Draft e-commerce rules may hurt e-tailers, more than protect consumers

Several stakeholders have raised concerns over the draft e-commerce rules (Amendment) which aim to regulate e-commerce businesses with increased compliance norms.

While the amendments are purportedly aimed at protecting the interests of consumers, senior advocates, industry bodies and companies involved in the segment fear the proposed amendments, if implemented in the current form, will hurt businesses. They fear the regulations in the current form will increase red-tapism rather than serving consumer interests. They suspect the proposed rules could compound the impact of a multiplicity of regulations on the e-commerce sector, and thereby affect the investment climate and ease of doing business in India.

The new e-commerce rules are likely to impact both the e-commerce entities and sellers on online platforms and create entry barriers for small businesses who are already suffering from the COVID crisis.

Gopal Jain, senior advocate, Supreme Court of India, says the proposed amendments goes beyond the ambit and scope of the Consumer Protection Act and indirectly regulates e-commerce entities by imposing additional obligations. He says there is a disjunction between the rules and the Consumer Protection Act, 2019 (CPA).

“The legislative intent of CPA is to protect consumers while ensuring maximum benefit is afforded to them. However, these rules do not serve consumer interests and require urgent course correction to bring it within the appropriate legal framework,” he said. “There is still an ambiguity with respect to how sales actually limit consumer welfare.”

Jain notes that the draft rules are in conflict with and encroach upon existing legal frameworks such as the Competition Act, 2002 with regard to antitrust clauses, including abuse of dominance, preferential treatment and deep discounting. “The proposed amendments directly seek to regulate the issue of preferential listing and promotion of private labels which falls within the domain of Competition Commission of India.

“The overlapping of jurisdictions of the issued amendments with that of CCI and the Consumer Protection Act magnifies regulatory uncertainty, creates confusion, and hampers the investment climate of the country.”

The government first notified the Consumer Protection (E-Commerce) Rules, 2020, in July last year. Last month, it proposed amendments to give more teeth to the Rules. With demand from the industry bodies, the government extended the deadline for comments and suggestions on the proposed amendments till August 5.

Through the amendments, the government aims to limit how e-commerce companies promote products and sellers on the platform, prohibit flash sales, make it mandatory for e-commerce entities to register with the Department for Promotion of Industry and Internal Trade (DPIIT), and mandate appointment of a grievance officer and a chief compliance officer.

Meanwhile Jehangir Gai, a consumer activist, says increase in compliance norms will increase the costs for companies and in turn that will be passed on to customers. However, he disagrees with rules that ignore the welfare of consumers.

“I think they (ecommerce companies) want to be outside the ambit of the Consumer Affair Ministry and want to be regulated only by the IT Act. It would be ridiculous and senseless, like if Vodafone or Airtel were to say they don’t want to be under the purview of consumer protection as they are governed by Telecom Act,” he said.

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Another contentious clause is of the ‘fall-back liability’ making e-commerce companies liable for fraud committed by a seller when the platform merely acts as a marketplace. It’s much like making the social media players responsible for the crowdsourced content displayed on their platforms.

Companies have also raised objections to the “related-party clause” that prevents platforms from selling private label products. It will impact leading players like Amazon, Flipkart and Tata Group. Amazon, for instance, has stakes in its two biggest sellers, Cloudtail and Appario, while Flipkart has it in WS Retail. Tata Group would be prevented from selling Starbucks products as they are in a joint venture with the coffee giant in India.

“A preliminary reading suggests that the draft rules are in contravention to equality provisions laid down in Article 14 as it discriminates between online and offline sellers, especially with regard to flash sales and inventory ownership. Further, the draft rules also impose an unreasonable restraint in trade which is a violation of Article 19 (1)(g),” Jain said.