Relooking Draft Rules for e-Commerce

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    • Recently, the Department of Consumer Affairs decided to relook at draft rules for e-commerce.

    About

    • Earlier, the Ministry of Consumer Affairs, Food, and Public Distribution notified and made effective the provisions of the Consumer Protection (E-Commerce) Rules, 2020 under the Consumer Protection Act, 2019. 
    • It has received pushback from not only the industry but also some sections of the government.
    • Now, the government is revisiting some provisions pertaining to definitions such as ‘related party’ and ‘e-commerce entity’ proposed in the draft e-commerce rules it published in June.

    Issues and Criticisms

    • Overreach: 
      • The most significant criticism from within the government is related to the perception of “overreach” by the Consumer Affairs Department — venturing into areas where other departments such as the Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Electronics & Information Technology (MeitY) are already working.
    • Some contrary rules:
      • Several contradictions in the draft rules that have triggered confusion among sectoral players have also been flagged, including some provisions that run contrary to the rules governing the sector issued earlier by the DPIIT.
    • Broad definition of “related party“:
      • The “broad definition” of ‘related party’ has been flagged — as one “that can potentially include all entities such as those involved in logistics, any joint ventures, etc.”,
      • This definition vastly expands the remit of the new rules.
      • The definition needs some more clarity, otherwise it will be difficult not only for foreign players like Amazon and Flipkart, but even homegrown companies like Tata and Reliance to have their various brands such as 1mg, Netmeds, Urban Ladder, Milkbasket, etc. sell on their super-apps.
    • Some joint ventures will also face problems:  
      • The joint venture between the Tata Group and Starbucks, which would be considered a related party under the proposed provisions, and would not be able to sell products on a Tata super-app.
      • The draft rules say every e-commerce marketplace must ensure that nothing is done by related parties or associated enterprises that the e-commerce entity itself cannot do. Sources said the provisions might be changed to have certain exclusions in the definition to accommodate these concerns. 
    • Fall back liability:
      • It has been highlighted that in some cases, provisions such as fall-back liability is counter-effective to the DPIIT’s policy for foreign funding of e-commerce companies that disallows these firms from having control over their inventory.
      • On the one hand the FDI policy prohibits companies such as Amazon and Flipkart from having control over the inventory sold on their platforms, while on the other, the e-commerce rules of the Consumer Affairs Department holds these platforms liable in case a seller fails to deliver goods or services due to negligent conduct, which causes loss to the customer.
      • Provisions like fall-back liability are antithetical to the way e-commerce business models have evolved and they are even in contravention of the existing rules.
    • Strict Regulations:
      • Some of the proposed provisions like having a compliance officer, adherence to law enforcement requests, etc., follow in the footsteps of the Information Technology (Intermediary) Rules, 2021 issued by MeitY. 
      • These IT rules are facing legal challenges in several courts, including the Delhi High Court, Bombay High Court, and Karnataka High Court.

    (Image Courtesy: ET )

    Draft Rules for e-Commerce

    • The government has proposed changes to the e-commerce rules under the Consumer Protection Act to make the framework under which firms operate more stringent. 
    • Ban on Flash Sale: The draft rules seek to ban “specific flash sales” by e-commerce entities. 
    • Fall-back Liability: The rules have also introduced the concept of “fall-back liability”, which says that e-commerce firms will be held liable in case a seller on their platform fails to deliver goods or services due to negligent conduct, which causes loss to the customer.
    • Restricting Manipulation: The rules also propose to restrict e-commerce companies from “manipulating search results or search indexes”.
    • Consumer Consent: E-commerce companies will also be restricted from making available to any person information pertaining to the consumer without express and affirmative consent. 
    • Provide Domestic Alternatives: Further, the companies will have to provide domestic alternatives to imported goods, adding to the government’s push for made-in-India products.
    • National Consumer Helpline: The draft amendment also proposes to ask e-commerce firms to mandatorily become a part of the National Consumer Helpline.
    • Mandatory Registration: Any online retailer will first have to register itself with the Department of Promotion for Industry and Internal Trade (DPIIT).
    • No Differential Treatment: The rules propose mandating that no logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.
    • Associated Enterprise: Any entity having 10 percent or more common ultimate beneficial ownership will be considered an “associated enterprise” of an e-commerce platform.
    • Time-bound Information: The draft rules propose that the information sought by the government agency will have to be produced by the e-commerce company “within 72 hours of the receipt of an order from the said authority”.

    Impact of Draft Rules

    • On flash sale:
      • Government’s original proposal indicated a blanket ban on all flash sales but a clarification later said it won’t apply for ‘conventional’ flash sales. These are typically pre-decided sale events for new smartphones with limited stocks at a discount. It is not clear what’s a conventional flash sale.
    • On display or promotion of advertisement by sellers
      • E-tailers should not allow ‘misleading’ ads potentially on pricing, quality, guarantee. They shouldn’t advertise sellers offering discounts. This could also impact the growing online advertising business of e-tailers.
    • On country of origin
      • E-tailers have to ensure product listings have the details of country of origin (CoO)—an arduous task given that Flipkart and Amazon have millions of products listed on their platforms.
    • On cancellation charges and explicit consumer consent
      • E-tailers typically highlight certain products as non-returnable at pre-purchase stage and generally offer free exchange or refunds to consumers. Explicitly asking consumer consent can only strengthen the online shopping experience for consumers.
    • No e-commerce entity shall indulge in mis-selling of goods or services
      • The likes of Flipkart and Amazon India operate the marketplace and they are not directly involved in selling goods. For platforms offering services, like food delivery, travel, they too act as a marketplace.
    • E-tailers shouldn’t mislead users by manipulating search results
      • The jury is still out on how these algorithms work on online marketplaces in India and abroad.  In India, Flipkart and Amazon India are accused of promoting their brands, sellers by tweaking search results.
    • Etailers shouldn’t permit usage of their name for brands—if such practices amount to unfair trade practice and impinges on the interests of consumers.
      • Private brands of Flipkart and Amazon, who have the prefix of the e-commerce brand attached to them will be under scrutiny if it turns out to be anti-consumer interest and anti-competitive.
    • On sponsored listing of products and services ‘distinctly identified’:
      • This can only bring further transparency for online shoppers so they know more about the purchase they are about to make.
    • On need of data to agencies within 72 hours
      • Providing information to agencies within a certain period of time, provided there is adequate reasoning, could be more compliance for e-tailers and sellers than anything else.
    • No logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.
      • E-tailers typically want more sellers to ship their goods through the marketplace’s in-house logistics arm so it could be delivered sooner.

    Way Ahead

    • These rules appear to blatantly limit consumer choices further through provisions such as blanket ban on flash sales, etc. despite the regulations being routed through the Ministry that is mandated to uphold consumer rights.

    Source: IE