Proposed Amendments to the E-Commerce Rules: Going a Step Too Far?

[Rohan Mitra is a 4th Year B.A., LL.B. (Hons.) student at Jindal Global Law School]

The Department of Consumer Affairs on June 21, 2021, proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020. The proposals have been released to the public and comments and suggestions have been invited, with the deadline being extended until late July. The rules have unsettled many online retailers and e-commerce companies, as the Government grows increasingly adamant in effectively regulating and monitoring the rapidly expanding e-commerce industry, while also seeking to protect the interest of consumers and traders. However, excessive compliance requirements can have the effect of stifling the exponential growth of the industry, which is estimated to rise to nearly $200 billion in size by 2026, and several online retailers are skeptical about the Government’s recent proposals. There are several clauses within the proposed amendments that need a closer examination and analysis.

Flash Sales

Rule 3(1)(e) of the proposed amendments defines a ‘flash sale’ to mean ‘a sale 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 large number of consumers’. Flash sales have been an integral part of the growing e-commerce industry, allowing websites to grow rapidly as they encounter huge sales of products along with higher profitability. Price and sales promotions, as well as non-monetary promotions, create a positive effect on the evaluation of the commodity and induce consumers to not just purchase the product, but lure them into visiting the website again for more deals. Such flash deals also allow retailers to upload and quickly sell excess inventory turning this into a benefit for the portal. 

Flash deals have, however, recently come under the scrutiny of the Government, as they have the potential effect of reducing free and fair competition in the market and exploiting consumer interests. On its part, the Government has not completely banned flash sales, as there is a proviso in the rules stating that only those flash sales are banned which are ‘organized by fraudulently intercepting the ordinary course of business using technological means 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’ For instance, the Ministry of Consumer Affairs has commented that some e-commerce entities are limiting consumer choice by indulging in ‘back to back’ sales wherein one seller selling on a 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. Several small businesses also complain of predatory behavior of large retailers through misuse of market dominance and deep discounting by employing such ‘flash deals’, especially during the festive season. Organizations like Confederation of All India Traders (CAIT) have previously accused Amazon and Flipkart of giving deep discounts and eating into their businesses, as well as flouting FDI policies which such companies are bound to follow. These FDI policies are the recently drafted regulations governing e-commerce activities, which prohibit foreign funded e-commerce companies from selling products of the retailers they have a majority stake in and giving preferential treatment to certain sellers and having a control of their inventory. 

Greater Regulatory Compliances

The rules also impose greater duties and compliance obligations on e-commerce retailers, similar to the compliances which are seen in the recent Intermediary Guidelines. E-commerce firms will now be required to appoint a ‘Chief Compliance Officer’, a ‘Nodal contact person,’ a ‘Resident Grievance Officer’ and also prominently display the ‘Grievance redressal mechanism’. These compliances are in the interest of placing greater responsibility on e-retailers and for ensuring protection of consumer interests. However, a cause of concern is the ‘one-size fits all’ approach to the compliance mechanism which may pose more problems than it attempts to solve. A parallel could have been drawn while drafting the new amendments, from the Digital Markets Act, which is a current legislative proposal by the EU seeking to regulate online platforms and services. Some of these online platforms have been classified as ‘gatekeepers’, which are companies that have a strong economic position, a significant impact on the internal market and a strong intermediation position (meaning that it links a large user base to a large number of businesses). These ‘gatekeepers’ have to fulfill greater procedural requirements so that fair play and healthy competition is maintained in the market. The problem with the current rules as proposed in India is that smaller e-commerce retailers will also be unduly impacted by such burdensome compliances. Fulfilling such compliances will cost money and resources, and many e-retailers do not have such deep pockets, nor is it necessary to mandate them to meet such high compliance standards. Such regulatory obligations can also deter new players from entering the market and might even force certain companies to leave the market.

Prevention of Unfair Competition

Rule 5(17) states that no e-commerce entity that holds a dominant position in any market shall be allowed to abuse its position. Furthermore, according to rule 6(5) no logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category, while according to rule 6(8) a marketplace e-commerce entity shall advertise a body of sellers for the purpose of subsidizing a sale on its platform. These rules are a direct consequence of recent competition concerns raised by CCI over the conduct of various e-commerce platforms such as Flipkart and Amazon, where the retail giants have been accused giving preferential treatment to certain sellers. However, a concerning aspect of these rules is the fact they fall squarely within the realm of antitrust regulation. The Consumer Protection (E-Commerce) Rules, 2020 has been drafted in exercise of the powers conferred by Section 101 (1) (zg) the Consumer Protection Act, 2019, while also falling within the regulatory authority of the Ministry of Consumer Affairs, Food and Public Distribution. Considering that anti-competitive conduct is already covered by the Competition Act, 2002 and governed by the CCI, such rules seem superfluous and counterintuitive.  

Data Privacy Concerns

According to rule 5(18) of the proposed amendments, an e-commerce entity would be required to furnish any information under its possession to a requesting government agency within 72 hours of receipt of an order. There are broad reasons and purposes for which a governmental agency is allowed to make such a demand the prevention, detection, investigation, or prosecution of any offence, or identity verification, or for cybersecurity.

The explicit data and information under the control of e-commerce platforms is not simply confined to that willingly submitted by the consumers such as names and address. The nature of such information can pertain to data collected through tracking browsing habits and patterns, data based on search results and which websites users visit, data inferred about personal preferences and so on. Collection of such information without any cogent reason can amount to a breach of consumer’s privacy as e-commerce retailers would be coerced into sharing sensitive information without prior consent. Misuse of data in the hands of such governmental agencies is a cause of concern, especially when there is an absence of substantial exigencies which warrant the collection of such sensitive and personal information.

Definition of an E-Commerce Entity 

A new amendment to the definition of ‘e-commerce entities’ in rule 3(b) has included the term ‘related parties’ within its ambit. The meaning of an e-commerce is not confined solely to a person who owns or operates an electronic or digital facility or platform for electronic commerce, but has now been proposed to include any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform, as well as any ‘related party’. The definition of a related party in this context has been given the same meaning pursuant to section 2(76) of the Companies Act, 2013. This broad standard for an e-commerce entity has now been extended to mean delivery agents, logistical support staff, payment services, customer support and even mean payment portals, delivery agents and even social media applications where orders and payments are processed. In addition, data collected by all such ‘related parties’ can further be subject to rule 5(18) allowing governmental agencies a wide range of sources to collect and extract any information or data which is relevant, further compromising data security of customers. 

Concluding Remarks

The recent proposals to change the e-commerce rules are a consequence of anti-competitive allegations by traders against e-commerce giants like Amazon and Flipkart, while also a result of the Government trying to clamp down on an industry which has rapidly grown in recent years. Certain proposals, including those banning mis-selling and misrepresentation as well as prevention of any fraudulent practices, are in line with protecting consumer interests and the domestic market. However, several new rules to the proposed amendments are distressing not just for retailers, but consumers as well. More rules, greater compliances and excessive governmental interference can have the effect of hindering the growth of a booming industry, and is definitely not in tune with ‘ease of doing business’ temperament of the present Government. Many such proposals like the excessive compliances, the definition of an e-commerce entity, as well as collection of sensitive and personal information, may need to be reconsidered in order to ensure that the e-commerce industry is not negatively impacted for both consumers and retailers. 

– Rohan Mitra

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