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Summary: Proposed amendments to E-Commerce Rules 2020

The Ministry of Consumer Affairs on Monday proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The proposed changes include new rules to address abuse of FDI regulations, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, data protection for customers, among other things.

These changes come in response to “several representations from aggrieved consumers, traders and associations complaining against widespread cheating and unfair trade practices being observed in the e-commerce ecosystem,” the government stated in a press release.

MediaNama has reached out to Flipkart and Amazon for comments and is awaiting a response.

Read: Summary of the current E-Commerce Rules, 2020

Changes to address abuse of FDI regulations

The Indian government’s Foreign Direct Investment (FDI) policy outlines that e-commerce companies with FDI like Amazon and Walmart-owned Flipkart can only operate as marketplaces for third-party sellers and cannot operate an inventory-based model where they sell directly to customers. But brick-and-mortar retailers have accused Amazon and Flipkart of getting around this by setting up complex ownership structures and giving preference to a select group of sellers that are indirectly owned or controlled by them. Reuters in February reported that thirty-five sellers, Cloudtail one of them, accounted for two-thirds of Amazon’s sales in India. The agency’s reporting revealed how Amazon used legal manoeuvres to sidestep Indian regulations aimed at curbing deep discounting and limiting Foreign Direct Investment. The draft rules aim to address these issues by proposing the following:

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Related parties and associated enterprises:

  • Cannot be sellers: None of the platform’s related parties and associated enterprises can be enlisted as sellers for sale to consumers directly.
  • Cannot receive unfair advantage: Information collected by the platform cannot be used to give an unfair advantage to its related parties and associated enterprises.
  • Cannot do what the platform cannot do: Platforms must also ensure that nothing is done by related parties or associated enterprises which the e-commerce entity cannot do itself.

Definition of related parties and associated enterprises: In what can be a major step in closing loopholes, the draft rules attempt to define relationships that determine if two companies are affiliated with each other:

  • “Related parties” is defined as having the same meaning as assigned to it in Section 2(76) of the Companies Act, 2013
  • “Associated enterprises” is defined as two enterprises
    • related to each other through a common chain of directors or managing partners
    • related to each other through a common chain of shareholders
    • having 10 per cent or more common ultimate beneficial ownership
    • where one enterprise can exercise a right to veto any decision, appoint one or more director(s) or in any other manner influence the other entity’s decision making
    • where one enterprise holds, directly or indirectly, shares carrying the voting
      power in the related entities
    • where any person or enterprise holds, directly or indirectly, shares carrying the voting power in the related entities;
    • where there exists between the enterprises, any relationship of mutual interest.

Marketplace e-commerce platforms cannot sell to sellers on platforms: No marketplace e-commerce entity is allowed to sell goods or services to any person who is registered as a seller on its platform.

Marketplace e-commerce platforms cannot advertise a body of sellers: No marketplace e-commerce platform is allowed to advertise a body of sellers for the purpose of subsidizing a sale on its platform.

Platform brand name cannot be used to promote products: Marketplace e-commerce platforms cannot use their name or brand for the promotion of goods or services on their platform in a way that suggests that such goods or services are associated with the platform.

Cannot use sales information to improve the sale of own products: Marketplace e-commerce platforms cannot use information collected by them to help in sales of goods bearing a brand or name which is common with that of the platform.

Logistics company must treat sellers within the same category equally: No logistics service provider of a marketplace e-commerce platform is allowed to provide differentiated treatment between sellers of the same category. But if it does, it must provide a disclaimer including terms and conditions governing its relationship with sellers and a description of any differentiated treatment which it gives or might give between sellers of the same category.

Changes to labelling and display of products

New labelling and display criteria for imported goods: Earlier the rules required e-commerce platforms to mention the name and details of the importer for all imported goods and services. Now, platforms must:

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  • identify goods based on their country of origin and display this at the pre-purchase stage
  • provide a filter mechanism to display goods based on country of origin
  • suggest alternatives to foreign products to ensure a fair opportunity for domestic goods
  • provide a fair ranking for goods in a way that does not discriminate against domestic goods and sellers

Additional data disclosure for cross-selling: The draft rules define cross-selling as the “sale of goods or services which are related, adjacent or complementary to a purchase made by a consumer at a time from any e-commerce entity with an intent to maximise the revenue of such e-commerce entity.” It requires the e-commerce entity to prominently display the following information in case it is cross-selling:

  • name of the entity providing data for cross-selling
  • data of such entity used for cross-selling

Sponsored listings must be made clear: Platforms should ensure that sponsored listing of products and services are distinctly identified with clear and prominent disclosures.

Seller name and platform name must be the same font-size: Every e-commerce platform must clearly display the name of the seller in the same font size as that of the platform in its invoice.

No manipulating of search results: Platforms are not allowed to mislead users by manipulating search results or search indexes.

Changes to address abuse of market power

Flash sales not allowed: The draft rules prohibit flash sales, which are defined as sales “organized by an e-commerce 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 or otherwise with an intent to draw a large number of consumers” provided that such sales are organised “with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.” This could potentially disallow Amazon from running its Prime Day sales or lightning deals and Flipkart from running its Big Billion Days.

“Conventional flash sales by third party sellers are not banned on e-commerce platform, but certain e-commerce entities are engaging in limiting consumer choice by indulging in ‘back to back’ or ‘flash’ sales wherein one seller selling on platform does not carry any inventory or order fulfilment capability but merely places a “flash or back to back” order with another seller controlled by platform. This prevents a level playing field and ultimately limits customer choice and increases prices” – government press release.

Should not abuse dominant position: An e-commerce entity with a dominant position in any market should not abuse this position. The abuse of position is determined by Section 4 of the Competition Act, 2002.

No mis-selling of goods and services: The draft rules define mis-selling as the deliberate misrepresentation of information of goods and services as suitable for the user who is purchasing it and prevent e-commerce platforms from indulging in this practice. Misrepresentation is further clarified as positive assertations about a product without any evidence, display of wrong information with the intent of deceiving or misleading the customer, and causing a customer to purchased misrepresented goods.

Changes to the grievance redressal mechanism

Akin to the grievance redressal mechanism established in the Information Technology (IT) Rules, 2021 that apply to social media intermediaries, the proposed changes to E-Commerce Rules will require platforms to appoint employees who are Indian residents to the following roles:

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  • Chief Compliance Officer who will be responsible for ensuring the platform’s compliance with the rules and can be held liable for failure to do so
  • Nodal contact person for 24×7 coordination with law enforcement agencies
  • Resident Grievance Officer whose name and contact details will be prominently published on the platform and who will take complaints from users and relevant government or court authorities. The rules already require the grievance officer to acknowledge any complaint within 48 hours and address them within a month.

The rules previously only required a nodal contact person and resident grievance officer.

Other important changes

Must comply with information requests by government authorities: E-commerce platforms must share information under their control or possession with relevant government authorities within 72 hours of a request being made. Such requests might be made “for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cybersecurity incidents.”

Platforms are subject to fall-back liability: According to this provision, marketplace e-commerce platforms are liable if a seller on the platform fails to deliver goods or services ordered by a consumer because of negligent conduct.

Customer information cannot be shared without consent: E-commerce platforms cannot make available customer information to any person without explicit consent from the customer.

Best before date: All sellers on e-commerce platforms must clearly indicate the best before or use before date to enable consumers to make an informed purchase decision.

Registration of e-commerce entities: E-commerce entities that intend to operate in India will have to register themselves with the Department for Promotion of Industry and Internal Trade (DPIIT) for allotment of a registration number, which should be displayed prominently on their platform and on invoices.

National Consumer Helpline partner: All e-commerce entities will be required to become a partner in the convergence process of the government’s National Consumer Helpline. Earlier, platforms only had to do this on a “best-effort basis.”

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Interested stakeholders may submit suggestions on the proposed amendments by 6 July 2021 to js-ca@nic.in

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