Consumer Protection in E-Commerce: Analysis of the Consumer Protection (E-Commerce) Rules, 2020

The recently notified Consumer Protection Act, 2019 (“Act”), in a departure from the erstwhile Consumer Protection Act, 1986, introduced inter alia two significant changes. The Act has added an explanation in Section 2(37), which clarifies that the definition of “consumer” includes the buying and selling of goods and services through digital or electronic network and teleshopping and seeks to regulate e-commerce and electronic service providers, thereby extending itself to online auction sites and marketplaces.

The Act further empowers the Central Government to make rules in order to prevent unfair trade practices in e-commerce. As such, in pursuance thereof, the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, recently notified the Consumer Protection (E-Commerce) Rules, 2020 (“Rules”), with effect from  July 23, 2020.

Applicability The Rules apply to (1) all goods and services bought or sold over digital or electronic network including digital products, (2) all models of e-commerce, including marketplace and inventory models, and (3) e-commerce retail, including multi-channel and single brand retailers in single or multiple formats. However, natural persons carrying out any activity in their personal capacity have been excluded from the applicability of the Rules.

Who are E-Commerce Entities and Sellers?  

The Rules define “E-commerce entities” as, “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”.[1]  Further, as per Rule 4 of the Rules, such e-commerce entities should:

1. be a company incorporated under the Companies Act, 1956 or the Companies Act, 2013; or
2. a foreign company under section 2(42) of the Companies Act, 2013; or
3. an office, branch or agency outside India owned or controlled by a person resident in India under section 2(v)(iii) of the Foreign Exchange Management Act, 1999, and should appoint person of contact or an alternate senior designated functionary who is resident in India, to ensure compliance with the Consumer Protection Act, 2019 and the rules thereunder.

Sellers have been defined to include product sellers, namely, persons who import, sell, distribute, lease, install, package, label, market, repair, maintain, etc, and include manufacturers and service providers. However, certain persons have been excluded such as sellers of immovable property (except those involved in sale of constructed houses or construction of homes or flats), professional services providers in certain instances, persons acting in a financial capacity regarding the sale of a product etc.

Key Obligations under the Rules

A few key obligations introduced under the Rules include:

1. Liability as Intermediaries: Marketplace e-commerce entities need to comply with Section 79 (1) and (2) of the Information Technology Act, 2000 (“IT Act”) and the Information Technology (Intermediary Guidelines) Rules, 2011 (“Intermediary Rules”), in case of availing exemptions as intermediaries under Section 79 of the IT Act.
2. Display of Information: Display of certain information has been mandated. For example, sellers need to display details such as contractual information, total product price and its break-up, details of consumer grievance officer, details of importer, guaranties and warranties related to goods, information regarding product return, refund, exchange, and shipment etc. Similar information also needs to be displayed by marketplace and inventory e-commerce entities.
3. No Unfair Trade Practices: Unfair trade practices are prohibited on the e-commerce platform and otherwise. Further, e-commerce entities are prohibited from manipulation of price of the goods and services offered on their platform, for gaining an unreasonable profit. Further, any arbitrary consumer classification and discrimination is prohibited under the Rules.
4. No False Representation: Sellers and inventory e-commerce entities are restricted from falsely representing themselves as consumers and posting reviews about their goods or services and from misrepresenting the quality or features of any goods or services provided by them. Marketplace e-commerce entities mandatorily need to procure an undertaking from the sellers regarding the accuracy of descriptions, images, and other content pertaining to the goods or services offered on the e-commerce platform.
5. Spurious or Defective Goods & Services: Sellers and inventory e-commerce entities cannot refuse to take back goods or withdraw or discontinue services purchased or agreed to be purchased, or refuse to refund consideration, in case of defective, deficient, spurious, or falsely represented goods or services or in case of late delivery (not being on account of force majeure). Further, cancellation charges cannot be imposed by e-commerce entities post purchase confirmation, unless similar charges are also borne by the e-commerce entity, if they cancel the purchase order unilaterally for any reason.
6. Record of Sellers: Every marketplace e-commerce entity should maintain a record of all sellers who have repeatedly offered goods or services that have previously been removed or access to which has previously been disabled under the Copyright Act, 1957, or the Trade Marks Act, 1999, or the Information Technology Act, 2000.
7. No Automatic Consent: Explicit consumer consent needs to be procured by e-commerce entities, instead of automatic means such as pre-ticked checkboxes.

Country of Origin

One of the significant reforms introduced by the Rules is the mandatory display of country of origin for imported products. The Rules mandate e-commerce entities and sellers to disclose certain details regarding the origin of the goods and services, such as (1) e-commerce entity to mention details of importer / seller on its platform, from whom it has purchased such goods or services, and (2) sellers to display all relevant details about the goods and services including their country of origin, for enabling the consumer in making an informed decision prior to purchase.

Such display of country of origin seems to evolve from the Government of India’s endeavour to (1) promote the ‘Make in India’ initiative, and (2) curb import of goods from countries such as China, especially in context of recent regulatory measures such as Press Note 3[2], and the Government e-Marketplace (“GeM”), which has made it mandatory for sellers to enter the product’s country of origin while registering products on GeM[3].

Takeaways

The Rules recognise that market e-commerce entities may seek to avoid liability for third party data, by declaring themselves as intermediaries under Section 79 of the IT Act and availing the exemption thereunder. Therefore, Rules aim to balance mandating such entities to comply with the conditions under Section 79 of the IT Act and the Intermediary Rules, with the requirement of accurate disclosure of information by sellers to the marketplace entities.

It is further pertinent to note that the Rules exclude limited liability partnerships and partnership firms from the definition of e-commerce entities, which raises the question whether partnerships owned and controlled by Indian residents, can undertake business as e-commerce entities.

Further, e-commerce entities and sellers need to be mindful of their compliance with the Rules, as any contravention of the Rules invites stringent penalties and search and seizure provisions under the Consumer Protection Act, 2019, resulting in substantial liabilities for e-commerce entities and sellers.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal, Hyderabad.

[1] Rule 3(b)

[2] Press Note 3 dated April 17, 2020 which restricts foreign investment in India from entities or beneficial owners in China. Please see Government of India, Ministry of Commerce & Industry, Press Note 3 (2020 Series), dated April 17, 2020, available at, https://dipp.gov.in/sites/default/files/pn3_2020.pdf.

[3] Please see Government of India, Ministry of Commerce & Industry, Information about Country of Origin by the Sellers made Mandatory on GeM to Promote Make in India and Aatmanirbhar Bharat, dated June 23, 2020, available at, https://pib.gov.in/PressReleasePage.aspx?PRID=1633511