17 Aug 2020 5:29 AM GMT
With the advent of the e-commerce industry, the relationship between a consumer and a seller has changed drastically, and so have the prevalent business practices in the market. Everything is now just a click away. However, this "e-revolution" comes with its own disadvantages. A major cause of consumer dissatisfaction is the rampant sale of counterfeit and spurious goods on various...
With the advent of the e-commerce industry, the relationship between a consumer and a seller has changed drastically, and so have the prevalent business practices in the market. Everything is now just a click away. However, this "e-revolution" comes with its own disadvantages. A major cause of consumer dissatisfaction is the rampant sale of counterfeit and spurious goods on various websites, with no guarantee of authenticity of the product. Further, in the event of failure of the e-commerce entity to resolve the customer dispute, the consumer is left with effectively no recourse. The law being unable to cope with its speed, the sector operates in India with little or no regulation. Recently, however, the Consumer Protection Rules, 2020 ('Rules') were enforced under the provisions of Consumer Protection Act, 2019 ('Act') to prevent unfair trade practices ensuing from the operations of e-commerce entities to protect the interests and rights of the consumers thereby brining the e-commerce entities within the ambit of the consumer protection regime. The Article discusses the salient features of the Rules and implications thereof on e-commerce entities.
What is an e-commerce entity?
The definition of e-commerce entity has been couched in broad terms. Under the Rules, an "e-commerce entity" means any person (whether natural or juridical) who owns, operates or manages a digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services on a marketplace e-commerce entity. Thus, all persons who play a passive role in maintenance and operation of the digital platform can be e-commerce entities.
Inventory E-commerce Entity and Marketplace E-Commerce Entity
The Rules further classify an e-commerce entity into the following two types:
An inventory e-commerce entity is an entity which owns the inventory of the goods and services displayed on its platform and sells such goods or services directly to the consumers. It may include single brand retailers and multi-channel single brand retailers. All logistics such as packaging, labelling, marketing, shipping and delivery, payment is handled by the e-commerce entity.
What distinguishes an inventory e-commerce entity from a seller is that the seller is the original owner of the goods i.e., the person who manufactures or procures the goods in the first place. As soon as the seller decides to list its product on an inventory e-commerce entity's platform, it authorizes the entity to assume ownership and control of the goods for the purposes of delivery to the consumer. This does not, however, mean that the seller relinquishes ownership and control over its goods to the entity. An inventory e-commerce entity, thus, assumes control over the goods only after the seller so authorizes it for the purpose of effecting sale. This is akin to a seller placing its goods in the brick and mortar store of a retailer. For example, if person A is manufacturer/importer/retailer of shirts and decides to sell these goods on its own e-commerce website and manages all logistics thereof, then A is a seller running an inventory e-commerce entity through its website. However, if this person A, decides to sell its shirts on website B, sale on which stipulates that the goods will be received and kept in the warehouse of B, will be labelled and packaged by B, will be shipped and delivered by B, and will be owned and controlled by B, then B will be considered to be an inventory e-commerce entity, but not a seller. Thus, there is a small difference between a seller and an inventory e-commerce entity. Examples of inventory e-commerce entities are Jabong, Yepme.com. etc.
A marketplace e-commerce entity, on the other hand, means an e-commerce entity which provides an electronic platform to facilitate transactions between buyers and sellers. Traditionally, marketplace e-commerce worked on zero inventory model. A marketplace model of e-commerce is akin to providing space to the user on a billboard, with the marketplace having no control over the manner of representation and the content of the information displayed on the billboard. The e-commerce entity acts as a mere facilitator of transactions and exchange of information between buyer and seller. The seller lists its products on the platform, whereby the buyers interested in purchasing the product contacts it directly or places the order through the platform which notifies it, and the seller dispatches the products to the locations where the buyers reside. Examples of marketplace e-commerce entities include eBay, OLX, Naaptol, etc.
As per market practice, however, entities exist which assimilate the two models into one and are popularly known as hybrid entities. These entities, as the colloquial name suggests, have elements of both the marketplace model, where it acts as a mere facilitator between buyer and seller, and the inventory model, where they purportedly exercise some degree of control and ownership over the goods of the seller as part of their fulfillment packages and overhead services. Examples of such entities include Amazon and Flipkart. The Rules do not contain any express provision for hybrid models thereby creating a lacuna in their application to such entities.
The FDI Press Note 2 (2018 series) ['FDI Press Note'] published by the Ministry of Commerce & Industry provides some clarity regarding settlement of this conundrum. As per the FDI Press Note, a marketplace based model of e-commerce is permitted to provide support services to the sellers relating to warehousing, logistics, order fulfillment, payment collection, customer service, etc., as long as it does not exercise ownership or control over the inventory of goods/services stored with it. Such ownership and control would render it an inventory e-commerce entity. Further, as per the FDI Press Note, the inventory of a vendor would be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such seller are from the marketplace entity or its group companies. Since the Rules are silent on what ownership means, the FDI Press Note could offer some guidance to the courts to determine control, however, cannot be the conclusive test until and unless affirmed as such by a competent authority.
Duties and liabilities of e-commerce entities
The Rules lay down stringent duties for e-commerce entities and ensuing liabilities in case of breach of such duties. The purpose of incorporating such provisions is to better regulate online business activities in a manner which promote consumer welfare. The same have been discussed below:
Right at the outset, the Rules obligate an e-commerce entity to either be incorporated in India or be a foreign entity owned or controlled by a resident in India having a nodal person of contact resident in India to ensure compliance of the Act and the Rules. Emphasis is laid on having local presence in India to have better regulatory control and access over the entity.
Every entity is obligated to display prominently, clearly and in an accessible manner:
Based on the traffic of complaints received, every entity is obligated to set up an appropriate grievance redressal mechanism duly published on its website. Grievance officer(s) must be identified as well, and their contact details must be displayed prominently on the entity's website. Every grievance officer appointed must acknowledge receipt of any consumer complaint within 48 hours and must redress it within 1 month from the date of receipt of such complaint. This is in line with the obligation contained in the Information Technology (Intermediary Guidelines) Rules, 2011 ('Intermediary Guidelines').
Further, no cancellation charges shall be levied by the e-commerce entity on its consumer unless such a charge is to be borne by the entity itself after cancellation of the purchase. Only explicit consent expressed through affirmative action of the consumer for the purchase of the goods can be recorded. No implicit or automatic consent can be attributed to the consumer.
Additionally, an e-commerce entity or seller cannot indulge in any "unfair trade practice" either in the course of its business or otherwise. This term has a very broad import and is defined in the Act, which prohibits all unfair methods and deceptive practices employed to promote sale, use or supply of goods/services, including:
No e-commerce entity is allowed to manipulate the price of goods or services offered on its platform so as to gain unreasonable profit from the consumers. This has been a major cause of consumer dissatisfaction with e-commerce entities, where prices of goods are inflated over their Maximum Retail Price ('MRP') and then offered at "heavy discounts" to consumers to make the purchase seem more attractive. A previous attempt was made to address this issue by the 2017 amendment of the Legal Metrology (Packaged Commodities) Rules, 2011. Under the said Rules, all e-commerce entities had to ensure that goods displayed on their respective websites contained the exact MRP of packaged goods, including electronic gadgets, smartphones, as also consumer durable and non-durable goods. Displaying dual MRPs for all packaged goods was prohibited under the said Rules, however, e-commerce entities were free to offer discounts. Even in the FDI Press Note, the e-commerce entities were barred from directly or indirectly influencing the sale price of the goods on its website to ensure a level playing field. While the clause under the FDI Press Note was aimed at ensuring a level playing field for all sellers on the marketplace, those under the Rules have been enacted to protect consumer rights and to ensure transparency.
Under the Rules, the e-commerce entities cannot discriminate between consumers of the same class or make up arbitrary classification of consumers. While this protects the rights of the e-commerce entity to offer premium services to a class of consumers who are willing to pay an additional charge for the same, it protects consumers from easy manipulation by the entity looking to charge extra for every service offered by it.
The term seller under the Rules is stated to have the same meaning as ascribed to "product seller" under the Act and would also include a service provider. If an entity "in the course of business, imports, sells, distributes, leases, installs, prepares, packages, labels, markets, repairs, maintains, or otherwise is involved in placing such product for commercial purposes" and is not a provider of professional services where the sale of the product is incidental to such services, it runs the risk of being termed a seller, thereby facing primary responsibility for any practice detrimental to the consumer interest and will lose its protection as an intermediary.
The Rules also carve out specific duties for sellers, marketplace e-commerce entities and inventory e-commerce entities. They have been capsulized hereinbelow:
Intermediary liability – To be or not to be?
An intermediary is defined as a person who on behalf of another person receives, stores or transmits electronic record or provides a service in respect of such record, and includes online payment sites, online auction sites, and online marketplaces. This definition may be construed to include all e-commerce entities. These entities are exempted from liability for any third-party information, data or communication link made available or hosted by them, under the provisions of the Information Technology Act, 2000 ('IT Act'). However, to claim immunity as an intermediary, the entity must exercise limited control over such information, data or communication link. One of the essential conditions which an intermediary must comply with is exercise of due diligence while discharging its duties. This exemption is provided in Section 79 of the IT Act, to be read with the Intermediary Guidelines, 2011 which encapsulated such exemption.
The development of the jurisprudence of this provision dates back to the Supreme Court judgment in Shreya Singhal vs. Union of India whereby the Hon'ble Supreme Court read down the provisions of Section 79(3)(b) to mean receipt of "actual knowledge" by an intermediary of an unlawful act committed on its platform by way of a court order. As per this, the intermediaries were not duty bound to remove all content that was notified to it as being unlawful but only that content which was decreed as such in the form of a court order. This protected the intermediary from becoming liable for failing to remove all information brought to its notice by various persons. This judgment was, however, rendered in the context of exercise of the fundamental right of free speech on a social media platform, whereby at the time, all content was deemed to be user generated with the platform not having any editorial control over its contents.
Further, as per Section 81, the IT Act has an overriding effect, however, the provisions contained in the IT Act could not be used to restrict any person from exercising their rights conferred under the Copyright Act, 1957 and Patents Act, 1970. This means that absent the proviso to Section 81, copyright and patent holders would not have been able to pursue legal recourse against intermediaries. However, the Hon'ble Division Bench in MySpace Inc. v. Super Cassettes Industries Ltd., held that both Section 79 and 81 being non-obstante clauses, as long as the intermediary does not control the content being posted, in any manner whatsoever, the protection of Section 79 would subsist. Only when there is any editorial control over the content or the infringing content is posted at the behest of the intermediary, with full knowledge, it becomes liable. This judgment also was rendered in the context of a social media and entertainment website.
The issue becomes more complex in the case of online marketplaces, who purportedly exercise some control over the content (including manner of display) on their websites, either in the form of pricing, or offering warranties and guarantees for products. Thus, with regard to the eligibility of e-commerce websites to use the exemption provision, the Hon'ble Delhi High Court in its judgment in Christian Louboutin vs. Nakul Bajaj, stipulated that certain practices of e-commerce companies render it an active participant in the trademark infringement taking place on its website, being both detrimental to the interest of the trademark holder, as also the consumer. Non-disclosure of seller details, giving authenticity guarantee of the goods, providing logistical support, promoting and advertising products, providing customer care, and other similar factors combined together could be evidence of active participation and knowledge of the intermediary as per the judgment. It was categorically held that the platform would not be exempt from liability if it was an active participant or contributed in the commission of the unlawful act.
Thereafter, in Amway Indian Enterprises Pvt. Ltd. and Ors. v. 1Mg Technologies Pvt. Ltd. & Ors. insofar as intermediaries were concerned, a Ld. Single Judge of the High Court held that merely having 'paper policies' (in conformity with the Intermediary Guidelines) without adherence of the same by the e-commerce entity itself would result in the intermediary losing the exemption granted to it. Further, the overhead services offered by the entities render them susceptible to being conversant with the unlawful activities taking place on their websites. Thus, efforts have to be made by intermediaries to ensure compliance of their policies and to prove that they had no control, to escape liability. This decision of was, however, overturned in Amazon Seller Services Pvt. Ltd. v. Amway India Enterprises Pvt. Ltd. & Ors and the Ld. Division Bench of the Delhi High Court held that there is no distinction between an active and passive intermediary under Section 79 of the IT Act, and thus, so long as the intermediaries comply with the requirements under sub-sections (2) and (3) of Section 79, they are exempted from liability. It was held that the value-added services did not nullify the protection granted to such intermediaries. There can be no positive obligation on the entity to monitor content on its website.
The above decisions go to show the stark divide between opinions of various courts on the same or substantially similar disputes i.e., the liability, if any, of e-commerce entities claiming to be intermediaries and mere facilitators. The views expressed so far take diametrically opposing stands on the question of fixation of any liability on intermediaries. The final word of the Supreme Court in this regard is still awaited.
Liability under the Rules
From a perusal of the Rules, it appears that, at least insofar as inventory e-commerce entities are concerned, despite being classified as intermediaries, they may not enjoy exemption from liability under Section 79 of the IT Act, simply because of the nature of services being rendered by them. Further, even marketplace e-commerce entities are exempted from liability only so long as they comply with the Intermediary Guidelines, 2011. These Rules lay down certain positive obligations to be adhered to by e-commerce entities so as to enable consumers to make informed decisions while making a purchase and for protection of their rights. Any violation of the Rules attracts the provisions of the Consumer Protection Act, 2019, and liability may be fixed by the Consumer Dispute Redressal Mechanisms contained in the Act.
It now becomes interesting to interpret these Rules and the new Consumer Protection Act, in view of Section 81 of the IT Act (as discussed above). Since a consumer right is not a right asserted by the owner under the Copyright Act or Patents Act, is fixation of liability on the e-commerce entities under the Act, admittedly intermediaries under the IT Act, for contravention of the Rules an overreach? It appears that the intermediary status would be immaterial in view of the positive obligations on such entities cast under the Rules. However, such questions would need determination from a court of competent jurisdiction in an appropriate case filed before it.
The enactment of the Rules is a testament to the booming growth of e-commerce which has changed the business landscape in India. In a largely unregulated sector, this is but a first step to for regulation of the e-commerce, especially with regard to consumer protection. The applicability and the fixation of liability is still uncertain and there is much to be desired to develop a robust and effective jurisprudence relating to intermediary liability in India. With the proposed draft of the National E-commerce Policy issued by the DPIIT, and also the Draft of the Information Technology (Intermediary Guidelines) Amendment Rules, 2018, it appears that the regulatory rope would be tightened further against the activities of such entities. However, this can only be conclusively said once the proposed policies take actual effect. Till then, it remains to be seen how the new Consumer Protection Act, 2019 and the E-commerce Rules, 2020 affect the e-commerce entities and their operations in India.
 Rule 3(1)(f) of the Consumer Protection (E-commerce) Rules, 2020
 Rules 3(1)(g) of the Consumer Protection (E-commerce) Rules, 2020
 Rule 4(2) of the Consumer Protection (E-commerce) Rules, 2020
 Ibid at Rule 4(5)
 Ibid at Rule 4(8)
 Ibid at Rule 4(11)(a)
 Ibid at Rule 4(11)(b)
 Section 2(1)(w) of the Information Technology Act, 2000.
 Section 79 of the Information Technology Act, 2000
 Shreya Singhal v. Union of India, (2015) 5 SCC 1
 Myspace Inc. v. Super Cassettes Industries Ltd. (2017) 236 DLT 478 (DB).
 Christian Louboutin SAS v. Nakul Bajaj & Ors, 2018(76) PTC 508(Del).
 Amway Indian Enterprises Pvt. Ltd. and Ors. v. 1Mg Technologies Pvt. Ltd. & Ors. (2019) 260 DLT 690.
 Amazon Seller Services Pvt. Ltd. v. Amway India Enterprises Pvt. Ltd. & Ors., (2020) 267 DLT 228 (DB).
 Also see Kent Systems Ltd. v. Amit Kotak, 2017 (69) PTC 551 (Del)
 Available at https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf
 Available at https://www.meity.gov.in/writereaddata/files/Draft_Intermediary_Amendment_24122018.pdf