Centre Proposes To Amend E-Commerce Rules To Curb Flash Sales, Appoint Grievance Redressal Officers

The new draft rules come at a time when leading e-commerce giants such as Flipkart and Amazon India are being investigated by the Competition Commission of India (CCI) for alleged abuse of market dominance and giving preferential treatment to sellers in which they hold indirect stakes.

The proposed changes aim to tighten the existing regulatory regime and make e-commerce companies more accountable. The new draft proposes a host of changes such as: (i) mandatory registration requirements for online retailers, (ii) greater scrutiny of flash sales, (iii) enhanced liability of e-commerce entities, and (iv) a stronger grievance redressal mechanism.

The Rules were first notified in July 2020 in exercise of powers conferred by Section 101(1) (zg) of the Consumer Protection Act, 2019. A period of 15 days (i.e. till 6^th July 2021) has been given to all stakeholders for submitting their responses, as part of public consultation process.

Revised definition of e-commerce entity:

The new draft proposes an updated definition of what constitutes an e-commerce entity— any person who "owns, operates or manages digital or electronic facility or platform for electronic commerce" as well as "any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform". This enhances the liability of e-commerce companies for delivery of goods and services ordered through their platforms.

The definition also proposes to include within its ambit 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.

Mandatory registration of e-commerce entities:

The new draft rules also make registration with the Department for Promotion of Industry and Internal Trade (DPIIT) mandatory for all e-commerce entities within such period as may be prescribed by DPIIT for allotment of a registration number. The government has also proposed that e-commerce entities should ensure that such registration number and invoice of orders are displayed prominently to their users in a clear and accessible manner on their platform.

Disclosure regarding cross-selling of goods:

"Cross-selling" refers to the sale of goods or services which are related, adjacent or complimentary to a purchase made by a consumer at a time from any e-commerce entity in a bid to maximise the revenue of such an e-commerce entity. In the spirit of complete transparency, the proposed rules authorise such e-commerce entities to make "adequate disclosures" regarding such cross-selling techniques by displaying on their platform: (a) Name of the entity providing data for cross-selling, (b) Data of such entity used for cross-selling.

Prohibition of mis-selling of goods:

The new rules also propose a ban on the "mis-selling" of goods and services offered on e-commerce platforms. "Mis-selling" by an e-commerce entity refers to the sale of goods or services through deliberate misrepresentation of information regarding such goods or services so as to entice the consumer to make a purchase. Such a misrepresentation would include:

(i) the positive assertion, in a manner not warranted by the information of any entity making it, of that which is not true;

(ii) any display of wrong information, with an intent to deceive, gain an advantage to the e-commerce entity committing it, or any seller claiming under it; by misleading consumer to the prejudice of e-commerce entity, or to the prejudice of anyone claiming under it;

(iii) causing, however innocently, a consumer to purchase such goods or services, to make a mistake as to the substance of the thing which is the subject of the purchase.

Ban on fraudulent "flash sales":

The proposed rules also seek to ban "flash sales" on e-commerce platforms, "if 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 the platform."

A "flash sale" has been defined as "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."

However, the Ministry has clarified that "conventional e-commerce flash sales are not banned. Only specific flash sales or back to back sales which limit customer choice, increase prices and prevent a level playing field are not allowed." This ensures the maintenance of a level playing field for all e-commerce entities and prevents the curtailment of consumer choices.

Grievance redressal mechanism:

The proposed amendments also outlines a stringent grievance redressal mechanism to secure the interests of consumers. E-commerce companies are mandated to appoint (i) a Chief Compliance Officer, (ii) a Nodal contact person; and (ii) a Resident Grievance Officer, to secure timely adjudication of consumer grievances. These persons have to be Indian citizens and residents of India.

A Chief Compliance Officer 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."

The Nodal contact person should be available for 24x7 coordination with law enforcement agencies and officers.

E-commerce entities are also mandated to publish on their platforms the contact details of the appointed Grievance Officer to easily facilitate the registration of complaints by consumers.

Moreover, under the new rules, every e-commerce entity must "provide information under its control or possession, or assistance to the Government agency which is lawfully authorised 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", within 72 hours.

Prevention of preferential treatment:

In order to curb the growing concerns of preferential treatment, the new rules propose to ensure that none of the related parties to a marketplace are listed as sellers or are allowed to use any consumer information (from the online platform) for 'unfair advantage'. Even logistics service providers to these marketplaces will be prohibited from providing any preferential treatment to any sellers. In the event that any such preferential treatment is extended, a disclaimer has to be provided, detailing "any differentiated treatment which it gives or might give between sellers of the same category".

Non-discrimination between imported and domestic goods:

As a part of the new proposed rules, e-commerce platforms will also have to identify goods based on their country of origin and provide a filter mechanism at a pre-purchase stage for customers, in order to ensure a ensure a "fair opportunity" for domestic sellers. Furthermore, e-commerce platforms have to ensure that "ranking parameters do not discriminate against domestic goods and sellers".

Prevention of "abuse of dominant position":

Under the proposed rules, e-commerce entities are prohibited from abusing their dominant positions in the market, so as to ensure a "free market". For the purposes of this provision, "abuse of dominant position" has been given the same meaning as that prescribed under Section 4 of the Competition Act, 2002.

Final liability to rest on the e-commerce platform:

It has also been made clear in these new rules that in the event a seller fails to deliver a goods or service, the final liability will fall on the e-commerce marketplace. Such a "fall-back liability" will be imposed on e-commerce entities in case "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."

These proposed amendments shall ensure more accountability for e-commerce companies that in recent times have been criticised for participating in anti-competitive practices.