Consumer Protection In Indian eCommerce: 5 Grey Areas Which Needs Govt’s Attention

Authored by: Kaushalya Venkataraman, Partner, Chandhiok & Mahajan Advocates and Solicitors

In the last decade, there has been an increased awareness of consumer protection rights globally, and following the suit, even the legislative authorities in India have begun to take heed.

In 2019, the government completely overhauled the Consumer Protection Act, 1986, the primary consumer protection law in India, with the Consumer Protection Act, 2019 (“COPRA”).

Arguably the COPRA has been an important step towards modernization and protection of rights of the consumer in the digital economy. 

Recently on July 23, 2020, the government has also notified the Consumer Protection (E-Commerce) Rules, 2020 (“E-Commerce Rules”) under the COPRA.

Though there have been discussions around rules regarding e-commerce for a while now, the sector had hitherto not been regulated. 

In line with the thinking of many developed countries such as the UK and that of the EU, the government has sought to protect consumers in the digital economy through the E-Commerce Rules.

Note that the E-Commerce Rules do not contain any data protection matters as the government intends to cover it under the e-commerce policy, a draft of which was first released for public comments in February 2019. E-commerce entities will have to significantly overhaul their websites/ apps to remain in compliance with the E-Commerce Rules. 

How Does Ecommerce Rules Aim To Protect Consumers? 

The E-Commerce Rules are intended to cover all goods and services bought or sold over a digital or electronic network (including digital products) to consumers in India.

This would effectively cover almost all apps or websites which offer any good or service (including digital products) for sale to consumers in India and not just marketplaces like Amazon or Flipkart.

Do note that the E-Commerce Rules also apply to offshore apps/ websites that ‘systematically offer goods or services to consumers in India’ and would thus cover marketplaces like Alibaba or websites like ASOS.  

The E-Commerce Rules aim at protecting consumers by (i) increasing disclosures made by e-commerce entities to consumers; (ii) increasing accountability of e-commerce entities for compliance (including having a place of business in India and setting up a grievance redressal mechanism for complaints amongst other compliances); and (iii) imposing a prohibition on adopting unfair trade practices and price manipulation/ discrimination. 

Any non-compliance with the E-Commerce Rules attracts penalty and implementation of the E-Commerce Rules is the responsibility of the new regulator for consumer protection, the Central Consumer Protection Authority (“CCPA”).

Consumers can raise disputes before the consumer courts/ tribunals for ‘unfair trade practices’ even in the e-commerce space but it is not clear if they can raise complaints to the regulator directly for non-compliance with the E-Commerce Rules and how the regulator will monitor and implement the E-Commerce Rules. 

Are There Any Grey Areas? 

• Country of origin: A hotly debated issue (which features in the discussion around some proposals to the e-commerce policy) is the one on the country of origin which has been introduced in the E-Commerce Rules as well. As per the E-Commerce Rules, a seller offering goods or services through a marketplace e-commerce entity (such as Amazon or Flipkart) are required to provide information on ‘country of origin’ to the e-commerce entity for them to display the same on its platform or website. There is currently some ambiguity on what is meant by ‘country of origin’, for instance, is the country of origin for an Apple iPhone, China or the United States of America? The E-Commerce Rules do not clarify or provide any guidance on how this is to be determined. That apart, the stated reason for including this disclosure is “to enable the consumer to make an informed decision at the pre-purchase stage”. However, this requirement of displaying country of origin has not been made applicable to inventory-based e-commerce entities (where the seller is the e-commerce entity) or any other e-commerce entity that is not a marketplace. Would the consumers in such a scenario not want to know the country of origin at the pre-purchase stage to make an informed decision? If a rule on disclosure of country of origin has been introduced then it should be made applicable uniformly. 

• Prohibition of price manipulation: E-commerce entities are prohibited from manipulating the price of the goods or services offered on its platform in such a manner as to gain ‘unreasonable profit’ by imposing on consumers any ‘unjustified price’ having regard to the prevailing market conditions and essential nature of the good or service among other things. Unfortunately, there is no guidance on what could be or may be construed as ‘unreasonable profit’ or ‘unjustified price’. For instance, would the fact that a luxury designer brand is selling a face mask (an essential good these days) at 3 times the price of a regular face mask be considered to be an ‘unjustified price’? Though the intention behind this clause is laudable, it is unclear how this will be interpreted and a little guidance would have gone a long way.  

• Disclosure of contractual information: Any seller offering goods or services through a marketplace e-commerce entity must disclose all contractual information required to be disclosed by law to the e-commerce entity which must then display this on its platform/ website. Similarly, every inventory e-commerce entity is also required to display prominently to its users all contractual information required to be disclosed by law. It is not clear, firstly, which contract is being referred to here? Is it a contract between the seller and the marketplace e-commerce entity? If that is indeed the case, then what contract is being referred to as regards an inventory-based e-commerce entity (in the case of an inventory-based e-commerce entity, the seller is the e-commerce entity itself). 

• Timeline for compliance: The E-Commerce Rules are effective from July 23, 2020, and no grace period has been given for compliance especially for offshore e-commerce companies that systematically offer goods or services to consumers in India. Generally, when regulations bring under their purview new categories of regulated entities, a grace period for compliance is typically provided to allow businesses to manage their affairs to become compliant. However, this is not the case under the E-Commerce Rules, and though offshore e-commerce entities will need to incorporate a company in India and appoint nodal officers amongst other things, these entities have not been provided any grace period for complying with the E-Commerce Rules and consequently, they will be non-compliant from the date of notification of the E-Commerce Rules. 

• Penalties: Though the E-Commerce Rules refer to the COPRA for penalties there is some ambiguity on which penalties shall apply.  

Conclusion and Way Forward:

As stated above, for complying with the E-Commerce Rules businesses will have to fundamentally overhaul their websites/ apps and will have to invest significantly in legal compliance.

For smaller businesses, the cost of compliance (appointing a nodal officer and establishing a dedicated grievance redressal mechanism) may far exceed the benefit of selling online but for larger businesses (such as the marketplaces), the added compliance requirements are a step in the right direction for the protection of consumers. 

There are some ambiguities in the E-Commerce Rules and any guidance or clarity from the government regarding these will go a long way in proper implementation. The success of any new regulation in part is attributable to its implementation and CCPA let us hope takes a more proactive approach.