Consumer Protection (E-Commerce) Rules, 2020 and the regulatory framework for E-Commerce businesses

The Indian B2C e-commerce market was valued at USD 38.5 billion in 2017 and is estimated to rise to USD 200 billion in 2026, while the B2B e-commerce sector is estimated to be worth around USD 300 billion. E-commerce has, until now, been outside the formal scope of consumer protection laws and given the ‘atypical nature of e-commerce transactions’ and the ever increasing number of incidents of fraud and cheating in the e-commerce sector (which had increased by a whopping 475 per cent between August 2016 and November 2019), a consumer protection framework specific to the sector was necessitated. Resultantly, in 2019, E- Commerce entities and consumers were brought into the framework of consumer protection through the formal inclusion of “e-commerce”, and the expansion of the definition of “consumer” in the Consumer Protection Act, 2019, followed by the notification of the attendant rules, namely, the Consumer Protection (E-Commerce) Rules, 2020 which came into force with effect from 23rd July, 2020.

These E-Commerce Rules seek to protect the interests of consumers of digital markets and prevent unfair trade practices by prescribing compliances, inter alia, in terms of structure, increased disclosure, and the institution of grievance redressal mechanisms, that e-commerce entities are now required to adhere to. Further, the Rules apply to all goods and services bought and sold over digital or electronic networks including digital products, all e- commerce models (inventory and marketplace), and all e-commerce retail, but do not apply to activities carried out by natural persons in personal capacities so long as it is not being undertaken in any commercial, or professional capacity undertaken on a regular basis.

Prior to this, E-commerce entities fell within the general purview of the Information Technology Act, 2000 and the Intermediaries Guidelines, 2011, which entailed, inter alia, publication of rules and regulations, privacy policy (complying with the ‘Reasonable Security Practices and Procedures and Sensitive Personal Data or Information, Rules 2011), and terms of usage to be published prominently for access or usage of their website. It is pertinent to note that the Information Technology Act’s regulation of E-commerce entities only extended to authentication, data protection, security of systems, and privacy.

Structure & Constitution of E- Commerce entities:

The Rules require e-commerce entities to have a company incorporated in India, or a company incorporated outside India which has a place of business in India, including through electronic mode, and conducts any business activity in India, or an office/branch/agency outside India owned or controlled by a person resident in India, with an Indian resident as a nodal person of contact to ensure compliance with the Act. However, it is currently unclear if existing e-commerce entities structured as LLPs, Partnerships, etc., will have to undertake the process of conversion.

Disclosures to be made by e-commerce entities:

To enter into valid contractual relations, it is of paramount importance that the consent of the parties, specifically in this case- the consumer, is free and informed, and that there is no fraud, mistake or misrepresentation with regards to the transaction being entered into, which would otherwise vitiate the contract. Every e-commerce entity should only record the consent of a consumer for the purchase of any good or service offered on its platform where such consent is expressed through an explicit and affirmative action, and entities are prohibited from recording such consent automatically, including in the form of pre-ticked checkboxes. To this end, the Rules prescribe several disclosures to be made by the e-commerce entity some of which are:

· Comprehensive Information pertaining to the goods and services;

· The legal name, principal address, name and details of the website, contact details of the entity;

· Contact details of the appointed grievance redressal officer;

· Where an e-commerce entity offers imported goods or services on sale, the name and details of any importer from whom it has purchased such goods or services.

Duties of E-Commerce Entities:

One prime focus of the Rules is the requirement for institution of consumer grievance redressal mechanisms by e-commerce entities, including a customer care number and a grievance redressal officer for the platform whose details should be published on the platform, and this grievance officer is required to acknowledge the receipt of any consumer complaint within forty-eight hours and redresses the complaint within one month from the date of receipt of the complaint.

Further, E-Commerce companies are to refrain from:

· adopting unfair trade practices;

· imposing cancellation charges when the e-commerce entity cancels the purchase unilaterally, unless similar charges are also borne by the e-commerce entity due to a cancellation by a seller;

· manipulating the price of goods/services offered to gain unreasonable profit;

· discriminating between consumers of the same class/ making arbitrary classifications of consumers affecting their rights under the Consumer Protection Act, 2019. For eg. There must be some reasonable classification where one class of customers are given an offer/ coupon in exclusion of other consumers.

Market-place e-commerce entities:

Market place e-commerce entities are those that provide an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers. For e.g., Flipkart, Amazon.

In addition to discharging the duties stated above, market-place entities are also required to ensure that descriptions of goods and services are accurate and correspond directly with the features of such goods and services through an undertaking by the seller; to describe any differential treatment that is given to goods, services or sellers of the same category, which may include options available for a seller to offer sponsored advertisements on the platform; and take reasonable efforts to maintain a record of sellers who repeatedly offered goods or services that have been removed by the platform under intellectual property laws or the IT Act. Further, it is also stipulated that sellers and market-place entities are required to have a prior written contract in place in order to undertake or solicit such sale or offer;

Marketplace Entities are also required to display certain details prominently to users of their platform.

(a) all information provided by sellers to Marketplace Entities should be displayed to the users of the platform;

(b) information relating to available methods of payment, returns and refunds, exchanges, warranties, delivery and shipment, and grievance redressal mechanisms of the platform;

(c) information on the available payment methods; and

(d) any aggregated ranking or feedback about the seller or goods, along with a plain and easily available description explaining the main parameters for determining such a ranking and their relative importance.

E-commerce entities that sell these commodities are also required to display information pertaining to the name address of the manufacturer, importer, packager and the country on the packaged commodity, as per the Legal Metrology Rules.

Market-place entities viz-a-viz the IT Act, 2000:

Marketplace entities are also required to comply with the due diligence requirements under the Information Technology Act, 2000, to avail the exemption set out for intermediaries in section 79 of the IT Act, 2000.

This entails that, in terms of documentation, the e-commerce entity ought to have the following kinds of documents in place:

· Rules and regulations,

· Privacy policy and user agreement;

In making the information relating to payment, return, refund, exchange, warranty and guarantee, 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, e-commerce platforms must endeavour to present this information in a cohesive form to prevent ambiguity and consequent liability.

Authorities under the Consumer Protection Act, 2019

The Consumer Protection Act, 2019 provides for the setting up of District Commissions, earlier referred to as District Forums, by the state government in every district, with the option for more than one being set up in a district, to preside over consumer disputes. While the jurisdiction of District forums were earlier limited to consumer complaints where the value of a transaction is up to Rs. 20 lakhs, this has now been revised to Rs. 1 crore.

Further, the State Commission, which previously exercised jurisdiction in cases up to Rs. 1 crore, can now entertain disputes where such value exceeds Rs. 1 crore but is not more than Rs. 10 crore, while the National Commission can now exercise jurisdiction where the value exceeds Rs. 10 crore.

The act also envisages the setting up of a regulatory authority called the Central Consumer Protection Authority (CCPA) which will regulate matters relating to violation of rights of consumers, unfair trade practices and false or misleading advertisements which are prejudicial to the interests of public and consumers and promote, protect and enforce the rights of consumers as a class. This body shall be empowered to conduct investigations into violation of consumer rights and institute complaints / prosecution, order recall of unsafe goods and services, order discontinuation of unfair trade practices and misleading advertisements, impose penalties on manufacturers/endorsers/publishers of misleading advertisements etc.

As of 29th July, 2020, the roles of chief commissioner, commissioner, director general (investigations) and additional chief commissioner of the regulatory body have been assigned in order to operationalize the CCPA which will function from the Indian institute of Public Administration (IIPA) premises in Delhi.

Electronic Service Providers under the Consumer Protection Act, 2019:

While the Rules don’t contain any reference to Electronic Service Providers, the Act defines “Electronic Service Provides” as technologies or processes to enable a product seller to engage in advertising or selling goods or services to a consumer and includes any online market place or online auction sites. (For instance, marketplace e- commerce entities such as Amazon and Flipkart, as well as facilitators such as Shopify fall within this category.)

Section 38 of the Act grants powers to the District Commission to order any electronic service provider to provide such information, documents or records, as may be required in evidence to decide a pending consumer complaint. The same powers are extended to the State Commission and National Commission, under Sections 49 and 59 of the Act, respectively, while exercising their original jurisdiction. Therefore, where essential information/documents/records which may be material to a dispute, the Commissions established under the Act may specifically direct such electronic service provider to furnish the requisite information. Non-compliance with such directions can invite penal sanctions, as the Commissions are granted the powers of a Civil Court under the Code of Civil procedure, 1908, inter alia, for the purposes of collection of evidence.

Liabilities of Inventory Entities

The Rules require inventory entities to comply with the obligations imposed on Marketplace Entities as well as sellers. Particularly, all display requirements applicable to Marketplace Entities will also apply to Inventory Entities, including all information prescribed under the Legal Metrology Rules.

Contravention and Penalties

The provisions of the Consumer Protection Act, 2019 will apply for any violation of the provisions of the E-Commerce Rules. For instance, if an e-commerce entity fails to comply with any order made by the District Commission or the State Commission or the National Commission, the same shall be punishable with imprisonment for a term which ranges from one month, three years, or with a fine, ranges from twenty-five thousand rupees, but which may extend to one lakh rupees, or with both.

Failure to comply with any direction of the CCPA, shall be punished with imprisonment for a term which may extend to six months or with fine which may extend to twenty lakh rupees, or with both.

In the instance of any manufacturer or service provider who causes a false or misleading advertisement to be made which is prejudicial to the interest of consumers, they shall be punished with imprisonment for a term which may extend to two years and with fine which may extend to ten lakh rupees; and for every subsequent offence, be punished with imprisonment for a term which may extend to five years and with fine which may extend to fifty lakh rupees.

The manufacturing, import, sales and distribution, of adulterated or spurious goods is now punishable with a term of imprisonment ranging from six months to life imprisonment and with fines ranging from one lakh rupees to more than ten lakh rupees, depending on the offence.

Penalties for first and subsequent conviction under the Act may also include suspension and cancellation of business/trade license.

In Conclusion

While these rules can be counted as a step in the right direction for the protection of consumers and for ensuring increased accountability for E-Commerce businesses to their customers in an increasingly digital world, the rules as they are currently structured, leave much to be desired in the way of clarity regarding entity requirements as well as other lacuna as to the compliance requirements for businesses operating in the e-commerce sector.