Dear Reader,
It is with pleasure that we present the 14th edition of Spotlight to you.
This edition will examine the optimality of new regulation in the e-commerce space, i.e. the Consumer Protection (E-commerce) Rules, 2020. At a time when the digital economy is witnessing a boom, these Rules seem to be well-timed, but is it optimal regulation or over-regulation?
We look forward to hearing your thoughts and suggestions.
The Consumer Protection (E-commerce) Rules, 2020: Over-regulation or Optimal Regulation?
The COVID-19 pandemic has shaken markets and economies, the world over. Businesses have shut down and people have lost their jobs. At such trying times, e-commerce marketplaces have emerged victorious. Consumers’ shopping behaviour is now adjusting to new, digital-first habits. This pandemic has made it evident that e-commerce is beneficial to consumers, in ways one could not imagine. To prolong such benefits and ensure that the e-commerce ecosystem develops, it is imperative to examine the optimality of regulations surrounding this ecosystem.
The government recently introduced the Consumer Protection (E-commerce) Rules, 2020 (Rules) to help implement the Consumer Protection Act, 2019 (Parent Act) qua e-commerce. While assessing the optimality of the Rules, the first thing that becomes clear is that it poses greater compliance costs on businesses, which will be disadvantageous especially to new entrant start-ups, and smaller online sellers.
Disparity in Definitions
Rules have various definitional issues that create confusion for the readers. For instance, the term ‘e-commerce’ and ‘e-commerce entity’ are defined in the Parent Act and the Rules, respectively. However, both the definitions do not align with each other, and when reading together, create confusion.
| Parent Act – “E-commerce” | Rules – “E-commerce Entity” |
| Section 2(16): buying or selling of goods or services including digital products over a digital or electronic network
– Uses certain terms in the definition but no individual definition provided for the same, for example, ‘digital products’. |
Rule 3(1)(b): any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity
– Uses different terminology as compared to the Parent Act, for example, ‘electronic commerce’. |
It would have been better if definitions did not make part of the Rules and were left to the domain of the Parent Act, which would have ensured a certain level of singularity and uniformity. For instance, instead of ‘e-commerce entity’, the usage of the term ‘electronic service provider’ (as defined under the Parent Act) in the Rules would have been a better option.
Furthermore, even though the terms – ‘marketplace e-commerce entity’ and ‘inventory e-commerce entity’ – have been sufficiently differentiated in their definitions, the Rules fail to distinguish the liabilities of both models. This distinction is important as inventory e-commerce entities should face higher liabilities (if it fails to maintain ‘platform neutrality’), given its dual role as seller and platform service provider.
Optimality in E-commerce Rules
The table below lists various provisions in the Rules which are the most problematic and have grave implications, especially on new entrants and online sellers.
| Rule | Provision | Implication |
| Rule 4(6): Duties of e-commerce entities |
Where an e-commerce entity offers imported goods or services for sale, it shall mention the name and details of any importer from whom it has purchased such goods or services, or who may be a seller on its platform. | It may not be always feasible for e-commerce entities or online sellers to comply with this provision. E-commerce entities mostly act as a mere intermediary between online sellers and consumers. Similarly, an online seller need not necessarily import directly. More so, since the Rules mandates the display of ‘country of origin’ of products on sale, details about the importers seem to add to the compliance burden unnecessarily. |
| Rule 5(3)(a): Liabilities of marketplace e-commerce entities + Rule 6(4)(d): Duties of sellers on the marketplace |
Every marketplace e-commerce entity shall provide…in a clear and accessible manner, displayed prominently to its users at the appropriate place on its platform…details about the sellers offering goods and services, including the name of their business, whether registered or not, their geographic address, customer care number, any rating or other aggregated feedback about such seller, and any other information necessary for enabling consumers to make informed decisions at the pre-purchase stage. | These provisions require every seller on an e-commerce entity to have a customer care number. This may become problematic for smaller sellers and start-ups and can act as an entry barrier with an increase in compliance cost. It also creates confusion, as the same is mandated for e-commerce entities. There should be a singular customer care number, the liability of which should rest with the e-commerce entity. |
| Rule 5(5): Liabilities of marketplace e-commerce entities |
Every marketplace e-commerce entity shall make reasonable efforts to maintain a record of relevant information allowing for the identification of all sellers who have repeatedly offered goods or services that have previously been removed or access to which has previously been disabled under the Copyright Act, 1957, the Trade Marks Act, 1999 or the Information Technology Act, 2000: Provided that no such e-commerce entity shall be required to terminate the access of such seller to its platform pursuant to this sub-rule but may do so voluntarily. |
This provision will ensure that sellers do not infringe upon the intellectual property rights (IPRs) of others whilst ensuring that their rights are also safeguarded. However, it is not made mandatory for the e-commerce entities to terminate contracts with such sellers, rather gives them an option to do so voluntarily. A codified action in this regard would have brought greater relief to e-commerce businesses about their IPRs. Most importantly, since piracy and counterfeiting are criminal offences, aggressive implementation of relevant provisions would significantly discourage the sale of such products. |
| Rule 6(4)(b): Duties of sellers on the marketplace + Rule 6(5)(e): Duties of sellers on the marketplace |
Any seller offering goods or services through a marketplace e-commerce entity shall…appoint a grievance officer for consumer grievance redressal and ensure that the grievance officer acknowledges the receipt of any consumer complaint within forty-eight hours and redresses the complaint within one month from the date of receipt of the complaint. | It is exceedingly difficult for individual sellers to comply, given they lack adequate resources, especially financially. Moreover, the same duty is imposed on the e-commerce entity. In that case, it becomes confusing as to which grievance officer to approach. Considering the sellers offer goods/services on the e-commerce entity, this duty should only be imposed on the latter. |
| Rule 6(5)(a): Duties of sellers on the marketplace + Rule 7(1)(d): Duties and liabilities of inventory e-commerce entities |
Any seller offering goods or services/every inventory e-commerce entity…shall provide…all contractual information required to be disclosed by law…to be displayed on its platform or website. | This creates an unnecessary obligation to display contractual information on the platform/website, which consumers need not be interested in. This may become problematic for both sellers and the e-commerce entity. |
These select provisions make it exceedingly difficult for smaller online businesses and new platform entrants to thrive in the e-commerce ecosystem. With the increase in compliance costs and greater liabilities, these provisions could substantially inhibit both inter-platform and intra-platform competition, which in turn would be detrimental to consumer’s interests.
Conclusion
The Rules are a commendable attempt in the right direction towards making the digital-first experience for consumers simpler, fairer, faster, and transparent. However, they will increase the compliance burden for businesses, especially start-ups, smaller businesses, and new entrants in the e-commerce space. This goes against the present national vision of onboarding even small shops onto the e-commerce platform and also of promoting Indian start-ups.
Moreover, the Rules do not prescribe any time limit granted to e-commerce entities to comply with these provisions, even though given the current pandemic situation it might be difficult for businesses to follow the course immediately.
In light of the aforesaid, few provisions of the Rules seem to be failing the optimality test and hence could inter alia be detrimental to competition in the e-commerce space, which in turn can go against consumers’ interest. Legislation that has been introduced to protect consumers, should not end up being against their welfare and interest.
Sakhi Shah and Pragya Singh, Research Associates at CUTS International