Business Laws

Weighing in on e-commerce rules

Saurya Bhattacharya June 27 | Updated on June 27, 2021

“Flash sale” by e-comm players has been prohibited as it may favour only certain sellers   -  Getty Images/iStockphoto

They must be fine-tuned to avoid business uncertainty, consumer inconvenience

The Ministry of Consumer Affairs has recently invited comments for the proposed amendments to the barely a year-old Consumer Protection (E-Commerce) Rules, 2020 (“Rules”). The intent to create a sharper regulatory environment for e-commerce entities in the interest of consumers is noticeable from the draft amendments to the Rules (“Draft Amendments”).

However, while the aim is for clarity, there is potential for business uncertainty and consumer inconvenience.

Change in definition

The proposed change in definition is intended to cover two additional categories of persons. First, a person engaged by an e-commerce entity for fulfilment of orders would now be counted as an e-commerce entity as well. The language seems to bring within its fold third-party logistics entities too.

In addition, any “related party” of an e-commerce entity per the Companies Act, 2013 (“Act”), would also be an e-commerce entity. This could be a large envelope, covering the related party entities of the wide swathe of business houses who do not solely operate in e-commerce.

‘Flash sale’ and ‘Cross selling’

“Flash sale” by e-commerce entities has been prohibited. While it may be more relevant to marketplace e-commerce entities that are more prone to these activities, it has the potential to hurt inventory e-commerce entities as well. Furthermore, while the definition of “flash sale” proposed has the expected references to reduced prices and high discounts, there is an added qualifier – such sales have to be organised fraudulently intercepting ordinary course of business using technology, to enable only certain seller(s) managed by the e-commerce entity to undertake sales. The most worrisome parts are the absence of metrics for what would constitute “fraudulent interception” and “ordinary course of business”.

“Cross-sell” is a business development strategy across sectors and e-commerce is no different. Prompts on a website for complimentary products to those already purchased are sometimes convenient even for users. The Draft Amendments mandate disclosures on cross-sell data by the e-commerce entity to users. While this is a good thing to have, it may not be of particular benefit to users or their purchasing needs.

Misrepresentation

There are multiple provisions proposed whereby e-commerce entities should not mislead or misrepresent to users. Illustratively: not misleading users by manipulating their search result/index. Once again, it is difficult to test for what could be construed as manipulation and whether such search result/index indeed misled a user (because search results would have to appear in some sequence or the other). “Mis-selling” has also been introduced as a prohibited activity, premised upon deliberate misrepresentation of information to a user. However, when defining misrepresentation, one criterion states: “causing, however innocently, a consumer to purchase such goods or services, to make a mistake as to the substance of the thing which is the subject of the purchase”. With the use of “however innocently”, not only does the definition create an absolute burden of compliance of a difficult-to-monitor standard, but its usage also appears contradictory to the notion of “deliberate misrepresentation”.

Abuse of dominant position

No e-commerce entity that holds a dominant position in any market shall be allowed to abuse the same. While this is welcome, from a competition law perspective, it may require the entity to keep evaluating if it holds a dominant position in different market segments; and yet reconcile to possible regulatory scrutiny/investigation.

Marketplace entity’s burden

There are a host of noteworthy obligations that are proposed for a marketplace entity. For instance, the obligation to ensure that none of its related parties or associated enterprises is enlisted by it for sale to consumers directly. While the restriction of B2C sale is understandable, there is noticeable inconsistency in defining “related party” per the Act but “associated enterprise” with a much wider import than the Act’s definition of “associate company”. The entity would also have to ensure that its related parties/associated enterprises do nothing that the entity itself would not be permitted to do. This, of course, is likely to have repercussions on cross-border business models and fulfilment of FDI conditionalities.

Marketplace entities could also have “fallback liability”, which would make them liable to consumers for the failures of registered sellers on their platform. While the Draft Amendments may have their heart in the right place, they need fine tuning before being brought into effect. Various stakeholders (such as inventory and marketplace e-commerce entities, logistics companies and consumer bodies) sharing inputs with the Ministry in this regard would go a long way in this direction.

(The author is Corporate Partner with HSA Advocates, and head of the law firm’s Kolkata office. Views expressed here are personal and not to be construed as legal advice.)

Published on June 27, 2021

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