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Proposed Amendments to Consumer Protection (E-Commerce) Rules, 2020

On Monday, June 21, 2021, the Department of Consumer Affairs made available, in public domain, the proposed amendments to Consumer Protection (E-Commerce) Rules, 2020. The document made available has been released with the view of inviting comments/suggestions of the industry on the proposed amendments to the rules that were notified in July 2020. This comes in the backdrop of a growing impetus to the e-commerce industry, which is estimated to rise to nearly $200 bn in size by 2026, due to COVID-19 and increasing digitization in trade of goods and services.  

The following table envisages to deduce the implications of the proposed amendments as instituted by the Department of Consumer Affairs, highlighting the changes, including additions and omissions proposed by the amendment.  

(Additions are marked in green, with omissions in pink)

Section Sub-Section and Proposed Amendment Implications of Proposed Amendment
3. Definitions (b) “e-commerce entity” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, including any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform and any ‘related party’ as defined under Section 2(76) of the Companies Act, 2013, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity.
  • Extends the definition of e-commerce entities to include entities utilized by platforms for fulfilment, etc., of goods and services delivered on their platforms.
  • Companies may ensure that entities such as those rendering last mile delivery services comply with the relevant rules and regulations e-commerce entities themselves are mandated to follow.
(c) “Cross-selling” means sale of goods or services which are related, adjacent, or complimentary to a purchase made by a consumer at a time from any e- commerce entity with an intent to maximise the revenue of such e-commerce entity.
  • Clause intends to ensure transparency, thereby, preventing any practices that may be construed as misleading and manipulative. This is to ensure a fair opportunity to domestic products.
(d) “Fall back liability” means the liability of a marketplace e-commerce entity where a seller registered with such entity fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity which causes loss to the consumer;
  • Definitional information meant as guidance for compliance.
(e) “Flash sale” means a sale organized by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw large number of consumers.
Provided such sales are organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.
  • Proposal intends to prevent instant, unannounced sales that maybe manipulated to give advantage or preferential treatment to a particular seller or a group of sellers; It also intends to prevent cheating and unfair trade practices on e-commerce platforms and bring transparency for the benefit of the consumers.
  • Definitional information meant as guidance for compliance.

(k) “mis-selling” means an e-commerce entity selling goods or services by deliberate misrepresentation of information by such entity about such goods or services as suitable for the user who is purchasing it.

Explanation:
Misrepresentation here means:

  1. the positive assertion, in a manner not warranted by the information of any entity making it, of that which is not true;
  2. any display of wrong information, with an intent to deceive, gain an advantage to the e-commerce entity committing it, or any seller claiming under it; by misleading consumer to the prejudice of e-commerce entity, or to the prejudice of anyone claiming under it;
  3. causing, however innocently, a consumer to purchase such goods or services, to make a mistake as to the substance of the thing which is the subject of the purchase.
  • Intends to prevent misrepresentation of information of goods and services by e-commerce entities that hold a dominant position to abuse its position.
  • Definitional information meant as guidance for compliance.
4. Registration of e-commerce entities
  1. Every e-commerce entity which intends to operate in India shall register itself with the Department for Promotion of Industry and Internal Trade (DPIIT) within such period as prescribed by DPIIT for allotment of a registration number.
    Provided that the DPIIT may extend the period for registration of such e- commerce entity for sufficient reason, to be recorded in writing.
  2. Every e-commerce entity shall ensure that such registration number and invoice of everyday order is displayed prominently to its users in a clear and accessible manner on its platform
  • Registration with DPIIT ensures transparency of e-commerce entities and their system of working, as well as restricts them to display or promote any misleading advertisement to the users.
  • E-Commerce entities must ensure such registration to showcase to show for their compliance and authenticity of operations.
5. Duties of e-commerce entities
  1. Where an e-commerce entity is a company incorporated under the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) or a foreign company covered under clause (42) of section 2 of the Companies Act, 2013 (18 of 2013) or Partnership incorporated under the Indian Partnership Act, 1932 (9 of 1932) or a Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009) an office, branch or agency outside India owned or controlled by a person resident in India as provided in sub-clause (iii) of clause (v) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), it shall appoint a nodal  person of contact or an alternate senior designated functionary who is resident in India, to ensure compliance with the provisions of the Act or the rules made there under.
  • Proposed amendment aims to widen the definition of entities covered under the clause. 
  • Additional e-Commerce entities that are currently incorporated as LLPs and Partnerships must also appoint a nodal person of contact, in compliance with necessary rules prescribed.
  1. No e-commerce entity shall allow any display or promotion of misleading advertisement whether in the course of business on its platform or otherwise.
Proposed amendment aims to protect consumers from all forms of misleading advertisements. It requires e-commerce entities to take measures to prevent misleading advertisements on their respective platforms.
  1. Every e-commerce entity shall establish an adequate grievance redressal mechanism having regard to the number of grievances ordinarily received by such entity from India, and shall appoint :a grievance officer for consumer grievance redressal, and shall display the name, contact details, and designation of such officer on its platform.
    1. appoint a Chief Compliance Officer who shall be responsible for ensuring compliance with the Act and rules made thereunder and shall be liable in any proceedings relating to any relevant third-party information, data or communication link made available or hosted by that e-commerce entity where he fails to ensure that such entity observes due diligence while discharging its duties under the Act and rules made there under:
      Provided that no liability under the Act or rules made thereunder may be imposed on such e-commerce entity without being given an opportunity of being heard.

      Explanation. — For the purpose of this clause “Chief Compliance Officer” means managerial personnel or such other senior employee of an e-commerce entity who is a resident and citizen of India.

    2. appoint a nodal contact person for 24x7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions made in accordance with the provisions of law or rules made thereunder.
      Explanation. — For the purpose of this clause “nodal contact person” means employee of an e-commerce entity, other than the Chief Compliance Officer, who is resident in India and a citizen of India;

    3. appoint a “Resident Grievance Officer”, who shall, subject to clause (b), be responsible for the functions referred to in sub-rule (2) of rule 3.
      Explanation. — For the purpose of this clause, “Resident Grievance Officer” means the employee of an e-commerce entity, who is resident and a citizen of India;

    4. Grievance redressal mechanism of e-commerce entity:
       

      1. The e-commerce entity shall prominently publish on its website, mobile based application or both, as the case may be, the name of the Grievance Officer and his contact details as well as mechanism by which a user may make complaint against violation of the provisions of this rule or any other matters pertaining to the resources and services made available by it on its platform, and the Grievance Officer shall –
         

        1. receive and acknowledge any order, notice or direction issued by the appropriate government, any competent authority or a court of competent jurisdiction.
           

Proposed amendment aims to institute sound consumer grievance redressal mechanisms and inform the consumers of the same.

As against requiring e-commerce entities to appoint a grievance officer and displaying the name, designation and contact details, under the proposed amendment under clause, instead of just one grievance officer, e-commerce firms will now be required to appoint a “Chief Compliance Officer”, a “Nodal contact person,” a “Resident Grievance Officer” and also prominently display the “Grievance redressal mechanism” in the interest of consumer protection. 

(6) 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.

(7) Where an e-commerce entity offers imported goods or services for sale, it shall:

  1. 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;
     
  2. identify goods based on their country of origin, provide a filter mechanism on their e-commerce website and display notification regarding the origin of goods at the pre-purchase stage, at the time of goods being viewed for purchase, suggestions of alternatives to ensure a fair opportunity for domestic goods;
  3. provide ranking for goods and ensure that the ranking parameters do not discriminate against domestic goods and sellers.
  • Against requiring mentioning of the name and details of any importer or seller, proposed amendment requires e-commerce entities engaged in selling imported goods and services to offer additional mechanisms to help consumers make an informed decision when buying imported products; disclosures on imported goods and services are meant to be instructive to consumers when making a decision based on country of origin of the products and exercising an informed choice.

(11) No e-commerce entity shall indulge in mis-selling of goods or services offered on its platform.

  • Proposed amendment intends to implore e-commerce entities to refrain from mis-selling of goods or services offered on their platform.

(12) An e-commerce entity which is engaged in cross-selling of goods or services shall provide adequate disclosure to its users displayed prominently in a clear and accessible manner on its platform:

  1. Name of the entity providing data for cross-selling, 
  2. Data of such entity used for cross-selling.
  • Proposed amendment aims to help consumers make an informed decision when buying products; disclosures on cross-selling of goods and services are meant to be instructive to consumers when making a decision based on the identity of entity gathering and providing such data and the nature of data being used.

(14) No e-commerce entity shall-

  1. mislead users by manipulating search result or search indexes having regard to the search query of the user;
  2. permit usage of the name or brand associated with that of the marketplace e-commerce entity for promotion or offer for sale of goods or services on its platform in a manner so as to suggest that such goods or services are associated with the marketplace e-commerce entity;
  3. make available any information pertaining to the consumer to any person other than the consumer without the express and affirmative consent of such consumer, no such entity shall record such consent automatically, including in the form of pre-ticked checkboxes;
  4. use information collected by marketplace e-commerce entities, for sale of goods bearing a brand or name which is common with that of the marketplace e-commerce entity or promote or advertise as being associated with the marketplace e-commerce entity, if such practices amount to unfair trade practice and impinges on the interests of consumers.
  • Proposed amendment aims to help consumers exercise an unbiased choice when purchasing goods and services and ensure customer data privacy, it also aims to prevents cheating and unfair trade practices on e-commerce platforms and bring transparency to the consumers.

(15) Every e-commerce entity shall ensure that sponsored listing of products and services are distinctly identified with clear and prominent disclosures.

  • Proposed amendment aims to help consumers make an informed decision when buying products; disclosures on sponsored listings are meant to be instructive to consumers when making a decision based on product listing, placement, etc.

(16) No e-commerce entity shall organize a flash sale of goods or services offered on its platform.

  • Proposed amendment intends to prevent unplanned, unannounced sales that maybe manipulated to give advantage or preferential treatment to a particular seller or a group of sellers, and to prevent unfair trade practices and ensure transparency for the consumers.

(17) No e-commerce entity which holds a dominant position in any market shall be allowed to abuse its position.

Explanation - For the purpose of this clause “abuse of dominant position” shall have the same meaning as prescribed under Section 4 of the Competition Act, 2002.

  • Guidance on expected ethical behaviour.
  • E-Commerce entities must aim to promote fair market practices.

(18) Every e-commerce entity shall, as soon as possible, but not later than seventy two hours of the receipt of an order, provide information under its control or possession, or assistance to the government agency which is lawfully authorised for investigative or protective or cyber security activities, for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cyber security incidents:

Provided that any such order shall be in writing clearly stating the purpose of seeking information or assistance, as the case may be.

  • Proposed amendment seeks to establish dedicated timelines for e-commerce entities to comply with requests from law enforcement agencies.
  • Companies may accordingly institute internal mechanisms to ensure compliance with such requests.

(19) Every e-commerce entity shall display clearly and prominently in its invoice the name of the seller in the same font size as that of the e-commerce entity’s name

  • Guidance on compliance.

6. Liabilities of marketplace e-commerce entities

(3) Every marketplace e-commerce entity shall provide the following information in a clear and accessible manner, displayed prominently to its users at the appropriate place on its platform:

  1. details about the sellers offering goods and services, including the name of their business, whether registered or not, country of origin, 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;
  2. information relating to return, refund, exchange warranty and guarantee, best before or use before date delivery and shipment, modes of payment, and grievance redressal mechanism, and any other similar information which may be required by consumers to make informed decisions;
  • The proposed amendment is corollary to provisions requiring display of ‘Country of Origin’ on commodities by importers, manufactures, packers and e-commerce entities under the amendments made to Legal Metrology (Packaged Commodities) Rules, 2011, in 2018. This proposal is necessary to ensure that consumers can make an informed decision when buying products from the online platform.
  • Proposed amendment under clause (c) on inclusion of information on ‘best before or use before date’ is corollary to amendment under Section 7 (5)(d), that requires sellers to disclose such information to marketplaces. Further, existing rules for disclosure of product information, such as rule 6, sub-rule (1) (da) of Legal Metrology (Packaged Commodities) (Amendment Rules) 2017, require display of information on ‘best before or use before date’ on commodities for human consumption. Inability to provide such information is an omission that would incur penalty, as applicable under relevant laws. 

(5) No logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.

Provided that each logistics service provider of a marketplace e-commerce entity shall provide a disclaimer including terms and conditions governing its relationship with sellers on the marketplace e-commerce entity platform, a description of any differentiated treatment which it gives or might give between sellers of the same category.

Explanation: 

Logistics service provider for all extent and purposes of this rule shall be a company engaged in business of providing any one or more services, which include rail/road/sea/air transportation, air cargo, cargo consolidation, ware housing, inland container depot, cold chain services, port terminal services or any other such services for the goods and services sold on any marketplace e- commerce entity platform.

  • Proposed amendment provides guidance to e-commerce entities that their logistics providers cannot differentiate between sellers within the same category. This is to ensure that no preferential treatment is accorded to a few sellers at the cost of other sellers on the platforms, eventually allowing consumers access to wider pool of products.
  • Definitional information meant as guidance for compliance.

(6) Every marketplace e-commerce entity shall

  1. ensure that it does not use any information collected through its platform for unfair advantage of its related parties and associated enterprises;
  2. ensure that none of its related parties and associated enterprises are enlisted as sellers for sale to consumers directly;
  3. ensure that nothing is done by related parties or associated enterprises which the e- commerce entity cannot do itself;

Explanation

  1. Related parties shall have the same meaning as assigned to it in section 2(76) of the Companies Act, 2013;
  2. Two enterprises shall be deemed to be associated enterprises, if:
    1. enterprises are related to each other through a common chain of directors or managing partners;
    2. enterprises are related to each other through a common chain of shareholders, where such shareholders hold not less than 5 per cent of the shareholding in the related enterprises;
    3. enterprises having 10 per cent or more common ultimate beneficial ownership;
    4. where one enterprise can exercise a right to veto any decision, appoint one or more director(s) or in any other manner influence other entity’s decision making on any matter either through its shareholding or through an agreement including a shareholders’ agreement;
    5. where one enterprise holds, directly or indirectly, shares carrying the voting power in the related entities; 
    6. where any person or enterprise holds, directly or indirectly, shares carrying the voting power in the related entities;
    7. there exists between the enterprises, any relationship of mutual interest, as may be prescribed.
       
  • The norms under the proposed amendment are meant to safeguard interest of consumers and define duties of sellers/marketplace across the following aspects:
  • e-commerce entities are requested to ensure that their platforms aren’t used to provide an unfair advantage of a set of related parties. Further, marketplace may not have any related/affiliated parties enlisted as sellers on the portal.
  • Section 6 (6) (c) further offers guidance to help ascertain to how and when entity might be construed to be an associated enterprise.
  • In adhering to the proposed norms, existing rules as defined under relevant rules and regulations such as Foreign Direct Investment Policy (FDI) and Companies Act, 2013 should be referred.

(7) No marketplace e-commerce entity shall sell goods or services to any person who is registered as seller on its platform;

  • Proposed amendments intends to ensure that e-commerce entities do not sell goods & services to sellers who are registered on their platforms for conducting business.

(8) No marketplace e-commerce entity shall advertise a body of sellers for the purpose of subsidizing a sale on its platform;

  • Guidance on expected ethical behaviour.
  • No such preferential treatment may be facilitated on the platform, thereby, giving equal visibility to sellers and extending the right of choice of consumers.

(9) A marketplace e-commerce entity shall be subject to a fallback liability where a seller registered on its platform fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity which causes loss to the consumer.

  • Under the proposed amendment, the scope of liability for e-commerce entities maybe extended in case where the seller registered on the "platform fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace"

7. Duties of sellers on marketplace

(5) Any seller offering goods or services through a marketplace e-commerce entity shall provide the following information to the e-commerce entity to be displayed on its platform or website:

  1. all relevant details about the goods and services offered for sale by the seller including country of origin best before or use before date, information related to return, refund, exchange, expiration date, details of best before usage, warranty and guarantee, delivery and shipment, cost and return shipping, mode of payments, and any other similar information which are necessary for enabling the consumer to make an informed decision at the pre-purchase stage;
  • ‘Best before or use before date, exchange expiration date, details of best before usage, mode of payments’ are the new standalone additions to the sub-section, encapsulating duties of a seller on marketplace. These constitute necessary safeguards for consumers to assess viability of the purchase of commodities and its implications on health.
  • Amendments, such as those related to ‘return, refund, exchange, warranty or guarantee’ supplement existing provisions as separate line items under clause (g)-(i) of sub-section (5).

8. Duties and liabilities of inventory e-commerce entities

(1) Every inventory e-commerce entity shall provide the following information in a clear and accessible manner, displayed prominently to its users:

  1. accurate information related to return, refund, exchange, best before or use before date, warranty and guarantee, delivery and shipment, cost of return shipping, mode of payments, grievance redressal mechanism, and any other similar information which may be required by consumers to make informed decisions.
  • Proposed amendment on inclusion of information on ‘best before or use before date’ is corollary to proposed amendment under Section 7 (5)(d), that requires sellers to disclose such information to marketplaces. Further, existing rules for disclosure of product information, such as rule 6, sub-rule (1) (da) of Legal Metrology (Packaged Commodities) (Amendment Rules) 2017, require display of information on ‘best before or use before date’ on commodities for human consumption. Please refer to relevant sub-rule under the rules for further information.

Conclusion

While the views and comments on the ‘Proposed Amendments to Consumer Protection (E-Commerce) Rules, 2020 are solicited by Department of Consumer Affairs by July 6, 2021, Invest India is also conducting a roundtable for relevant stakeholders from the government and industry. To know more about the same, and/or to put forth your views regarding the proposed amendment, please reach out to us at retail@investindia.org.in 

This blog has been authored by Sriram Ganesh, Taksh Sharma, Rajat Yadav