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An Overview Of The Implications Of Consumer Protection Rules For Relevant Stakeholders

An Overview Of The Implications Of Consumer Protection Rules For Relevant Stakeholders

The E-Commerce Rules prescribe an elaborate framework for ecommerce entities to oversee and prevent any unfair trade practices or misleading advertisements on part of the sellers on their platform

Ecommerce entities are now required to obtain an express consent from its consumers for the purchase of any good or service offered on its platform

Price of the goods or services offered cannot be manipulated by the e-commerce entities to gain unreasonable profits

A year after the enactment of the Consumer Protection Act 2019 (Consumer Protection Act), which legislation has repealed its more than three decades old predecessor, the Government has now notified the Consumer Protection (E-Commerce) Rules 2020 (E-Commerce Rules) with effect from 23 July 2020.

The Consumer Protection Act has bolstered the regulatory approach towards consumer protectionism and reinforced the legal framework for a timely and effective administration and settlement of consumer disputes at a time when rapid developments in the modern age retail trade and technology have led to a marketplace which is accessible by a click of a button and is no longer shackled by the rigours of distance, location, space constraints, opening hours, stock limitations or logistical challenges.

We have in an earlier article discussed the key implications of the Consumer Protection Act on the ecommerce sector, and in this follow up piece, we assess and discuss the various obligations and rights stemming from the Ecommerce Rules from the perspective of each of the following key stakeholders in the e-commerce sector – ecommerce entities (marketplace and inventory models), sellers and the consumers.

Applicability

The term “ecommerce entity” has been very broadly defined under the E-Commerce Rules to mean/include “any person, who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity” and the E-Commerce Rules apply to:

  • all goods and services bought or sold over digital or electronic network including digital products;
  • all models of e-commerce, including marketplace and inventory models of e-commerce;
  • all e-commerce retail, including multi-channel single-brand retailers and single-brand retailers in single or multiple formats; and/or
  • all forms of unfair trade practices across all models of e-commerce.

The legislative intent to include all forms of e-commerce/retail models/entities – B2C, B2B and B2B2C, whether incorporated in or outside India (but offering goods and services to consumers in India), within the grip of the E-commerce Rules is abundantly clear.

Therefore, all types of e-commerce entities whether operating on the inventory model or the marketplace model including e-commerce platforms that are engaged in providing services or renting/leasing goods will fall within the meaning of “e-commerce entity” as defined under the E-Commerce Rules and consequently will be subject to the legal regime prescribed under the Consumer Protection Act and the E-Commerce Rules.

The Key Obligations Applying To Ecommerce Entities And Sellers

Ecommerce Entities 

The E-Commerce Rules prescribe an elaborate framework for ecommerce entities to oversee and prevent any unfair trade practices or misleading advertisements on part of the sellers on their platform and obligate them to ensure that they do not engage in any price manipulation and have in place adequate internal mechanism for the redressal of complaints by consumers.

Further, the Consumer Protection Act and the E-Commerce Rules also stipulate that an e-commerce entity shall not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field for all sellers without any discrimination.

Pertinently, prior to the notification of the Consumer Protection Act and the E-Commerce Rules, these obligations to restrain from influencing the sale price of goods or services and to maintain a level playing field for all sellers without any discrimination were applicable only in respect of e-commerce entities that had received foreign investment.

With these restrictions being introduced under the Consumer Protection Act and the E-Commerce Rules as well, the Government has now created a uniform governing code for all e-commerce entities in India (with or without foreign investment) and resolved the abovementioned disparity.

However, there are still some gaps between the requirements under the Foreign Exchange Management (NonDebt Instrument) Rules 2019 (NDI Rules) that apply only in respect of e-commerce entities with foreign investment and the Consumer Protection Act/E-Commerce Rules.

For instance, under the NDI Rules, an ecommerce entity with foreign investment is required to obtain a report from a statutory auditor by 30 September every year confirming compliance of the ecommerce guidelines under the NDI Rules for the preceding financial year; but this requirement has not been prescribed under the Consumer Protection Act/E-Commerce Rules.

Given the above, the key implications emanating from the E-Commerce Rules that an e-commerce entity should take note of:

Explicit And Affirmative Consent Of The Consumers

Interestingly, ecommerce entities are now required to obtain an express consent from its consumers for the purchase of any good or service offered on its platform and this consent can no longer be recorded automatically, not even in the form of pre-ticked checkboxes.

However, the exact tenor of this requirement is unclear – what actions of the consumers would constitute ‘explicit’ and ‘affirmative’ consents have been not been elucidated in the E-Commerce Rules. Would a consent which is accorded through a click wrap agreement be sufficient to ensure compliance under the E-Commerce? Would this consent be required only at the time of the registration by a consumer with an online e-commerce platform or would a consent be required every time a consumer undertakes a purchase transaction?

A consumer typically accepts the terms and conditions of the marketplace (which are often structured as a click wrap agreement) only once at the time of making an account with such marketplace (and not at the time of every purchase) and these terms and conditions continue to apply every time the consumer makes a purchase on the marketplace.

In our view, this requirement appears to be more relevant in cases/in respect of marketplaces which allow the consumers to shop and check out from the website as a ‘guest’ without any registration. In such cases, the exercise of such option by a consumer (by means of clicking at the payment button at the time of checkout) automatically makes a consumer agree to the terms and conditions of such purchase, without actually giving an opportunity to the consumer to read and accept such terms and conditions.

Given this new legal requirement to procure an express consent of a consumer for the purchase of any good or service, in our view, all e-commerce entities that allow a consumer to checkout as a ‘guest’ would now need to ensure that before a consumer checks out with the purchase, the consumer is presented with the terms and conditions of such purchase and is offered with an opportunity to read and provide his/her express consent for such purchase.

Price Manipulation

Price of the goods or services offered cannot be manipulated by the e-commerce entities to gain unreasonable profits. The underlying intent behind this obligation is to ensure that a level playing field is maintained for all sellers and no unfair method or deceptive practices are adopted by an e-commerce entity (such as deep discounts, freebies, cash back offers and/or EMI options) to influence transactional decisions of the consumers which favour a particular seller.

In the past, there have been instances where certain e-commerce entities have witnessed alleged claims of price manipulation involving deep discounts being offered on certain products that were originally listed at prices which were more than the MRP of such products. In fact, the National Consumer Disputes Redressal Commission and the District Consumer Disputes Redressal Commission have in the past also held that listing goods at a price higher than the MRP is an offence under the Consumer Protection Act.

The restriction on price manipulation and the allied requirements to ensure a level playing field for all sellers was first introduced by the Government under the FDI policy in respect of only those e-commerce entities which had foreign investments. With the inclusion of these restrictions under the E-commerce Rules, all e-commerce entities in the country (with or without foreign investment) would now need to ensure that all sellers compete without any favouritism or bias in a transparent manner.

Consumer Discrimination And Disclosure Of Preferential Treatment To Sellers

Ecommerce entities have to now ensure that there is no discrimination between the consumers of ‘same class’ or make any classification amongst the consumers, which (directly or indirectly) affects the rights of the consumers.

Separately, now it is also mandatory for e-commerce entities to disclose the terms and conditions governing their relationship with sellers on their platforms including a description of any differential treatment that a marketplace is providing to any particular seller(s) or in respect of any goods or services in the ‘same category’.

This requirement is clearly an extension of the aforementioned overarching restrictions, namely, the restriction on influencing the sale price of the products or services that are listed on the marketplace (whether directly or indirectly) and the obligation to maintain a level playing field for all sellers in a ‘same category’.

Pertinently, there is no clarity, test or yardstick under the E-commerce Rules on what constitutes a ‘same class’ of consumers or ‘same category’ of sellers or how should an e-commerce entity segregate its consumers/sellers into different classes.

Therefore, the discretion in respect of classifying consumers into different classes or sellers into different categories seems to be with the e-commerce entities and (in practice) may be driven by parameters such as volume of sales/purchase, period of association and type of products/services), subject to the rider that same treatment has to be ensured to all consumers or sellers (as the case may be) forming part of ‘a particular class’.

Cancellation Charges

No cancellation charges can be levied on a consumer, even where a consumer wants to cancel a confirmed order, unless similar charges are also borne by the e-commerce entity if it unilaterally cancels an order placed by a consumer for any reason whatsoever.

Timely Refunds

All refund requests are required to be completed within a ‘reasonable period of time’. Every e-commerce entity has a different policy in relation to refunds and there have been instances where consumers have had to wait for a considerable amount of time to receive the refund payments. Instead of prescribing an outer time limit for processing refund payments, the E-commerce Rules have provided flexibility to within the overall contour of a reasonability test.

Again, what would constitute a ‘reasonable period of time’ would not only differ from one e-commerce entity to another, it would also differ from a consumer to consumer and be driven by factors such as what was the mode of payment, the processing bank and the time period underlying the returns.

Grievance Redressal Officer

It is now mandatory for e-commerce entities to appoint a grievance redressal officer for consumer grievance redressal and the details of such grievance officer, such as name, contact details and the designation are required to be displayed on the online platforms. Also, such officer will need to acknowledge the consumer complaint within 48 hours of receipt of the complaint and redress the complaint within one month from the date of receipt of the complaint.

Earlier, ever e-commerce entity had its own policy as regards the response time for consumer complaints. However, this would provide for a minimum standard to be followed. Given the population and number of consumers, such officer is going to have a herculean task in acknowledging the complaints in the given time frame, and even if the former is complied with, redressal of complaints in one month would certainly be a challenging task.

Nodal Person Of Contact

Apart from a grievance redressal officer, an e-commerce entity is now required to also appoint a nodal person of contact or an alternate senior designated functionary (who is resident in India) to ensure compliance with the provisions of Consumer Protection Act and the E-Commerce Rules. Several e-commerce entities have already set up in-house legal and compliance departments whose role is to ensure that there are no slippages in compliance under the applicable legislations.

Nevertheless, with the requirement to identify and designate a senior official for overseeing and ensuring compliance under the consumer protection law, issues regarding the personal liability of such designated officials and protection from monetary exposures/risk of litigation will now assume more importance whilst such employees are negotiating their employment contract/engagement with the e-commerce marketplaces.

Complaint Token

It is compulsory for the e-commerce entities to allocate and provide a ticket number for each consumer complaint for tracking the status of his/her complaint. This practice was already prevalent as a good practice by several e-commerce entities, but now has been made mandatory for all e-commerce entities.

Sellers

A number of obligations have also been cast on a seller who lists its goods or services on an e-commerce platform. An overview of these obligations is as follows:

Written Contract

The E-commerce Rules prescribe that it is now mandatory for a seller to enter into a written contract with an e-commerce entity in order to undertake any sale of goods and services on the platform of such e-commerce entity. As a matter of practice, e-commerce entities used to enter into a standard contract with a seller (before onboarding such seller on its platform) and such a contract was usually in a form of a click wrap agreement which set out the terms and conditions governing the sale of goods and services by such seller on the e-commerce entity’s marketplace.

Now, with the introduction of the E-commerce Rules and the obligation to ensure a written contract between the seller and the e-commerce entity, both the parties are bound to relook at the terms of these standard onboarding contracts to ensure a strict contractual allocation of risks and responsibilities and a proper limitation of liability regime. Given the obligation to disclose the details of any preferential treatment to a seller, it would be interesting to see how deviations from the standard terms of the onboarding contract would play out from a disclosure perspective.

False Or Misleading Advertisements

Each seller needs to ensure that (a) it does not impersonate itself as a consumer and post reviews about the goods or services sold by it or misrepresent the quality or any features of any goods or services; (b) it would not refuse to take back the goods or refuse to refund the sale consideration, where the goods or services in question are defective, deficient or spurious or if they do not conform to the advertised features or the promised delivery schedule; (c) it would not advertise the goods or services offered in such a manner that are inconsistent with the actual characteristics of such goods or services; and (d) the images/description used in advertisements of goods or services offered, are consistent with the actual characteristics of such goods or services.

While these measures would certainly act as a deterrent for the sellers, from an implementation perspective, since the onus is also on the ecommerce platforms to ensure compliance under the E-commerce Rules, it will certainly become a challenging and costly task for the marketplaces, which in turn would result in an increased reliance on contractual indemnity arrangements by the marketplaces.

Grievance Redressal Officer

The obligation of appointing a grievance redressal officer has also been extended to the sellers. We are seeing that e-commerce entities are already taking adequate representations from the sellers (at the time of onboarding) ensuing compliance with the obligations under the E-commerce Rules.

Disclosure

In order to weed out unscrupulous sellers, the E-commerce Rules have made it mandatory for the sellers to disclose certain prescribed information to the marketplace which information is required to be displayed on the marketplace platform.

This information includes the legal name and address of the seller, contact details, customer care number, applicable GSTIN, PAN, MRP breakup, postage and handling charges, conveyance charges, applicable taxes, country of origin and expiry date of the goods, terms of exchange, returns and refunds, cost of return shipping and any relevant guarantees or warranties applicable on the goods or services.

Conclusion

The E-Commerce Rules indeed appear to be in sync with the robust consumer protection regime under the Consumer Protection Act and the timing of the notification of the E-Commerce Rules (even though delayed) is helpful given the recent restraints on the freedom of movement of a consumer and the ensuing increased dependence on e-commerce – courtesy the raging Covid-19 pandemic.

In the wake of the pandemic, e-commerce has been a blessing for all consumers (when it comes to meeting not just the day to day needs/essentials but even other important requirements such as insurance, procuring essential furniture items and IT hardware to ensure unhampered work from home). However, this blessing has not been unadulterated as everyday online scams and unfair trade practices have had the consumers reel under the fear of exposing themselves to unscrupulous sellers and service providers.

To counter this menace, E-Commerce Rules go leaps and bounds in terms of transparency and pave a path towards a poised marketplace where the consumers are well-informed and there are strong checks and balances to curb deceptive and unfair trade practices. Pertinently, the Indian e-commerce market has been witnessing unprecedented growth in recent years, and an adequate regulatory regime was the need of the hour to bring a robust redressal mechanism and streamline the extant framework.

The slew of rules is indubitably a calibrated step in the right direction of platform neutrality in the e-commerce market space, transparency, stringent penalties and a delicate balance between the obligations of the marketplace e-commerce entities and sellers on the platform. However, how effectively these E-commerce Rules would be enforced in practice so as to create a deterrence for unscrupulous sellers and service providers and thereby instil consumer confidence, is something that we would have to see with the passage of time.

This article was co-authored by Sarthak Sarin (Partner) and Govinda Toshniwal (Senior Associate), Khaitan & Co


The contents of this article do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up, please contact Sarthak Sarin at [email protected]


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