ADIF's recommendations to the Department of Consumer Affairs on the draft e-commerce rules

The new e-commerce rules put consumer interests at the forefront while also ensuring that there is a level playing field for all e-commerce players.

The Department of Consumer Affairs has been highly proactive towards recognising the long-term risks for Indian consumers and the proposed amendments to Consumer Protection (E-Commerce) Rules, 2020 under the Consumer Protection Act are a strong step towards protecting the consumer’s interests in the long run. 

ADIF, an industry body for startups, strongly feels that this forward-looking proposal is a firm signal of intent from the government of India that it puts consumer interests at the forefront while also ensuring that there is a level playing field for all e-Commerce players.

We recognize the intent to empower citizens, push the growth of local SMEs and restrict abuse of dominant position, thus creating a conducive environment for the growth of customer-centric e-commerce ecosystem in India.

However, the rules tend to miss the mark on ensuring friendliness for small and medium players. Solopreneurs and women entrepreneurs, especially, merit special consideration and attention. ADIF thus advocates zero paperwork for them up to GST threshold (20L) and minimal compliance requirement for all sellers at least till 1Cr of revenue.

We request the Department of Consumer Affairs to understand the limitations of smaller players and the additional compliance cost some of the clauses will create.

ADIF also recommends the following:

  • More deliberation/detailing is required regarding the inclusion of related parties in the definition of an ‘e-commerce entity’ and provision of fallback liability, among others.

  • We request the Department of Consumer Affairs to understand the limitations of smaller players and the additional compliance cost some of the clauses will create.

  • To avoid undue difficulty for the smaller players and to promote ease of starting a business, we request the department to provide necessary relaxations to young e-commerce entities – especially the ones led by women entrepreneurs – during the initial years or up to a certain revenue.

Comments submitted by ADIF on the draft e-commerce policy

3 (e) “Flash sale” means 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.
Provided such sales are organised 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.

Our suggestions

We believe that flash sales and instant discounts are bad for the market in the long run. Discounts are mostly offered on slow-moving and perishable inventory holdings. Deep discounting could kill good and/or competing products.

While larger players can resort to such tactics and survive to create market dominance, smaller players will not be able to afford these discounts for longer periods and will bleed out of existence.

At the same time, certain categories like quickly perishable goods and fixed inventory businesses like hotels and airlines run the risk of making losses if a sale is not made within a certain date. For these categories, instant discounting may be allowed as with clearly prescribed rules and no discrimination between the sellers.

5 (5) (a) (a) appoint a Chief Compliance Officer who shall be responsible for ensuring compliance with the Act and rules made thereunder and shall be liable in any proceedings relating to any relevant third-party information, data or communication link made available or hosted by that e-commerce entity where he fails to ensure that such entity observes due diligence while discharging its duties under the Act and rules made there under.

(b) appoint a nodal contact person for 24x7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions made in accordance with the provisions of law or rules made thereunder.

(c) appoint a “Resident Grievance Officer”, who shall, subject to clause (b), be responsible for the functions referred to in sub-rule (2) of rule 3.

Our suggestions

For smaller e-commerce entities, appointing 3 separate people as Chief Compliance Officer, nodal contact person and Resident Grievance Officer will be difficult. Until the DPIIT registrations are completed, the founders should be given permission to act as the above officers of the company.

Up to a certain turnover, e-commerce entities should have the flexibility to nominate one person who can act as a nodal contact person as well as Chief Compliance Officer and Resident Grievance Officer.

5 (9) No e-commerce entity shall impose cancellation charges on consumers cancelling after confirming purchase unless similar charges are also borne by the e- commerce entity, if they cancel the purchase order unilaterally for any reason.

Our suggestions

Cancellation charges could be imposed by both e-commerce entities as well as sellers. Cancellation charges imposed by e-commerce entities (when a customer cancels an order) may be permitted only if the e-commerce entity will also provide similar cancellation charges when cancellation is done by the seller or e-commerce entity.

However, e-commerce entities may be exempt from this rule in cases where the cancellation charges are levied by sellers and e-commerce entities are only passing on the charges to the customer.

6 (9) A marketplace e-commerce entity shall be subject to a fall-back liability where a seller registered on its platform fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity which causes loss to the consumer.

Our suggestions

The marketplace entity only provides the information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers. Such entities may also provide support services to sellers in respect of warehousing, logistics, order fulfilment, payment collection among others. However, they do not exercise ownership or control over the inventory. Also, for marketplace entities, the warranty/guarantee of goods or services sold are the responsibility of the seller. 

So while this rule may be made applicable to inventory-based e-commerce entities (as they control, own and manage the inventory of the goods/services being sold), it would be unfair to put the liability on the shoulders of marketplace entities, where the failure has been caused by the seller.

Also, the fallback liability provision defeats the very principle of safe harbour rule which acts as a protection to intermediaries under Section 79 of the IT Act. In this light, it is requested to re-examine the provision of fallback liability on marketplace e-commerce entities.

6 (6) (a) (a) ensure that it does not use any information collected through its platform for unfair advantage of its related parties and associated enterprises;

(b) ensure that none of its related parties and associated enterprises are enlisted as sellers for sale to consumers directly;

(c) ensure that nothing is done by related parties or associated enterprises which the e-commerce entity cannot do itself;

Our suggestions

It is true that some marketplace entities use the data collected from the marketplace to create associated entities or private labels that will earn them high margins/volumes. Certain marketplaces might also be flouting the FDI rules by doing so. At the same time, some marketplaces might have associated entities who have been sellers even before the marketplace entity started its operations.

While we see this clause as a great step towards protecting sellers from market erosion risks from large e-commerce entities, we feel that there needs to be more deliberation to create provisions to protect the interests of Indian marketplace entities which have invested in associated parties or private labels.

6 (3) (c) (c) Every marketplace e-commerce entity shall provide the following information in a clear and accessible manner, displayed prominently to its users at the appropriate place on its platform: information relating to return, refund, exchange warranty and guarantee, best before or use before date delivery and shipment, modes of payment, and grievance redressal mechanism, and any other similar information which may be required by consumers to make informed decisions;

Our suggestions

For marketplaces, it is operationally difficult to display the best before or use before date of fast-moving consumer goods. Instead of displaying the best before date, the e-commerce entities may be mandated to supply goods that are reasonably within the expiry date, failing which, the e-commerce entity is expected to redress the issue within a limited time frame.

If the customer is still unsatisfied, they will have the option to reach out to CCPA.

6 (7) No marketplace e-commerce entity shall sell goods or services to any person who is registered as seller on its platform;

Our suggestions

Marketplaces enable sellers by providing certain programs, services, ads and packaging material. While larger players can offer these for free to their sellers, smaller players will need to charge sellers for these value-added services.

However, the marketplaces may not mandate any seller from taking these services exclusively from the marketplace and also may not discriminate against any seller for not availing these services.

5 (18) Every e-commerce entity shall, as soon as possible, but not later than seventy two hours of the receipt of an order, provide information under its control or possession, or assistance to the Government agency which is lawfully authorized for investigative or protective or cyber security activities, 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 cyber security incidents:

Provided that any such order shall be in writing clearly stating the purpose of seeking information or assistance, as the case may be

Our suggestions

E-commerce entities may be mandated to share the information requested by such investigative agencies provided there is a judicial order for sharing the same within a defined timeframe.

6 (3) (a) (a) Every marketplace e-commerce entity shall, on a request in writing made by a consumer after the purchase of any goods or services on its platform by such consumer, provide him with information regarding the seller from which such consumer has made such purchase, including the principal geographic address of its headquarters and all branches, name and details of its website, its email address and any other information necessary for communication with the seller for effective dispute resolution

Our suggestions

This clause may be potentially misused to get information about sellers on any e-commerce platform. Also, there is a risk of parallel communication by customers to e-commerce entity's customer care as well as seller, which may not lead to the optimal resolution.

In case of a dispute, an e-commerce entity should make it possible for the customer to file a complaint to CCPA and may be mandated to submit the seller's information to the CCPA if CCPA has sought such information.

4 (1) Every e-commerce entity which intends to operate in India shall register itself with the Department for Promotion of Industry and Internal Trade (DPIIT) within such period as prescribed by DPIIT for allotment of a registration number. Provided that the DPIIT may extend the period for registration of such e-commerce entity for sufficient reason, to be recorded in writing.

Our suggestions

A large number of e-commerce stores don't survive beyond their initial years. Therefore relaxation may be provided for young e-commerce startups up to a certain number of years or up to certain revenue.

This relaxation may be higher for women-led e-commerce startups. The point at which it becomes mandatory for a company to get GST registration may be considered as the point at which an e-commerce entity should complete the DPIIT registration also.

3 (b) “e-commerce entity” means 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

Our suggestions

It may be kindly reconsidered if

a) parent/promoter companies, which in most cases may not be related to e-commerce business and

b) logistics, fulfilment companies, packaging services and last-mile delivery companies

should come under the definition of e-commerce entity. While some rules may be made applicable for them, making all rules applicable for such related entities will create unnecessary legal scrutiny and compliance issues.