Comments on the Proposed Amendments to the Consumer Protection (E-Commerce) Rules, 2020
Submission made to the Ministry of Consumer Affairs, Food & Public Distribution.
In July 2020, the Ministry of Consumer Affairs, Food and Public Distribution (‘the Ministry’) notified the Consumer Protection (E-Commerce) Rules, 2020 (‘E-commerce Rules’) under the Consumer Protection Act, 2019. Aimed at promoting consumer welfare in e-commerce transactions, the E-commerce Rules prescribe specific duties for e- commerce entities, the sellers operating upon such entities and imposes specific liabilities on marketplace e-commerce entities.
In June 2021, the Ministry published draft amendments (‘Draft Rules’) to the E-commerce Rules that seek to propose additional accountability and transparency enabling obligations upon e-commerce entities. The key obligations include the appointment of a Chief Compliance Officer, Nodal Contact Person, a Resident Grievance Officer and the setting up of a Grievance Redressal Mechanism on the entity’s website. Further, marketplace e-commerce entities are proposed to be made liable for the losses suffered by a consumer on the account of a defaulting seller and misleading advertisements by such sellers. In order to curb unfair trade practices and create a level playing field, the Draft Rules seeks to ban certain types of flash sales. It additionally proposes to impose personal liability on the Chief Compliance Officer if he fails to ensure exercise of adequate due diligence on the part of sellers.
Our submissions seek to highlight the following issues in the Draft Rules:
- The homogenous applicability of accountability and transparency enabling obligations upon all e- commerce entities irrespective of their size: The obligations to appoint Chief Compliance Officer, Nodal Contact Person, a Resident Grievance Officer and the setting up of a Grievance Redressal Mechanism may prove to be onerous for smaller e-commerce companies and start-ups. Additionally, the increased compliance costs and exposure to liability may adversely affect competition and decelerate the growth of smaller e-commerce business. Thus, a calibrated approach where additional duties and liabilities are imposed specifically only on e-commerce entities that qualify a certain threshold may be pursued.
- Liability of e-commerce entities for misleading advertising by sellers: The obligation to carry out a vetting process of the numerous advertisements by sellers may prove to be extremely onerous, especially for smaller e-commerce companies. Instead, like the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, due diligence requirements may be placed upon e-commerce entities to curb misleading advertisements as opposed imputing direct liability upon them. Additionally, the scope of misleading advertisements in the Draft Rules may be narrowed down to exclude paid advertisements such as through Google Ads which are used by smaller e-commerce entities to supplement their income.
- Regulatory overlap: The Draft Rules, which seek to create a level playing field for all e-commerce players, have an apparent overlap with the mandate of the Competition Commission of India (‘CCI’), which may provide avenues enforcement overlaps, forum shopping and regulatory arbitrage. Such overlaps may encourage existing e-commerce giants to devote their money and man power to multiple legal proceedings for delaying legal proceedings and enforcement of orders endlessly. Thus, we recommend that the division of responsibility in regulating e-commerce platforms be consciously designed with a view to avoid overlaps of mandate. Additionally, a robust mechanism of co-operation may be devised to collectively harness the complementary expertise between ministries/regulators and the CCI.
Drafting suggestions: Our submission also highlights the need for clarity on the distinction between conventional flash sales and other specific flash sales that are sought to be banned under the Draft Rules. Additionally, in line with comparable provisions of other statutes, the Chief Compliance officer may be allowed to take the defence of reasonable care/due diligence for failure to ensure compliance by e-commerce entities.