PublicationsA PRIMER ON THE DRAFT E-COMMERCE RULES 2021

August 9, 20210
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Introduction

The Central Government vide section 94[1] and section 101(1)[2] of the Consumer Protection Act, 2019 issued Consumer Protection(E-commerce) Rules 2020[3] which were applicable from July 2020. These amendments were put in place as the e-commerce industry had shown exponential growth in recent years and there were quite a few instances of unfair trade practices[4] in the e-commerce sector. Thus, the government issued the E-commerce Rules 2020. However, right after the issuance of these rules the problems pertaining to drip pricing, preferential treatment, flash sales, data privacy further increased.[5]Thus, in order to prevent unfair trade practices, the Indian Government has amended the Consumer Protection (E-commerce) Rules 2020 by issuing a draft Consumer protection (E-commerce) rule 2021[6]. The said rules have been issued for public comments and suggestions from various stakeholders till July 21.[7]

However, in the interim majority of the stakeholders particularly the e-commerce platforms have raised various objections against the draft rules.[8]This article provides a brief description of the major rules, their objective and the problems which may arise in few provisions if these rules are implemented-

Flash Sale Ban

The concept of flash sales entices the consumers to buy a specific product that is being offered at a very high discount rate for a very limited period of time. [9]The Government in order to protect the interests of consumers has banned the back-to-back flash sales option available to the e-commerce platform. The back-to-back flash sales concept is essentially a derivative of the traditional flash sales, though it has not been defined by the government of India, generally, it allows the seller to offer deep discounts, back-to-back on the e-commerce platform. The objective to ban these types of sales was to kill the artificial demand created through this mechanism as sellers tried to leverage the consumer sentiment by offering these discounts without even having the inventory of the offered product.[10]However, there have been objections against this rule as it hampers the functioning of the seller who for instance wants to clear his inventory which is about to expire or perish.

Fall Back Liability

[11]

By virtue of the draft rules the market-based inventory model platforms will be liable to bear the liability of a product in cases where the product is damaged or not in accordance with the original quality etc. The purpose of introducing this rule was to make the consumer’s interest the foremost, as generally, the e-commerce platforms dodge themselves by merely contacting the seller of the damaged product and thereby leaving the consumer with no assured redressal.

Customer Data

Data has over the years developed to be one of the most fundamental benchmarks of determining the growth of a company. It is now believed that the index of data is a better measure than the traditional methods of ascertaining the growth prospects of a company which includes profitability and other such allied factors.[12]Thus, the e-commerce platforms leverage consumer data, they exploit the mass data of consumers by cross-selling it to other platforms. Therefore, in order to protect the interests of the consumers, the Government of India vide the draft e-commerce rules 2021 mandated e-commerce platforms to first get express consent from the consumers before indulging in cross-selling of their data.

Mis-selling[13]Prohibited

Mis-selling, which allows misrepresenting information so as to induce the consumer to purchase something, was a major problem for the consumers and therefore the Government of India through these rules has proposed to prohibit mis-selling by imposing certain guidelines which are to be complied by all the e-commerce platforms. The proposed guidelines have made it mandatory for platforms to include certain measures such as providing a best before the date to the consumers so that all the consumers can make an informed choice.

Promotion of Domestic goods

In order to further promote the Atmanirbhar Bharat initiative of the Prime Minister of India, the Government of India through these rules have mandated all the e-commerce platforms to filter a mechanism, which allows the consumers to identify goods based on the country of origin and also provide similar domestic alternatives of the imported good.[14]This policy shift can cost a lot to the Indian government as it is against the WTO Agreement on Rules of origin[15] which mandates all the member countries to provide equal treatment to imported products and domestic products. This premise can be further substantiated by referring to Canada vs. the United States Meat labeling case wherein it was held that the country-of-origin requirement under the Agricultural Marketing Act, 1946 was against the Agreement on Rules of Origin provisions as it allowed differential treatment of the imported and the domestic good.[16]Thus, it can be asserted that this rule of providing a country of origin label may open the floodgates of litigation for the Indian government.

Related Parties and Associated Enterprises.

This rule proposes to prohibit the related party or associate enterprise of the e-commerce platform to list their products on an e-commerce platform.[17] The intention behind this rule is to provide a level playing field to all the suppliers and discourage the e-commerce platforms to push their own related or associated enterprises on their platform which certainly raises antitrust or anti-competitive issues. There are some issues with this rule especially in India where the problem of very few organizations rendering a diverse set of goods &services is quite pertinent. For instance, Tata has its holding in the F.M.C.G sector as well as in the e-commerce, via Big Basket, platforms. Thus this provision or rule makes it extremely difficult for such conglomerates to function.

Prohibition of listing of products carrying similar brands names as the E-commerce platform

This rule essentially prohibits e-commerce platforms to list products that have a similar brand name as the e-commerce platform.[18] The main intention behind this rule is to provide a level playing field for all the sellers on the platform by discouraging or prohibiting e-commerce to list their own products and give preference to them. This rule stems from the Anti-trust holding of the Google search case[19] wherein Google was held liable for using an algorithm on google search which displayed results in such a way that allowed google to keep more user traffic in its own properties.

Cancellation Charges

By virtue of this rule, the Government of India has proposed to impose cancellation charges on the platform as well if it unilaterally cancels the order.[20] Before this proposed rule the e-commerce platform had the privilege of imposing cancellation charges on the consumer only.

Registration

The proposed rules have further mandated all the e-commerce platforms to get themselves registered with the Department of Promotion of Industry and Internal Trade.[21] The fundamental object behind this amendment is to better regulate all e-commerce platforms by developing a database.

Appointment of Chief Compliance Officer, Nodal Contact Person and Grievance Redressal

[22].

The proposed rules have made it mandatory for e-commerce platforms to appoint the aforementioned officers in order to protect the consumers from all future exploitation and provide a speedy redressal mechanism.

Conclusion

Albeit the objective of the rules is quite clear however it is important for the government to look at both sides of the market viz the buyer, seller and the platform provider before finalizing these rules as some of these rules are extremely vague and broad and which may hamper the growth in this sector as it fails to create a level between both sides of the market.

REFERENCES

[1]The Consumer Protection Act, 2019, No.35, Acts of Parliament, 2019, section 94 (India)

[2]The Consumer Protection Act, 2019, No.35, Acts of Parliament, 2019, section 101(1) (India

[3]The Consumer Protection(E-commerce) Rules 2020, Ministry of Consumer Affairs, Food and Public Distribution, https://consumeraffairs.nic.in/sites/default/files/E%20commerce%20rules.pdf

[4]The Consumer Protection Act, 2019, No.35, Acts of Parliament, 2019, section 2(44) (India)

[5]Anirudh Laskar, E-commerce Companies write to govt. against these rules, Live Mint, (Jun 29, 2021), https://www.livemint.com/industry/retail/ecommerce-companies-to-write-to-govt-against-draft-rules-11624910348605.html

[6]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[7]Anonymous, Deadline for Suggestions on draft e-commerce rules extended till July 21, The Hindustan Times, https://www.hindustantimes.com/business/deadline-for-suggestion-on-draft-e-commerce-rules-extended-till-july-21-101625497613528.html

[8]Samidha Sharma, Why e-tailers are upset over India’s new draft e-commerce rules, The Economic Times, (June 23, 2021 12:56 PM),https://economictimes.indiatimes.com/tech/technology/why-e-tailers-are-upset-over-indias-new-draft-e-commerce-rules/articleshow/83771446.cms?from=mdr

[9]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 3(e),https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[10]Anonymous, Press Release, Ministry of Consumer Affairs, Food and Public Distribution, (June 21, 2021 9:09 PM),https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1729201

[11]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 3(d),https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[12]Sunil Gupta, Driving Digital Strategy to reimagining your business, 447-448 (harvard business review press 2018).

[13]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 3(k),https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[14]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 5 sub rule 7(b),https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[15]Anonymous, Agreement on Rules of Origin, World Trade Organization, https://www.wto.org/english/docs_e/legal_e/22-roo_e.htm

[16]Canada vs United States Meat labeling case, WT/DS384/39.

[17]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 6 sub rule 6(b),https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[18]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 5 sub rule 14(d),https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[19]Gilad Edelman, Google’s Antitrust Cases: A guide for the perplexed, The wired,(Dec 18, 2020 10:49 AM), https://www.wired.com/story/google-antitrust-lawsuits-explainer/

[20]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 5 sub rule 9,https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[21]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 4,https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

[22]The Draft Consumer Protection(E-commerce) Rules 2021, Ministry of Consumer Affairs, Food and Public Distribution, Rule 5 sub rule 5,https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Comments_eCommerce_Rules2020.pdf

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Legal Maxim (October 26, 2021) A PRIMER ON THE DRAFT E-COMMERCE RULES 2021. Retrieved from https://www.legalmaxim.in/a-primer-on-the-draft-e-commerce-rules-2021/.
A PRIMER ON THE DRAFT E-COMMERCE RULES 2021.” Legal Maxim – October 26, 2021, https://www.legalmaxim.in/a-primer-on-the-draft-e-commerce-rules-2021/
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A PRIMER ON THE DRAFT E-COMMERCE RULES 2021.” Legal Maxim – Accessed October 26, 2021. https://www.legalmaxim.in/a-primer-on-the-draft-e-commerce-rules-2021/
A PRIMER ON THE DRAFT E-COMMERCE RULES 2021.” Legal Maxim [Online]. Available: https://www.legalmaxim.in/a-primer-on-the-draft-e-commerce-rules-2021/. [Accessed: October 26, 2021]
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