New rules for e-commerce companies likely to raise compliance burden

The consumer affairs ministry proposed changes to Consumer Protection Rules, 2020

The new e-commerce rules, as proposed in by the Ministry of Consumer Affairs, will impact a wide range of companies, across sectors, including the likes of Swiggy, Zomato, BigBasket and several others, increasing their compliance burden.
 
Government officials said taxi aggregators such as Ola, Uber, food aggregators, such as Zomato, Swiggy, online grocery stores such as BigBasket, among others, will fall under the ambit of the proposed consumer protection rules.
 
At a virtual press conference, Consumer Affairs Additional Secretary Nidhi Khare told reporters that the rules will be applicable to all e-commerce companies. Khare was replying to a query whether the proposed amendments are applicable to food aggregators and Facebook Marketplaces.
 
The consumer affairs ministry proposed changes to Consumer Protection (E-Commerce) Rules, 2020. According to the draft, the rules will be applicable to "all goods and services bought or sold over digital or electronic network including digital products". The ministry on Monday sought comments from relevant stakeholders by July 6.
 
By this broad definition, said an industry executive, "everyone from Amazon, Flipkart to Netflix, Uber, Ola, essentially anyone selling anything online, will be classified as e-commerce".
 
"The e-commerce rules are applicable to all companies, whether domestic or (under) FDI (foreign domestic investment)," said a government official.

 
A pressing concern among industry, which is still studying the draft rules, is the requirement for mandatory registration of e-tailers with the Department for Promotion of Industry and Internal Trade (DPIIT), in an attempt to tighten the regulatory regime and make these companies more accountable. 
 
This could mean that all the above-mentioned companies and even entities like Facebook Marketplace, which lets users buy and sell items available nearby, would have to register with DPIIT.
 
Industry executives speaking on condition of anonymity said the rules were vague and subject to individual interpretation. The definitions of "fall-back liability" and "mis-selling" are problematic, they said.
 
The rules define “fall-back liability” as the liability of a marketplace e-commerce entity where a seller registered with the entity fails to deliver the goods or services exactly in the way described on the platform, as a result of negligent conduct, omission or a seller's fault.
 
“Should the new definition extend to aggregators, then the fall-back liability may make their service commercially unviable. Therefore, it would be important for the government or ministry to clarify the extent to which aggregators are part of the definition of e-commerce entity, according to the proposed amendments,” said Sajai Singh, partner, J Sagar Associates. 
 
They further define mis-selling as an e-commerce entity selling goods or services by deliberate misrepresentation of information by the e-commerce entity about such goods or services as suitable for the user who is purchasing it. Misrepresentation includes causing a mistake, "however innocently," in what a consumer buys and what he receives.
 
This essentially means that an innocent or honest mistake that causes a customer to receive the wrong product would cause the e-commerce entity to be liable.
 
Another point proposed in the rules asks that e-commerce firms identify goods based on their country of origin, provide a filter mechanism on the website, and suggest domestic alternatives to foreign manufactured goods that a customer may be considering for purchase.
 
While most e-commerce platforms already notify the country of origin, "promoting domestic goods as alternatives is not the duty of the e-commerce platform", said another executive who did not wish to be named.
 
"In the current form, these rules will make operations difficult for e-commerce entities," said one of these executives.
 
The issue of flash sales was the most discussed at the press meet, calling it an anti-consumer move. The rules say that e-commerce companies will not be allowed to organise a flash sale that allows sale of goods or services at significantly reduced prices and high discounts.
 
According to Akshay Hegde, co-founder and managing director of e-commerce start-up ShakeDeal, though the proposal changes say that conventional flash sales by third-party sellers are not being targeted, there is a lot of grey area because of the intricate operating structures created by big e-commerce players which enable them to circumvent restrictions on inventory control by them.
 
“Even if the proposed changes come into effect, unless there is clarification on this grey area, the intended fair and level playing field will remain elusive,” he said.
 
To be sure, the final rules are likely to be announced next month. The consumer affairs ministry on Tuesday reiterated that the rules are being proposed to safeguard consumer rights and the Centre is open to discussion and receive feedback on the proposed changes.
 
With inputs from Samreen Ahmad in Bengaluru