July 25 2021: The Indian government last month mooted significant changes to the rules governing e-commerce operations in the country. We had reported on the proposed draft Consumer Protection (E-Commerce) Rules, 2020 which were available for public comment till July 6 ie within 15 days. The proposed changes as well as the very short time for reactions were the subject of criticism by media and professional bodies. We had reported on this in our June 24 story Govt proposes changes to e-Commerce Rules (indiatechonline.com).
The time for comments and suggestions was extended to July 21 and this has enabled many individuals, experts and industry organisations to organize formal responses.
To create a healthy debate we bring you the most important responses that have been shared with the media and end with a government view.
The Internet and Mobile Association of India (IAMAI)
Based on feedback from its members, IAMAI has stated that the proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020 will lead to over-regulation, impede innovation, and serve as a disincentive to e-commerce consumers.
Mentioning that the proposed amendments to the Consumer Protection (E-Commerce) Rules 2020 is a deterrent for the growth of the industry, IAMAI has suggested a) excluding the entire value chain from the ambit of e-commerce definition b) clarifying the flash sale concept c) confining the rules to protect the rights and interests of the consumers as in its current form they fall under the jurisdiction of Competition law, legal metrology law, intermediary law, etc.
The association is of the view that although it supports government initiatives and regulatory interventions to protect consumer interests, the proposed amendments to the rules raise several concerns and ambiguities from an e-commerce business standpoint which are also likely to have unintended negative consequences for consumers. It highlighted that the amendments seek to regulate the entire e-commerce supply chain, many elements of Platform to Business (P2B) and Business to Business (B2B) e-commerce which are beyond the remit of the parent Consumer Protection Act (CPA).
The Amendments also fail to provide a level-playing field between Online and Offline e-commerce/retail. Under the Amendments, e-commerce platforms will face several restrictions and an increased compliance burden. However, the same will not be applicable on the brick-and-mortar stores. Also, implementation of the Amendments in the current form will significantly increase the compliance burden on MSMEs as well as for start-ups who are not even in the e-commerce business, but provide services to e-commerce.
In its submission IAMAI mentioned that “the amendment to the definition of e-commerce entities goes over and beyond the definition of e-commerce entities provided under other delegated legislations such as the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules). The scope is also beyond what is contemplated under the CPA…”
It recommended that clauses with respect to cross-selling, fall back liability, re-registration with the Department of Promotion of Industry and Internal Trade will only lead to over-regulation of the sector and impede innovation and access of small sellers to marketplace platforms.|
“The concept of "Fall Back liability" dilutes the intermediary safe harbour under the provisions of the IT Act as well as the arm’s length requirements provided under the FDI Policy. It will open floodgates for unscrupulous claims against e-commerce entities. It can significantly change the landscape of e-commerce in India and impede innovation.”
On flash sales, the association suggested that a normal brick and mortar store can offer flash sales, and therefore there is no reason to restrict these flash sales on an e-commerce platform. Flash sales should be very clearly and explicitly defined from a customer/consumer standpoint, to avoid any ambiguity both in letter and spirit, to ensure consumers do not suffer on account of not benefiting from flash sales, it opined.
On the clause of mis-selling, the association pointed out that this is in contradiction with sellers’ liabilities in e-commerce rules and the intermediary role that must be performed by all marketplace e-commerce entities under the FDI laws and the IT Act. This is an issue, which constitutes primary responsibility of the seller under the e-commerce rules (original) and such additional responsibility on marketplace e-commerce should be removed.
The association is of the view that the earlier set of rules that were notified only a few months back were sufficient and better served the needs of the consumers.
National Association of Software and Service companies (NASSCOM)
NASSCOM’s suggestions to Department of Consumer Affairs (DoCA), Ministry of Consumer Affairs on the proposed amendments to the Consumer Protection (e-Commerce) Rules (e-Commerce Rules) focus on strengthening consumer protection, ensuring that the obligations are proportionate to the underlying risks and are unambiguous. Towards this, the suggestions focus on proposed amendments dealing with:misleading information,provision of accurate information to consumers and appointment of additional officials for grievance redressal and compliance with the e-Commerce Rules.
Further, some of the proposed amendments appear to be beyond the scope of the Consumer Protection Act 2019 (COPA19) and are instead a subject matter of either the Competition Act, 2002 or the Information Technology Act, 2000. In such cases, we have made suggestions to strengthen consumer protection in a manner that is consistent with the COPA19 wherever possible. Towards this, NASSCOM’s suggestions focus on proposed amendments dealing with:
-regulation of data management practices for cross-selling by e-commerce entities,
-regulating behaviour of entities not directly engaged in e-commerce business with a consumer,
-regulating competition in the market, etc.
NASSCOM has suggested that the proposed requirement be either done away with or aligned with the objective of COPA19. For example, Rule 6(7) of the proposed amendments restricts marketplace entities from offering any goods or services to registered sellers. We have suggested to remove this obligation as this is not an unfair trade practice per se and at a policy level, is already dealt with under the FDI Policy.
In its submission, NASSCOM undertook a clause-by-clause review of the proposed amendments and suggested the way forward. We have provided in-line changes to the text of the e-Commerce Rules notified on July 23, 2020, based on some of the proposed amendments, in track-mode.
A few of our important suggestions include:
-Suggestion to remove the word ‘own’ from the definition of an e-commerce entity. This is with the aim of excluding from the scope those technology entities that own the digital platform and license/provide it to e-commerce companies. e-Commerce companies in turn operate and manage the front-end platforms. Therefore, the definition should only include entities that operate and manage the e-commerce platforms.
-Suggestion to include an obligation on the seller not to mis-sell. A suggested definition of ‘mis-selling’ is provided
Instead of prohibiting certain activities, suggested to include an indicative list of unfair trade practices that the Central Consumer Protection Authority (CCPA) may investigate upon, for ensuring consumer protection:
-Misleading users by manipulation of search result or search indexes having regard to the search query of the user.
-Use information collected by marketplace e-commerce entities, for sale of goods of a brand which is owned/associated by it, if such practices amount to unfair trade practice and impinges on the interests or rights of the consumers.
-Flash sales, cross-selling, mis-selling, manipulation in ranking of goods and services, if such practices amount to unfair trade practice or impinges on the interests or rights of the consumers.
-Suggested that consumer consent be required for sharing consumer information to any person unless it is for the fulfilment of an order or providing any services as promised by the e-commerce entity.
-Suggested that certain obligations be imposed on all e-commerce entities. For example, an explanation in plain language about the parameters used to rank sellers, goods or services on the platform.
-In case of fallback liability, suggested that the obligation on a marketplace e-commerce entity should be to the extent of ensuring timely refund to consumers if the consumer has already paid for such goods or services.
There are many areas where the proposed amendments are unclear, and we have taken the opportunity to highlight these in detail. We believe these suggested changes will address the concerns of both the DoCA as well as the industry
NASSCOM emphasized the centrality of consumer protection and ensuring maximum protection to the consumer in case of unfair trade practices Moreover, keeping in view the uniqueness of different e-commerce models and rationalising obligations in line with activities of relevant entities in the e-commerce supply chain, is crucial in revising the existing framework for consumer protection.
The India SME Forum conducted a national level round table with industry experts and officials to discuss the negative impact of the draft e-commerce rules on start-ups and MSMEs. Its conclusion:
Rules will prove to be a deterrent for women entrepreneur
India is home to approximately 6.3 crore ( 63 million) MSMEs, contributing around 6.11 percent of the manufacturing GDP and 24.63 percent of the GDP from service activities to the country. The sector also commits approximately 33.4 percent to the country’s manufacturing output through national and international trade. The pandemic gave MSMEs an opportunity to leverage e-commerce and online platforms to continue their businesses, enabling them with global infrastructure and digital support to stay afloat during these turbulent times.
The amendments in the rules seek to ban flash sales, bring logistics providers into e-commerce ambit, put an entry barrier on entering marketplace models and more importantly push consumers to offline markets for purchase. As the bulk of consumers in India are from the middle class, these promotions enable them to buy quality products at competitive prices from the safety of their homes and maintain social distancing norms. The rules also propose the appointment of a grievance officer, a chief compliance officer, and a nodal contact person for 24×7 coordination with law enforcement agencies. Moreover, it is mandatory for e-commerce entities to register with the Department for Promotion of Industry and Internal Trade (DPIIT). Around 4288 sellers have signed the petition requesting the government to hold stakeholder consultations and further deliberations before finalizing the proposed changes to the draft policy.
Experts have also raised concerns about how these rules, if implemented, can have an obstructive impact on the economic development of the country with respect to job opportunities, scope for the growth of MSMEs, global investments, and consumer experience.
Said Vinod Kumar, President, India SME Forum, “The amendments increase compliance burden on e-commerce entities and make the marketplace inaccessible to small and medium businesses who depend on these entities for sustenance. It is important for the government to revisit these rules and detangle the complexities.”
Added Dr. J. S. Juneja, Former CMD, NSIC, Vice Chairman, India SME Forum: “Regulations should ideally facilitate the markets for both consumers and sellers. The proposed guidelines don’t intend to do that. E-commerce is a means of assisting MSMEs to market their products. As long as MSMEs get a platform to sell, earn and grow from, it’s a productive engagement.
Nirupama Soundararajan, Senior Fellow and Head of Research, Pahle India Foundation “No one is fundamentally against regulating the sector. There is a need for it. However, the current guidelines miss their mark by a significant margin and need to be clarified for the industry. In terms of the cost of selling, we need to understand that when you place an excessive amount of compliance on any entity, a part of that burden does trickle down. With regard to the draft rules, a sizable amount of compliance burden will shift to small sellers.”
Ram Rastogi, Digital Payments Strategist: “The Department of Consumer Affairs should consult industry veterans before taking a policy decision. We should put the rules on hold, carry out stakeholder conversations and then come out with comprehensive guidelines. We should try and create an opportunity for those who want to shift and take advantage of the digital framework. It is important that we help the market grow and not kill it.”
Ravi Bansal, Global E-commerce Head, Unyscape: “Online retail has empowered the consumer to select from a variety of brands and products. We need to figure out who we want to help with these policies, how we can facilitate and make sure that everyone is benefitting from the ecosystem instead of just a few players. The new norms should benefit the consumer regardless of whether they’re shopping online or offline.”
Ajit Balakrishnan, Founder and CEO Rediffmail Enterprise:, “Our goal should be to think about how we can make the rules as inclusive as possible. We should approach the government with a cooperative approach. The rules need to be drafted in a way that they don’t cause confusion.”
The participating sellers and India SME Forum (ISF) were in consensus that the draft rules will cause irrevocable damage to MSMEs. Having withered two waves of a devastating pandemic, MSMEs need all the support they can get from policy makers. The draft rules are not only counterproductive but will be more damaging in the long run than COVID itself since these rules will be permanent.
Legal view: Gopal Jain, Senior Advocate, the Supreme Court of India, conducted a session to share his legal opinion on the Draft Ecommerce Rules and the legal flaws and infirmities associated with it: “The proposed amendments go beyond the ambit and scope of the Consumer Protection Act and indirectly regulate e-commerce entities by imposing additional obligations.” He further said, “If implemented, this can have an obstructive impact on the economic development of the country with respect to job opportunities, scope for the growth of MSMEs, global investments, and consumer experience|
The government of India announced the draft e-commerce rules on 28th June 2021 which aims to ban promotions and advertisements by sellers and flash sales, make it mandatory for e-commerce entities to register with the Department for Promotion of Industry and Internal Trade (DPIIT), and propose the appointment of a grievance officer, a chief compliance officer, and a nodal contact person for 24×7 coordination with law enforcement agencies.
In its current form, the rules have created confusion among businesses, scholars and experts, especially around key definitions such as who an “e-commerce entity” or a “related party” is. Experts have also raised concerns around how these rules will adversely affect consumers, companies as well as investors..”
From the perspective of sellers and e-commerce companies, the rules impose additional constraints and compliance burdens which will disrupt their ordinary course of business while also creating entry barriers for small business and ancillary service providers. “The law should not be used by the government in a manner that is destructive to the investment plans and innovation capabilities of online platforms, which is also a means of livelihood for small and medium businesses. The Centre should focus on a set of policies and regulations that simplify the processes and enable ease of doing business for e-commerce marketplaces in India rather than undulate investments and potential job opportunities for the country,” stated Jain. The draft rules not only complicate the e-commerce infrastructure but are also confusing and need clarity. The definition of e-commerce entities is unclear and overarching, stakeholders are confused about who the rules will apply to. Similarly, the draft rules are also unclear about how flash sales will be regulated. Bringing this into effect will stifle innovation in the e-commerce sector without imposing similar restrictions for traditional brick and mortar competitors.
Further highlighting the legal flaws and infirmities associated with it, Jain stressed that the draft rules are in conflict with and encroach upon existing legal frameworks such as the Competition Act, 2002 with regard to antitrust concerns including abuse of dominance, preferential treatment and deep discounting. The draft rules have also incorporated provisions such as mandatory disclosure of Country of Origin which is already regulated by the Legal Metrology Act and Rules.
There is a disjunction between the rules and the Consumer Protection Act, 2019 (CPA). The legislative intent of CPA is to protect consumers while ensuring maximum benefit is afforded to them. However, these rules do not serve consumer interests and require urgent course correction to bring it within the appropriate legal framework. These rules need more deliberation as it seems like they have been put together in haste. The Consumer Affairs Ministry initially ordered that “only specific flash sales or back to back sales which limit customer choice, increase prices, and prevent a level playing field are not allowed.” While it later elaborated that it will not regulate flash sales, there is still an ambiguity with respect to how sales actually limit consumer welfare.
The Supreme Court has laid emphasis on providing utmost certainty and stability in order to gratify the growing sector by enabling the rule of law vital for investor confidence. Jain highlighted that in the Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd. (2019) 10 SCALE 21, the Court held that “There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.”
The stark contrast between the online and offline space will restrict India’s position as a hub for global investments as these restrictive rules do not apply to the brick and mortar stores, which engage in discounts, end of season sales, and special tie-ups with manufacturers. Imposing such repressive regulations on e-commerce platforms highlight that the rules were designed to give greater advantage to traditional retailers, rather than consumers, or small and medium sellers on these platforms.
In conclusion, the draft rules encompass a full-fledged regulatory regime for online platforms in the name of safeguarding consumers’ interests. There is an urgent need to address the loopholes to avoid legal whirlwinds with regard to the issued amendments.|
Government View: Leena Nandan, Secretary (CA), Ministry of Consumer Affairs, Food & Public Distribution, Government of India ,addressing the inaugural session on Building Customer Trust in a Pandemic Era at the Customer Trust Summit 2021 organized by FICCI, on July 7 2021:
Our goal is to continue to focus on a consumer- centric approach to developing innovative newer products and solutions. Government, will fail in its task if it is unable to make an ecosystem of competition so that the right value of goods and services can be offered to the consumers. We are in the need of a competitive atmosphere and right competition for consumers to be able to take care of their concerns and interests. The Consumer Protection Act, has opened up avenues for consumers in such a way that it is of benefit to the industries as well.
Our ultimate objective is that the consumer must be able to exercise their choice and that is when the country will be able to grow, as consumption is key for the vibrant economy to be in place. If we keep our end of the bargain, satisfy the consumer needs, and adhere to genuine grievances and respond within time, we will retain the trust of the consumers
The online commerce industry is projected to hit $188 billion
in 2025 from $64 billion in 2020 says the FICCI report-
‘A Progressive Shift from Transactions to Trust.