E-Commerce1 November 2020By Gitanjali Balakrishnan, B. Karthik
The Indian B2C e-commerce market was valued at USD 38.5 billion in 2017 and is estimated to rise to USD 200 billion by 2026, while the B2B e-commerce sector is estimated to be worth around USD 300 billion. E-commerce had, until recently, been outside the formal scope of consumer-protection law. Given the atypical nature of e-commerce transactions and the sharp rise in incidents of fraud and cheating in the sector (reportedly up 475% between August 2016 and November 2019), a sector-specific framework was necessitated. In 2019, e-commerce entities and consumers were brought within the consumer-protection framework through the formal inclusion of "e-commerce" and the expanded definition of "consumer" in the Consumer Protection Act, 2019, followed by the Consumer Protection (E-Commerce) Rules, 2020, in force from 23 July 2020.
The Rules seek to protect consumers of digital markets and prevent unfair trade practices by prescribing compliances around structure, disclosure and grievance redressal. They apply to all goods and services bought and sold over digital or electronic networks, all e-commerce models (inventory and marketplace) and all e-commerce retail — but not to activities carried out by natural persons in a personal capacity, so long as they are not undertaken commercially on a regular basis. Previously, e-commerce entities fell within the general purview of the Information Technology Act, 2000 and the Intermediaries Guidelines, 2011, whose regulation extended only to authentication, data protection, security and privacy.
Structure and constitution of e-commerce entities
The Rules require an e-commerce entity to be a company incorporated in India, or a company incorporated outside India with a place of business in India, or an office/branch/agency outside India owned or controlled by a person resident in India — with an Indian resident nodal person of contact to ensure compliance. It is currently unclear whether existing entities structured as LLPs, partnerships and the like will have to convert.
Disclosures to be made
For valid contractual relations, the consumer's consent must be free and informed. Every entity must record consent for a purchase only through an explicit, affirmative action, and is prohibited from recording consent automatically (for example, through pre-ticked checkboxes). The Rules prescribe several disclosures, including: comprehensive information about the goods and services; the legal name, principal address, website and contact details of the entity; the contact details of the grievance-redressal officer; and, where imported goods or services are offered, the name and details of the importer.
Duties of e-commerce entities
A prime focus is grievance redressal: entities must publish a customer-care number and appoint a grievance officer who acknowledges any complaint within 48 hours and redresses it within one month. Entities must also refrain from adopting unfair trade practices; imposing cancellation charges when they cancel unilaterally (unless similar charges are borne by the entity for a seller cancellation); manipulating prices to gain unreasonable profit; and discriminating between consumers of the same class or making arbitrary classifications affecting their rights.
Marketplace entities
Marketplace entities provide an IT platform to facilitate transactions between buyers and sellers (for example, Flipkart, Amazon). In addition to the duties above, they must ensure descriptions of goods and services are accurate through an undertaking by the seller; describe any differential treatment given to goods, services or sellers of the same category (including sponsored-advertisement options); and take reasonable efforts to record sellers who repeatedly offered goods removed under IP laws or the IT Act. Sellers and marketplace entities must have a prior written contract to undertake or solicit such sale.
Marketplace entities must also prominently display: all information provided by sellers; details of payment methods, returns, refunds, exchanges, warranties, delivery and shipment, and grievance redressal; and any aggregated ranking or feedback about a seller or goods, with a plain description of the main parameters used and their relative importance. Where applicable, information on the manufacturer, importer, packager and country of origin must be displayed as per the Legal Metrology Rules.
Marketplace entities and the IT Act, 2000
Marketplace entities must also comply with the due-diligence requirements under the Information Technology Act, 2000 to avail the intermediary exemption under Section 79. In practice, this means having rules and regulations, a privacy policy and a user agreement in place, and presenting payment, return, refund, exchange, warranty, delivery and grievance information in a cohesive form to prevent ambiguity and consequent liability.
Authorities under the Consumer Protection Act, 2019
The Act provides for District Commissions in every district to preside over consumer disputes; their pecuniary jurisdiction has been revised from up to ₹20 lakhs to up to ₹1 crore. The State Commission now hears disputes above ₹1 crore up to ₹10 crore, and the National Commission above ₹10 crore. The Act also establishes the Central Consumer Protection Authority (CCPA) to regulate violations of consumer rights, unfair trade practices and false or misleading advertisements — empowered to investigate, institute complaints, order recalls of unsafe goods, order discontinuation of unfair practices and misleading advertisements, and impose penalties. As of 29 July 2020, the CCPA's leadership roles were assigned to operationalise it from the Indian Institute of Public Administration premises in Delhi.
Electronic service providers
While the Rules do not reference them, the Act defines "electronic service providers" as technologies or processes enabling a product seller to advertise or sell to a consumer, including online marketplaces and auction sites (marketplace entities such as Amazon and Flipkart, and facilitators such as Shopify). Section 38 empowers the District Commission — and Sections 49 and 59 the State and National Commissions — to direct any electronic service provider to furnish information, documents or records material to a dispute. Non-compliance can invite penal sanctions, as the Commissions have the powers of a civil court under the CPC, 1908 for the collection of evidence.
Inventory entities and penalties
Inventory entities must comply with the obligations imposed on both marketplace entities and sellers, including all display requirements and the Legal Metrology Rules. For any violation of the E-Commerce Rules, the provisions of the Consumer Protection Act, 2019 apply. Failure to comply with a Commission's order is punishable with imprisonment of up to three years, or a fine from ₹25,000 up to ₹1 lakh, or both; failure to comply with a CCPA direction with up to six months' imprisonment or a fine up to ₹20 lakh, or both. A false or misleading advertisement prejudicial to consumers can attract up to two years' imprisonment and a fine up to ₹10 lakh (and, for repeat offences, up to five years and ₹50 lakh). Manufacture, import, sale or distribution of adulterated or spurious goods is punishable with imprisonment ranging from six months to life and fines from ₹1 lakh upwards, depending on the offence — and penalties may include suspension or cancellation of the business licence.
In Conclusion
These Rules are a step in the right direction for consumer protection and for greater accountability of e-commerce businesses in an increasingly digital world. As currently structured, however, they leave much to be desired in the way of clarity — on entity requirements and other compliance obligations — for businesses operating in the sector.
This note is for general information only, may reflect the law as it stood at the date of writing, and does not constitute legal advice. For advice on a specific situation, please seek independent counsel.
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