The Department of Consumer Affairs, Ministry of Corporate Affairs, Food and Public Distribution, Government of India, notified[1] the Consumer Protection (E-Commerce) Rules, 2020 (the ‘E-Commerce Rules’), made in furtherance to the powers under Section 101 of the Consumer Protection Act, 2019 (the ‘Act’), in official gazette vide G.S.R. 462 (E), dated July 23, 2020. This Note summarizes the E-Commerce Rules and also provides our views.

I. Scope and Applicability[2]: The E-commerce Rules are applicable to all goods and services offered over electronic network, all forms and models of e-commerce services, e-commerce entities established outside India and offering services to persons in India, but not applicable to natural persons offering goods or services in personal capacity not being a part of commercial activity.

II. ‘e-commerce entity’[3] is defined to mean any person who owns, operates, or manages any electronic platform for electronic commerce, and excludes seller offering goods or services on third-party e-commerce platforms.

III. ‘inventory e-commerce entity’[4] is an e-commerce entity which owns and sells the goods or services directly to the consumers, and includes single bran retailers and multi-channel single brand retailers.

IV. ‘marketplace e-commerce entity’[5] is an e-commerce entity that offers electronic platform to facilitate between buyers and sellers.

• Duties of e-commerce entities[6]:
  • It shall:
    • Be a company incorporated in India or in foreign country.
    • Appoint a resident in India as a person of contact to ensure compliance with provisions of the Act and the Rules.
    • Display on its platform, its name, address of headquarters and all branches, details of its website, and contact details.
    • Provide adequate grievance redressal mechanism for consumer complaints, and appoint a grievance officer to address such complaints. Such complaints must be acknowledged within 48 from the time of receipt and must be addressed within one month from the date of receipt.
    • In the case of offering imported goods or services for sale, provide the details of the importer or the seller of such goods.
    • Record consumer consent for transaction through explicit action of the consumer.
    • Effect payments of accepted refunds should be in a as prescribed by Reserve Bank of India or other competent authority.
  • It shall not:
    • Adopt unfair trade practices.
    • Manipulate the price of goods or services to gain unreasonable profit.
    • Make arbitrary classification of consumers or discriminate consumers of same class.

• Liabilities of ‘marketplace e-commerce entities’[7]:
  • ‘marketplace e-commerce entities’ operating a platform as an ‘intermediary’ must comply with provisions of Information Technology Act, 2000, and relevant Rules.
  • It shall:
    • Provide user with details about the sellers including name, registration details, address, customer care number, ratings, and other necessary information for the customer to make informed choices.
    • Provide user with information relating to payment methods and payment service provider;
    • Provide user with information relating to refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, and grievance redressal mechanism;
    • Provide user with parameters, along with explanation, used to determine the ranking of the sellers or goods on the platform;
    • Provide user with information provided by the sellers; and
    • Provide user with ticket numbers for complaint preferred by the consumers.
    • Inform sellers, in its contract, with the differential treatment it may give to goods or services or sellers of same category.
    • Maintain information of sellers whose goods or services in the past have been removed for infringement of intellectual property rights. However, the entity is not mandated to disable the access of such seller to the platform, but can voluntarily do so.

• Duties of Sellers on marketplace[8]:
  • It shall not:
    • Engage in unfair trade practices on the platform or otherwise.
    • Misrepresent itself as consumer and post reviews on the platform.
    • Refuse return or refund for want of quality or late delivery. However, no return is required for late delivery due to force majeure.
  • It shall:
    • Have prior written contract with e-commerce entity.
    • Appoint grievance officer for dealing with consumer complaints, and such complaints must be acknowledged within 48 hours and addressed within one month.
    • Ensure advertisements must be consistent with actuals goods or services.
    • Provide its particulars / information to e-commerce entity.

• Duties and Liabilities of ‘inventory e-commerce entities’[9]:
  • It shall:
    • Provide user with information relating to return, refund, exchange, warranty, delivery, mode of payment, grievance redressal, details of payment service provider, total price along with breakup details, and ticket number for consumer complaint.
    • Ensure advertisements of goods or services are consistent with actual characteristics and usage conditions of such goods or services.
    • Bear liability in action related to authenticity of the goods or services.
  • It shall not:
    • Misrepresent itself as consumer and post reviews on the platform.
    • Refuse return or refund for want of quality or late delivery. However, no return is required for late delivery due to force majeure.
      
• Contravention[10]: Violation of the E-Commerce Rules are dealt with by the provisions under the Act.

Our Views

The E-Commerce Rules that have been notified on July 23, 2020, appear to be a stark improvement on the two earlier set of draft rules circulated for comments in August 2019 and November 2019. While the structure of the earlier set of draft rules have largely been retained, i.e., the recognition inter alia of inventory-based e-commerce and marketplace e-commerce under the umbrella of “e-commerce entity”[11], the E-Commerce Rules do propose certain interesting approaches to regulating the e-commerce industry. The theme of these Rules appears to be to sharpen the information disclosure requirements on sellers (including facilitators) of goods/services buttressing the principle caveat emptor and also to facilitate an effective consumer grievance redressal mechanism for e-commerce.

By setting out a broader canvass under “Scope and Applicability”[12], the E-Commerce Rules has shown the intention to include a wider range of activities to be subject to its regulatory framework. However, the range of activities indicated herein may pose peculiar challenges[13] to neutral internet intermediaries[14] such as social media platform etc., to name a few. An e-commerce entity[15], under Rule 4(1) (a) of the E-Commerce Rules is mandatorily expected to be a company incorporated under the Companies Act, 1956 or 2013. This excessive stipulation[16] appears to be misplaced and could now place onerous obligations on persons of other business structures to convert themselves into a company under the Companies Act, 2013, to otherwise save them from any potential violation of these E-Commerce Rules.

It is safe to say that e-commerce entities that currently have a well-articulated grievance redressal mechanism in place, may be seen to be in compliance with the requirement of establishing “adequate grievance mechanism”[17]. It may be pointed out that the requirements of setting out the details of a grievance officer[18] and their obligation[19] appear to be inspired from similar rules of the Information Technology (Intermediaries Rules), 2011[20] intended to bind intermediaries[21].

The E-Commerce Rules do carry significant grey area[22] and additional obligations[23] bordering prescriptions as to internal management practices, that have not been foreseen hitherto even in respect of physical, brick-and-mortar entities (i.e., in respect of entities other than e-commerce entities) and therefore, would require considerable time for the regulated entities to study these E-Commerce Rules and align their businesses with them. However, since these E-Commerce Rules have been notified to come into force[24] on July 23, 2020, it remains to be seen if there will be a clarification/notification issued as to a grace period for businesses to align themselves with the E-Commerce Rules.

[1] http://egazette.nic.in/WriteReadData/2020/220661.pdf

[2] Rule 2 of the E-Commerce Rules.

[3] Rule 3(1) (b) of the E-Commerce Rules.

[4] Rule 3(1) (f) of the E-Commerce Rules.

[5] Rule 3(1) (g) of the E-Commerce Rules.

[6] Rule 4 of the E-Commerce Rules.

[7] Rule 5 of the E-Commerce Rules.

[8] Rule 6 of the E-Commerce Rules.

[9] Rule 7 of the E-Commerce Rules.

[10] Rule 8 of the E-Commerce Rules.

[11] Rule 3(1)(b). Typically, these rules now appear to cover all services such as e-commerce marketplace, mobile application stores, cab-aggregators, food-delivery services, tele-medicines services, e-pharmacies and such other similar internet-based services (including those provided through mobile apps).

[12] Rule 2

[13] R. 2(1)(a) covers all goods and services bought or sold over digital or electronic network including digital products. In view of the above definition, where individuals or entities with limitations of logistics setup, may undertake sale transaction in respect of their product/services using social media platform, the transaction could make such platform, an e-commerce entity in respect of the said transaction. The proviso to R. 2 provides for a test of ‘regularity’ or if a transaction is undertaken on a ‘systematic basis’, to determine its inapplicability on individuals/natural persons undertaking such transaction. The proviso, however, does not define “systematic basis” and its judicial understanding and evolution remains to be seen.

[14] Section 2(1)(w) of the Information Technologies Act, 2000

[15] Supra Foot Note 1

[16] There is no underlying authority in the Consumer Protection Act, 2019 (Act No. 35 of 2019) to require any particular incorporation for a person that may be subject to the provision of the said Act or rules made therein under.

[17] Rule 4(4)

[18] Ibid

[19] Rule 4(5)

[20] Rule 11 of the Information Technology (Intermediaries Guidelines) Rules, 2011

[21] Supra Foot Note 3

[22] Rule 4(10) speaks of refund as prescribed by Reserve Bank of India or any other competent authority thereby leaving room for uncertainty and confusion caused due to the vagueness of the clause. Similarly, Rule 4(11) is too broad and vague in that it appears to be based on certain unsupported speculations. 

[23] The majority of the obligations cast upon sellers on marketplace and sellers on inventory-based e-commerce under Rules 6 and 7, respectively, are (i) stipulations dealing with management practices; and (ii) unavailable to persons of the same class – i.e., sellers, in the physical world.

[24] Rule 1(2)  – “…shall come into force on the date of their publication in the Official Gazette”