Consumer Protection (E-commerce) Rules 2020: A Step In The Right Direction?

Laghavi Pahwa

1 Aug 2020 10:45 AM GMT

  • Consumer Protection (E-commerce) Rules 2020: A Step In The Right Direction?

    The e-commerce industry was already booming but the pandemic has impacted its growth significantly. E-commerce portals like Amazon, Flipkart, Big Basket, Nykaa etc. have flourished as maximum use has been made by the consumers to fulfil their insatiable appetite from the comfort of their homes. [i] It is the easy access to the internet and smartphones which facilities the use of...

    The e-commerce industry was already booming but the pandemic has impacted its growth significantly. E-commerce portals like Amazon, Flipkart, Big Basket, Nykaa etc. have flourished as maximum use has been made by the consumers to fulfil their insatiable appetite from the comfort of their homes. [i] It is the easy access to the internet and smartphones which facilities the use of e-commerce which has not only helped to satisfy the existing demand of the population but also create more demand to some extent. With so much competition and saturation in one field, it is not unanticipated that companies may use malpractices to survive in the market. The Consumer Protection Act, 2019 ('Act') which came into effect in July, 2020 did bring e-commerce under its ambit to protect the consumers from not only traditional platforms but also from ecommerce platforms. The Consumer Protection (E-commerce) Rules, 2020 ('Rules') complement the Act with regards to the protection of consumers from unfair trade practices and other practices of e-commerce platforms.

    Grievance Redressal Mechanism

    As per Rule 4(4), every e-commerce entity must establish an adequate grievance redressal mechanism and a grievance officer has to be appointed for such consumer redressal and the contact information of the officer must be listed. The complaints must be acknowledged within forty-eight hours by such officer[1] and a ticket number is to be generated.[2] However, many established and prominent companies already follow this mechanism but the idea behind this rule is to make a uniform set of rules which applies to all types of e-commerce platforms including small scale platforms as well and a grievance redressal mechanism is a great step towards uniformity. One of the compliances is that in a market place where the sellers are more democratized and where there are individual sellers, each individual seller on the platform is also required to have a grievance officer but issue is that not all sellers might have the necessary resources to have a dedicated grievance redressal mechanism. For instance, there are so many startups these days. Housewives, graduates have started businesses from home and they sell their products on reputed e-commerce platforms. So, it will be difficult for home-grown businesses to be able to comply with these requirements. These e-commerce entities can have contracts with their sellers to be the middleman in case there is a complaint on the platform, which the platform can forward to the sellers. This will protect both the consumer and seller without overburdening either of them.

    Preferential Treatment by E-commerce Platforms

    In Competition Commission of India's ('CCI') report titled 'Market Study on E-commerce', platform neutrality is one of the issues which has been dealt with. It means that platforms cannot discriminate in favor of their own services. Issues in platform neutrality arise when a platform is a marketplace and a competitor in the same marketplace. For instance, an e-commerce entity, sells cosmetics of various reputed brands but over the years it has launched its own range of cosmetics which makes it a marketplace as well as a competitor in the same relevant market. Another observation made by CCI with regards to platform neutrality is that of preferential treatment is given by e-commerce platforms to their private labels or to 'preferred sellers.' So now, the e-commerce platform mentioned previously, has the leverage of controlling the algorithm of their website and the ranking of search results which ultimately favors its own products over other products in the relevant market. Just recently, Amazon was under the radar for setting their algorithm in such a way that preferred their own warehouse for delivery over other seller's warehouse but the other seller's delivery options were much faster which affected both the seller as well as the consumer in the time of a crisis. [ii] In the case of Federation of Hotel & Restaurant Association of India vs. MakeMyTrip India Pvt. Ltd.[iii], the CCI ordered inquiry into the preferential treatment allegedly carried out by MakeMyTrip towards OYO due to their commercial agreement which resulted in the delisting of their competitors Treebo and Fab Hotel from the website. But if we consider it properly, preferential treatment may not always be harmful if all the necessary disclosures are made and the interest of the consumers have been duly considered which might benefit them. Nevertheless, this provision ensures that equitable treatment is provided to all sellers and brings about uniformity and stability by protecting all individual sellers as well.

    Discrepancy in the Price of Goods and Services

    Rule 4(11)(a) states that no e-commerce entity shall manipulate the price of goods or services offered on its platform in a manner to as to gain unreasonable profit by imposing on consumers any unjustified prices having regard to prevailing market condition. The e-commerce platform and the seller ought not to practice any deceptive unfair trade practice or make such rules which takes the consumer by surprise about some false cashback or hidden charges. For instance, during the lockdown, if any platform asked for 'fast shipping charges', it would be unfair to the consumers because it was not entirely practical to give assurance about fast delivery under such circumstances. This particular rule has been introduced during the pandemic where a majority of the sellers were also overcharging the retail price for essential items like sanitizers, masks which just for their own profit as the demand was extremely high.[iv] Even in the case of M/S Cargo Tarpaulin Industries vs Sri Mallikarjun B.Kori[v], the National Consumer Disputes Redressal had upheld the decision of the State Consumer Dispute Redressal that it is an offence to sell goods at price higher than the maximum retail price. This clause ensures that no advantage is taken to offer pricing at a time which prejudices the interest of the consumer and ultimately safeguards their interests.

    Other Observations

    As per Rule 4(1)(a), even foreign e-commerce platforms which are covered under section 2(42) of Companies Act, 2013 are also under the purview of these rules. So now all foreign based e-commerce platforms such as Alibaba, AliExpress etc. will also be brought under the purview of these standards and rules. This is a significant change and will prompt overseas companies to start following and complying with the basic principles applicable in India.

    Another much needed provision was the accuracy of the description of goods sold on e-commerce websites. Often consumers face the issue of falsely described goods which are completely opposite to the product they receive. This is not only a waste of the consumers time but also a waste of resources which were consumed to deliver the product. Rule 5(2) ensures that the description and the images given by the seller directly correspond with the actual product. Another important concern has been dealt by Rule 6(2) which states that no seller shall falsely represent itself as a consumer in order to post reviews about their products. Under the ambit of this rule, sellers must not pay third parties to falsely represent themselves as consumers, must be included. This practice has been going on for several years as it increases sales because the consumers get influenced by the positive reviews of a product. Often these sellers tie-up with companies which provide fake reviews. In the case of Federal Trade Commission v. Cure Encapsulations Inc.,[vi] FTC brought its first case against fake reviews on Amazon wherein the defendant, a seller on amazon, payed a website to generate fake reviews to promote their product and to increase its rating. This provision will now extinguish such practices to some extent.

    It was the need of the hour to bring a robust redressal mechanism and streamlined rules in an industry which is just expanding day by day. These Rules are definitely a step in the right direction and are slightly more lenient than the Draft Rules of 2019. Even though certain regulatory mechanism might be interfering in the business, these Rules were still necessary because up until now there was no specific legislation which dealt which the novel issues arising out of the e-commerce industry. It substantiates the provisions of unfair trade practices and misleading advertisements mentioned in the parent act as the rules also explicitly state that e-commerce platforms and sellers shall not indulge in practices like falsely representing the nature and characteristics of the goods and services being sold. While drafting these rules, the Department for Promotion of Industry and Internal Trade ensured that there is no overlapping with the Personal Data Protection Bill, 2019 as to avoid any ambiguity in the laws.[vii] However, even though it is a step in the right direction, it is not devoid of flaws. The rules could have discussed a cap on delivery charges taken by various e-commerce entities which are often quite higher than what an ordinary consumer would be willing to shell out. It also does not address drip pricing which means, that platforms in order to lure customers, show a low base price but it increases the price by small amounts by including add-ons required to use the goods or services, at the final stage of payment.[viii] Besides this, the non-provision of promised services or goods, customer care services are also some issues which have not been addressed. Overall, these rules do cover the current issues which was a much awaited legislation for this novel industry in order to bring out some uniformity in the market.

    [1] Rule 4(5)

    [2] Rule 5(3)(b)

    [i] E-commerce Industry in India, India Brand Equity Foundation (IBEF), (June, 2020)

    [ii] Jason Del Rey, Amazon says it unintentionally hid some competitors'' faster delivery option, Vox (Mar 26, 2020)

    [iii] COMPETITION COMMISSION OF INDIA, Case No. 14 of 2019

    [iv] Coronavirus in India: Health Minister says those overcharging for COVID-19 N95 marks will be punished, Financial Express (Mar 04, 2020)

    [v] REVISION PETITION NO. 2132   OF  2007 

    [vi] Cure Encapsulations, Inc., Federal Trade Commission (Jun 4, 2019)

    [vii] Surabhi Agrawal & Kritika Sunjea, Efforts to line up e-commerce and data laws, The Economic Times (Apr 01, 2020)

    [viii] Will Kenton, Drip Pricing, Investopedia (Apr 29, 2018)

    Next Story