a lack of clarity in the difference between the responsibilities of the nodal person of contact (under 5(1)), and the CCO (under 5(5)(a)), given that both are required to ensure compliance with the Act and Rules.

Also, the rules fail to clarify if two separate personnel need to be appointed as nodal person of contact (under 5(1)), and nodal contact person (under 5(5)(b)).

The issue of appointing such personnel, has also been discussed above, from the lens of EoDB for new entrants in the e-commerce sector.

Repetition

Information Overload for Consumers

While in the interest of transparency, such information is important to be disclosed to users, the same may not be made prominently available on the main page of the platform, since it may lead to information overload for users. Alternatively, such information may be provided in its data protection and/or privacy policy.

Furthermore, this rule lacks clarity as to its contours and purpose. Perhaps the same can be substantiated through an explanation, or making amendments to the definition of cross-selling.

Other Issues

Such liability and prohibition, although well intentioned for protecting consumer interests, goes against the very concept of marketplace e-commerce entity. It is to be noted that such entities merely provide an IT platform on a digital to facilitate transactions between buyers and sellers. Contrary to inventory e-commerce entities, they have no control over the sellers or products registered or advertisements being run on their platform. Accordingly, they must be exempt from any fall-back liability or duty to check misleading advertisements, arising from misconduct from sellers on its platform.

Furthermore, these provisions must also take into account its possible creation of an artificial entry barrier for smaller/new e-commerce entities who may not have the necessary wherewithal to comply with such provisions. Accordingly, this provision may only be made applicable on inventory e-commerce entities.

R. No.

Provisions

Comments

Regulatory Overlaps

There is a difference in these definitions as given in the Rules, and those given in DPIIT’s (erstwhile Department of Industrial Planning and Promotion – DIPP) Press Note 2 of 2018. Such regulatory overlaps may be avoided to avoid regulatory ambiguity and uncertainty.

Furthermore, the broad definition of e-commerce entities may also include travel, food delivery and taxi aggregator service providers, who may inadvertently have to comply with these Rules. Accordingly, there is a need to trim down the definition to specifically include intended entities.

The IT Rules have laid a grievance redress mechanism which needs to be put in place by intermediaries (including e-commerce entities). It remains to be checked, whether additional or separate grievance redress mechanism needs to be put in place for the purpose of compliance with this provision.

The IT Rules have mandated different timelines for grievance redress. They require grievance officers to acknowledge the complaint within 24 hours, and dispose-off the complaint within 15 days. Given that the definition of intermediaries given under the Information Technology Act 2000 (IT Act 2000), encompasses e-commerce service providers, such contradictory timelines for consumer grievance redress are likely to lead to regulatory ambiguity and uncertainty. 

The provision has already been covered under the IT Rules, and rule 6(1) asks ecommerce entities to be complaint with the IT Act and IT Rules. Also, the provision governs a Business to Government (B2G) relationship, and is not consumer facing. Hence, in the interest of avoiding overlaps, rule 5(18) should be removed from these Rules.

The Rules state that the provisions laid under the Act would be applicable in case of a violation of the Rules. However, given that the Rules also entails various overlapping provisions with the IT Rules and Competition Act (as discussed above), it remains to be clarified as to which department would have the right to initiative proceedings in case of violations, and under which Act or Rules. This again leads to regulatory ambiguity and uncertainty.

Beyond the Ambit of the Rules

This rule appears to be targeted to address the ongoing debate on the alleged malpractices of large foreign e-commerce entities – flouting of Foreign Direct Investment (FDI) rules, engagement in anti-competitive practices like predatory pricing, preferential treatment to select sellers, deep discounting, and inventory control, among other manipulative and arbitrary practices. However, it is to be noted that such allegations are currently being investigated by the CCI, as well as the Enforcement Director (ED).

Also, such issues do not appear to be directly related with consumer welfare, and may accordingly be deliberated upon by DPIIT, through a National E-commerce Policy, or a clarification Note on the distinction between marketplace and inventory models of e-commerce. Alternatively, they may also be dealt under the Competition Act, 2002 (Competition Act).

Furthermore, the insertion of ‘if such practices amount to unfair trade practice and impinges on the interests of consumers’ in 5(14)(f) seems unnecessary.

The provision would certainly be beneficial for advancing consumers fundamental right to privacy. However, the issue of consent is being deeply delved by the Personal Data Protection Bill 2019 (PDPB), and is beyond the ambit of the Rules.

Notably, the RS Committee Report had recommended that a provision may be given in the Rules, stating that personal data protection of consumers of e-commerce, would be given under the PDPB. NCLP also recommends such a provision. However, it remains to be checked whether such a provision should be made at this moment, or after the PDPB has been passed as an Act.