Tightening the Noose: Analysing the Draft E-Commerce Amendments

Posted on August 27, 2021

Authored by Tanya Sampath Sharma*

Image Source: The Rio Times

On June 21, 2021, the Ministry of Consumer Affairs, Food, and Public Distribution (“Ministry”) proposed amendments (“Draft Amendments”) to the Consumer Protection (E-Commerce) Rules 2020 (“E-Commerce Rules”) and invited feedback from involved stakeholders. A press release by the Government clarified that the Draft Amendments were an effort to protect consumer interests against unfair and anti-competitive practices with regulatory intervention. In essence, the new legislation is simply an addendum to the teething E-Commerce Rules, to establish certain ground rules for e-commerce entities in India.

What are the Rules?

Under the Draft Amendments, the definition of ‘e-commerce entities’ includes: "any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, including any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform and any ‘related party’ as defined under Section 2(76) of the Companies Act, 2013, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity". The scope of this provision has been widened to include ‘related parties’ as relevant under the definition. The significance of this is fundamentally that several e-commerce entities like Amazon India and Tata Group don’t always conduct businesses directly and often use a third-party route. Amazon India holds an indirect stake in Cloudtail and Appario, two of its primary sellers, while Tata Group currently holds a joint venture with Starbucks. The provision could potentially impact their business models.

Amongst the proposed compliance requirements are the appointment of a Chief Compliance Officer/Grievance Redressal Officer. Rule 5(5)(a) and (b) set forth conditions for the designation of a compliance officer and a nodal officer to ensure strict compliance with the guidelines. If that sounds familiar, it is so because this is also a newly introduced compliance requirement for ‘significant social media intermediary’ in the Information Technology (Intermediary Guidelines sand Digital Media Ethics Code) Rules 2021 (“IT Rules 2021”).

A few contentious requirements in the Draft Amendments include:

1. A ban on flash sales: Rule 5(16) bans e-commerce entities from engaging in flash sales, which have been defined under Rule 2(e) as ‘a sale organised by an e-commerce entity at significantly reduced prices, high discounts, or promotions for a pre-determined period of time for select goods or with the intent of drawing a large number of customers.’ The Government clarified in a post-facto press release that the ban applied only to conventional flash sales which limit consumer choice by indulging in back-to-back sales.

2. Misleading Advertisements and Mis-selling: According to Rule 5(4) and 5(11) respectively, e-commerce entities must not engage in misleading advertising and nor must they mis-sell their product through misrepresentation.

3. Tightening the bolts on imported goods: During the sale of imported goods, the e-commerce entity must disclose certain details to the consumer such as the name of the importer and country of origin. The e-commerce entity must also take steps to ensure that the products do not disadvantage domestic sellers (Rule 5(7)).

4. Explicit consent: The Draft Amendments also require consumers to express explicit consent and affirmative action before any purchase can be legitimised.

5. Capping anti-competitive behaviour: Rule 5(17) of the Draft Amendments clearly state that dominant entities shall not be allowed to abuse their position in the market.

6. Furnishing relevant data: Similar to the IT Rules 2021, E-Commerce entities are also required to furnish lawfully authorised information when requested by the Government within 72 hours’ notice "for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences" (Rule 5(18)).

Stakeholder Feedback to the Rules

If it isn’t already obvious from the requirements (few of many) stated above, the Draft Amendments work towards the primary goal of tightening the noose on unfair market behaviours. It’s important to understand that they don’t stem from nowhere. The ban on flash sales, for example, is an inevitable response to Confederation of All India Traders’ (“CAIT”) previous accusations towards Amazon and Flipkart for anti-competitive practices during their flash sales by giving unmatchable discounts and flouting FDI regulations. In CAIT’s submitted feedback to the Draft Amendments, they stressed on further transparency in the operation of e-commerce entities, easy accessibility and stricter grievance redressal mechanisms, which would be key enablers to a "robust and dynamic regulatory framework". Swadeshi Jagran Manch was another organisation to provide feedback to the proposed legislation. In their submission, they welcomed the clauses that required compulsory registration of e-commerce entities and their feedback largely involved clarifications of several clauses.

However, the overall response towards the Draft Amendments has been less than positive. While certain actors have lauded the decision to protect consumer interests and have offered constructive criticism, the new move doesn’t seem to be sitting well with many involved stakeholders. E-commerce giants like Tata Group, Amazon, and Flipkart have expressed discontent at the definition’s ‘related party’ clause as being too broad and potentially damaging to their fundamental business models. The Tata Group vocalised their concern that their joint venture business with Starbucks stood to be affected through this clause. A source confirmed to Economic Times that the stakeholders also believed certain clauses of the new legislation to be contradictory to FDI regulations. This criticism has not been received well by the Government thus far. In a heated speech, India’s E-Commerce Minister Piyush Goyal criticised Tata Sons for their objection towards the Draft Amendments, implying that they were selfish for doing so.

The Internet and Mobile Association of India (“IAMAI”) indicated that the Draft Amendments were a ‘deterrent’ to the industry’s growth and would likely have ‘unintended negative consequences’ on consumers. In its response to the Ministry, IAMAI stated that Draft Amendments ‘fail to provide a level-playing field between Online and Offline e-commerce/retail’ and would increase compliance burdens on MSMEs and start-ups through overregulation. IndiaTech – an organisation supporting and representing India’s consumer online start-ups and investors – voiced disconcertment over the potential damage to ease of business in India, reiterating IAMAI’s stance on overregulation.

India’s SME Forum was also amongst those concerned about the impact of the Draft Amendments. Representing over 86,000 MSME actors, the industry body made note of the fact that the compliance burdens set forth by the proposed legislation would unfairly impact smaller e-commerce entities and render the marketplace inaccessible to small and medium businesses.

The Impact?

First and foremost, the Draft Amendments have been brought into place to secure consumer experiences. While there are several parts of the Draft Amendments that may be lauded this focus, there are several distressing elements that may disturb and hinder a booming industry. According to a report by India Brand Equity Foundation, the Indian e-commerce market is set to reach a valuation of $200 billion by 2026. Overregulation may kill this growth. The Draft Amendments are also clear on their stance regarding anti-competitive behaviour. It’s hard to ignore the most recent update in competition law – the CCI probe into e-commerce giants Amazon and Flipkart for anti-competitive behaviour – as a potential trigger for the Draft Amendments.

As for users, there are several parts of the Draft Amendments that are alarming. Like the IT Rules 2021, the Draft Amendments have set forth a proposition requiring e-commerce entities to assist law enforcement agencies (including by sharing data as required) within a tight timeline A clause like this could pose serious concerns, especially in a country without a comprehensive data privacy legislation. Without strict infrastructure around data protection, the destabilization of users’ sensitive and personal information is dangerous and can open itself up to severe data breaches which would, amongst other serious consequences, lead to a loss of consumer and stakeholder trust and could seriously hamper industry growth.

Conclusion

The fundamental problem with the Draft Amendments is that its heart might be in the right place but without serious improvement and clarification as requested by stakeholders, it can become a slippery slope of overregulation and extreme intervention. During Narendra Modi’s prime ministerial campaign, he rode the wave with an important slogan: ‘minimum government, maximum governance.’ It will be interesting to see whether the Government is able to stay true to this once an outcome is reached.

*Tanya Sampath Sharma is an Editor at IntellecTech Law and a final year student at Faculty of Law, Delhi University. She harbors a strong interest towards technology, media and intellectual property laws and, when not editing or immersed in law, can be found holed up with a book.