Draft Ecommerce Policy: Ban On Flash Sales, Tighter Related Party Rules And More

In a draft note prepared by the Consumer Affairs Ministry, the government has made suggestions to tighten the norms for ecommerce marketplaces like Amazon and Flipkart and to curb any possibility of preferential advantage that these companies may offer to any of their vendors. 

The ministry has requested feedback on these policy changes in the Consumer Protection (E-Commerce) Rules, 2020 by July 6. Here are the key takeaways from the draft ecommerce policy:

No Flash Sales

Ecommerce platforms and marketplaces have built their customer acquisition models around deep discounts and flash sales to attract new users to these platforms. 

“Flash sale” means a sale organised by an ecommerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services with an intent to draw a large number of consumers. 

According to the proposed draft ecommerce policy, no ecommerce entity can organise flash sales of goods and services on its platform. These sales are particularly popular during the festive season. Separately, the consumer affairs ministry clarified that conventional ecommerce flash sales are not banned but specific flash sales or back to back sales which limit customer choice, increase prices and prevent a level playing field are not allowed.

Related Party Rules

Ecommerce firms must also ensure that none of their “related parties and associated enterprises” are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform. The rules specifically state that related parties or associated enterprises should do nothing that the ecommerce entity cannot do itself.

Further they cannot use information collected from the platforms to give an unfair advantage to its related parties. These rules will make operating ecommerce platforms even more complex given that the platforms often have JVs and private labels that help them drive user traction.

Some of these rules already apply on Amazon and Flipkart under the Foreign Direct Investment rules. These companies have previously realigned their share in JVs with companies like Cloudtail and Appario retail to comply with the FDI requirements. It is not clear if the ecommerce rules will supersede the existing FDI rules.

Besides, no marketplace ecommerce entity shall sell goods or services to any person who is registered as a seller on its platform.

Domestic Alternatives

Tightening regulations on ecommerce entities selling imported goods on their platform, the new  rules will require them to ensure that the name and details of the importer is mentioned. The rules take the “country of origin” requirement a step further, suggesting companies make suggestions of alternative products before customers make purchases “to ensure a fair opportunity for domestic goods.”

It also mentions that product ranking details should not discriminate against domestic sellers. They will also have to provide a filter mechanism on their websites from where customers can figure out the origin of the products quickly before making a purchase. Platforms will also have to provide a simple explanation on how goods are ranked. Further, no logistics service provider of a marketplace ecommerce entity shall provide differentiated treatment between sellers of the same category.

Grievance Redressal

Sellers on ecommerce marketplaces have to appoint a grievance officer for consumer grievances and provide acknowledgement for grievances within 48 hours and close the complaint within a month. It is not clear how this move will impact thousands of small sellers on the platforms. Ecommerce platforms also are required to appoint a chief compliance officer who will be legally liable for ensuring compliance. 

Ecommerce platforms will also be required to  appoint a nodal contact person for 24×7 coordination with law enforcement agencies and officers to ensure compliance to their orders. Currently, the government is at loggerheads with digital media intermediaries due to its requirements under the new IT Rules, for social media platforms to appoint chief compliance officers.