This article is written by Harsh Gupta from the School of law, HILSR, Jamia Hamdard. This is an exhaustive article which deals with new proposed amendments to Consumer Protection Rules, 2020.
Table of Contents
E-commerce simply refers to a process wherein commercial transactions such as buying and selling are taking place online. This particular method of purchasing or selling goods online is effectively called e-commerce. Over the past few years, e-commerce has gained popularity in both developed and developing countries throughout the world, and it has grown at an exponential pace. Thus, it is becoming incredibly pertinent and extremely important for the Governments to regulate this particular industry, and as of now, we do not have a common rule across all the countries. But concerning e-commerce, the United Nations General Assembly set up the United Nations Commission on International Trade and Law (UNCITAL). The United Nations Commission on International Trade and Law was set up by United Nations General Assembly in 1996 and the authority has come up with certain model law concerning e-commerce, i.e, Model E-commerce Law in the year 1996 itself and this model allows various member countries to have their law to regulate e-commerce. Based on the model, the Indian Government has introduced the Information Technology Act, 2000 and Consumer Protection Act, 1986.
Consumer protection law, e-commerce rules & recent amendments
Consumer Protection Law in the Indian economy is considered as ‘Magna-Carta’, which protects the buyers in the market. It was introduced in 1986 and has been amended recently. So currently which is applicable is Consumer Protection (Amendment) Act, 2019 and under this act, there are two very important sections-
Section 94 allows the various governments at the central level or it allows the Central Government to come out with the rules to protect customers in the e-commerce sector.
Section 101 allows the government to notify rules of the provision to protect the interest of the customers under the e-commerce segment.
After this, the government of India in the year July 2020 came out with particular e-commerce guidelines but because of various complaints received against e-commerce companies, to plug certain loopholes in rules, the GOI has proposed an amendment to the rules which it had earlier proposed in the year 2020.
Reasons for new proposal to amend E-commerce Rules, 2020
The governments’ purpose for the proposal of new guidelines
In India, the e-commerce sector has ballooned in terms of market value. As per the latest report, the e-commerce sector accounts for around 80 billion dollars worth of market value. As per various estimations, this particular value is going to increase in the coming days and as per various surveys, it has been shown that by 2024, the total number of buyers through e-commerce is going to be 200 million and because of the penetration of the internet connection in case of the Indian market, the number of buyers or the number of consumers through e-commerce is only going to increase. The government has now enacted rules to regulate this practice
Ministry of Consumer Affairs(MCA) proposed amendments to Consumer Protection (E-COMMERCE) Rules, 2020, The rules which were notified under the Consumer Protection Act, 2019 that aims to protect the interests of consumers and encourage free and fair competition in the market. Proposed amendments aim to bring more transparency to e-commerce platforms and further strengthen the regulatory regime.
Competition Commission of India (CCI) investigated the working of few companies and found abuse of market dominance and also companies were giving preferential treatment to sellers in which they hold indirect stakes. Deep discounting practices were prevalent in the e-commerce sector which has led to complaints from offline retailers. The amendment was needed to tackle the growing concerns of preferential treatment as certain e-commerce entities are engaged in limited consumers’ choices.
Significance of proposal
- In addition to ensuring compliance with the Consumer Protection Rules, 2020, it would strengthen the grievance redressal mechanism.
- This proposal comes amid an investigation by the Competition Commission of India (CCI) into alleged abuse of market dominance by large e-commerce platforms and their provision of preferential treatment to sellers.
Certain guidelines were issued against e-commerce companies are as follows:
- Display of ‘country of origin’ on products is mandatory.
- Display the total amount of the goods and services on offer.
- Mention when products are due to expire.
- Provide details about returns, refunds, exchanges, warranties, and guarantees, as well as delivery and shipment.
- There must be no unfair profiteering from manipulating prices.
- Cancellation charges are not applicable.
- Describe the various payment options available.
- Information about the ‘sellers’ offering goods and services.
- Violations to attract penalty actions under Consumer Protection Act, 2019.
When an e-commerce entity offers significant discounts or promotions on products for a very short period, it is known as flash sales. Brands attract potential customers via e-mails, social media campaigns, push notifications, and SMS. The content used for this purpose enables the shoppers to immediately find out the amount of discount.
Aim of flash sale
The main aim of the flash sale is to get customers to impulse buy, increase short-term sales and surplus stocks. Conventional e-commerce flash sales are not banned. Only specific flash sales or back-to-back sales that limit customer choice, increase prices and prevents consumer a level playing field is not allowed.
Rule 5(14)(c) prohibits e-commerce entities from manipulating search results or indexes related to the search query of the user. The practice of manipulating search results or fixing them to suit a company’s commercial interests has been punished by competition authorities in the past. As discussed in the CCI’s market study, search rankings play a significant role in influencing consumer choices. There is the possibility of platforms competing in their marketplaces manipulating search results to give prominence to their products or services, causing platform neutrality to be compromised. In this regard, it is a step in the right direction, as the Department of Consumer Affairs (DCA’s) objectives can be furthered by making it clear how search rankings are determined on e-commerce platforms.
If any concern is raised concerning cancellation charges, concerning cancellation a violation of rule 5(14)(c) as to any marketplace e-commerce entity, a systematic and resource-intensive investigation must be carried out, as it will assess the search ranking algorithm. Transparency in the ranking algorithm is one way to prevent this. Transparency, however, should not come at the expense of sellers or service providers being able to game the system. Thus, a balanced approach is needed.
A study of private label brands using data collected by marketplaces
E-commerce marketplaces are increasingly participating on their platforms through various methods, including Private Label Brands (“Private Labels”). By creating private labels, companies can distribute goods manufactured by others under their brand names. With the market study, the CCI has taken note of the competition concerns that arise from the conflict of interest between the platform acting both as a marketplace and as a seller through private labels. In such situations, the platform has been observed to have the tendency and incentive to control the marketplace in favour of their private labels, as it has a natural tendency and incentive to do so.
Rule 5(14)(d) attempts to address this same concern. In it, it prohibits the use of the name or brand of a marketplace e-commerce entity for the sale or promotion of goods or services in a way that suggests the goods or services are associated with the entity. In the event of a violation of that requirement, Private Labels will lose all indication of their relationship to the platform through which they are being sold.
Moreover, the position contemplated by rules 5(14)(f) and 6(6)(a) should also be considered. Under the provisions, marketplace e-commerce entities are prohibited from using information collected through their platforms to benefit:
- All goods bearing a brand or name similar to the entity’s name (Rule 5(14)(f));
- Entities with a relationship to the related party (Rule 6(6)(a)).
The provisions of Rule 5(14)(f) will only apply if the practice entails an unfair trade practice, as defined in section 2(47) of the Consumer Protection Act, 2019 and impacts the interests of consumers. The use of the information for an unfair advantage falls under Rule 6(6)(a).
Following rule 5(14)(d), AmazonBasics products will have to be rebranded in such a way that the products’ association with Amazon cannot be discernible by the average consumer. A product name that is substantially rebranded so that it does not bear a name or brand that is common with that of the entity would not be covered by rule 5(14)(f). Amazon will be able to use marketplace collected information for the sale of the rebranded product, even if that constitutes an unfair trade practice that interferes with the interests of consumers. It is noteworthy that, back in November 2020, the European Commission formed a prima facie view that Amazon was using data associated with marketplace merchants or service providers in connection with its private labels to avoid the normal risks of retail competition.
Alternatively, Amazon will not be able to use marketplace collected information for the benefit of its related parties or associated entities following rule 6(6)(a). Consider, for example, the case of Cloudtail India Pvt. Since Cloudtail (“Cloudtail”) is a related party, according to Rule 6(6)(b), it is not even allowed to sell directly to consumers. As a result, rule 6(6)(a) would only apply to entities like Cloudtail who sell goods on Amazon through a third party.
The other amendments are as follow-
- Additionally, firms engaged in e-commerce are expected to establish adequate redress mechanisms and appoint a chief compliance officer.
- A resident grievance officer will also be appointed by these companies, who will be a company employee and a citizen of India who will act as the nodal point of contact for law enforcement agencies.
- To combat concerns about preferential treatment, the new rules propose to ensure that no related party can use consumer information (from the online platform) for an ‘unfair advantage’.
- Mis-selling (selling goods/services by intentionally misrepresenting information) is now prohibited by law.
- E-commerce entities must be registered with the Department for Promotion of Industry and Internal Trade (DPIIT) to ensure their authenticity.
- The companies will also have to identify goods based on their country of origin and provide a filter mechanism for customers at a pre-purchase stage.
- To provide a “fair opportunity” for domestic sellers, they will also need to offer alternatives to these imported goods. Concerning cancellation charges.
Along with the provisions discussed above, the Draft Rules also aim to prevent e-commerce companies from abusing their dominant position in a market (Rule 5(17)). Section 4 of the Consumer Protection Act, 2019 sufficiently addresses the concept of abuse of dominance, which applies to all enterprises. If a dominant e-commerce entity engages in abusive conduct, the draft rules are likely to add a redundant provision to the same effect. A violation of the E-Commerce Rules will almost certainly be looked into by the Central Consumer Protection Authority (“CCPA”), while a violation of the Consumer Protection Act, 2019 will most likely be investigated by the Consumer Council of India. The text suggests that abuse of dominance by an e-commerce entity might result in jurisdictional strafing between the CCPA and CCI. The Consumer Protection Act, 2019, however, contains Section 19(2), which enables the CCPA to refer a matter to any other regulator if it is satisfied it should be dealt with by another regulator under any other law currently in force (such as the CCI). Making a preliminary inquiry would indeed extend the investigation timeline; however, it is better than leaving such significant matters to be clarified by the courts of law at a later date.
Having taken into account the contemporaneous developments regarding e-commerce competition concerns when it drafted the Amendment Rules, it will be interesting to see how they further improve upon them once they have received the comments from all stakeholders.
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