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Here come the E-Commerce rules under new Consumer Protection Act, 2019

Updated: Aug 13, 2020


The Ministry of Consumer Affairs, Food and Public Distribution, vide notification dated 23rd July 2020, has notified, with effect from July 24th 2020, inter alia the definition of the term “e-commerce” under Section 2(16) of the Consumer Protection Act, 2019 (“Act”) along with Section 94 and Section 101(2)(zg) which give the Central Government to take measures to prevent unfair trade practices in e-commerce, direct selling under Section 94 of the Act.

Accordingly, the Central Government has framed and notified the Consumer Protection (E-Commerce) Rules, 2020 (“E-Commerce Rules”) vide notification dated 23rd July 2020. Read the entire E-Commerce Rules here.

A. E-Commerce and Consumer

The Act recognizes e-commerce and extends its scope to e-commerce and the parties providing and availing e-commerce services and the same has been indicated through various provisions.

Consumer[1] has been defined under the Act as any person who –

“(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii) hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such service other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person, but does not include a person who avails of such service for any commercial purpose…”

The explanation to the definition of Consumer, clarifies that the expressions ‘buys any goods’ and ‘hires or avails any services’ includes offline or online transactions through electronic means or by teleshopping or direct selling or multi-level marketing.

The Act, further defines ‘electronic service provider’[2] and includes “a person who provides technologies or processes to enable a product seller to engage in advertising or selling goods or services to a consumer and includes any online market place or online auction sites.”

The Act also defines including the terms ‘e-commerce’[3] as “buying or selling of goods or services digital products over digital or electronic network”.

B. Powers under the Act

The Act empowers the Central Government to implement measures to prevent unfair trade practices in e-commerce and direct selling[4] and further grants powers to the Central Government to make rules in this regard[5], and accordingly, the E-Commerce Rules have been established.

C. Scope

The E-Commerce Rules define the scope of application of the E-Commerce Rules and the same have been extended to majority of e-commerce activities. The scope and applicability[6] has been defined as below -

· all goods and services bought or sold over digital or electronic network including digital products;

· all models of e-commerce, including marketplace and inventory models of e-commerce;

· all e-commerce retail, including multi-channel single brand retailers and single brand retailers in single or multiple formats; and

· all forms of unfair trade practices across all models of e-commerce.

Provided that the E-Commerce Rules shall not apply to any activity of a natural person carried out in a personal capacity not being part of any professional or commercial activity undertaken on a regular or systematic basis.

D. ‘Inventory’ and ‘Marketplace’ E-Commerce Entity

The E-Commerce Rules creates a distinction within the e-commerce entities and provides for liabilities and obligations applicable to such different e-commerce entities in addition to those prescribed under applicable laws.

An E-commerce Entity[7] refers to any person who owns, operates or manages digital or electronic facility or platform for e-commerce. However, an E-commerce Entity does not include a person offering goods and services for sale on a Marketplace E-Commerce Entity.

The distinction is based on the functioning of a platform for e-commerce. Where an entity uses such platform to sell goods and services owned by it, directly to the consumers (including single brand retailers and multi-channel single brand retailers), it is an Inventory E-Commerce Entity.[8] However, an e-commerce entity providing an information technology platform on a digital/electronic network to facilitate transactions between buyers and sellers is defined as a Marketplace E-Commerce Entity[9].

E. E-Commerce Entities

The E-Commerce Rules aim at regularizing the functioning of E-Commerce Entities and accordingly stipulates the duties of E-Commerce Entities[10]. This includes the mandatory information to be displayed pertaining to the entity as well as to the seller, grievance redressal mechanism, details of sellers/importers etc.

The E-Commerce Rules further bring parity with regard to cancellation charges post order confirmation and bar the E-Commerce Entities from imposing cancellation charges on consumers for cancellations unless such charges are also borne by the E-Commerce Entities in the event of cancellation by such entities unilaterally or for any reason.

The E-Commerce Rules further impose restrictions[11] upon the E-Commerce Entities against manipulating prices of goods or services offered on its platform in order to gain unreasonable profit from the same and also restricts the E-Commerce Entities from discriminating between consumers of the same class or make any arbitration classification of consumers affecting their rights under the Act.

F. Seller on Marketplace

The E-Commerce Rules apply to sellers offering goods or services through a Marketplace E-Commerce Entity and such seller shall be liable under the Act and E-Commerce Rules for adopting any unfair trade practices[12]. A seller is defined under Section 2(37) of the Act.

The E-Commerce Rules further regulate the sellers by imposing obligations and introducing restrictions/prohibitions. These include but are not limited to –

· Prohibition against posting of false reviews;

· Prohibition against misrepresentation with regard to quality of goods or services;

· Seller barred from having no-return/no-discontinue or withdraw policies if the goods or services are defective, differ from the quality and specifications mentioned or delayed barring certain exceptions;

· execution of a written contract with the respective E-Commerce Entity;

· appointment of a grievance redressal officer;

· mandatory requirement for information to be displayed/provided pertaining to pricing, details of goods/services, importer details, refund/exchange policies, details of guarantees and warranties applicable to goods and services etc.

G. Inventory E-Commerce Entities

The E-Commerce Rules require Inventory E-Commerce Entities to provide and display prescribed information accurately such as information relating to refund, return, exchange, warranty, guarantee, delivery, shipment, associated costs, grievance redressal mechanism, payment methods, security measures, pricing etc.[13]

Such entities are prohibited from making false reviews, misrepresenting quality of goods or services, restricted from refusing return/withdrawal of goods or service in the event of defect, default, delay or discrepancies in the characteristics and quality of the same.

The E-Commerce Rules further require such entities to ensure that the advertisements for marketing of goods and services are consistent with the actual characteristics, access and usage conditions of such goods or services, and that if an entity explicitly vouches for authenticity of the goods or services sold by it, the it shall be liable for the same.

H. Conclusion

The E-Commerce Rules read with the Act and the Information Technology Act, 2002, brings about certain clarity with regard to regulating the functioning of e-commerce entities and provide for remedies in the event of contravention of the same. Further, it would interesting to see how the overlap between the definition of the term “Seller” under the Act and “Inventory E-Commerce Entity” under the E-Commerce Rules plays out before the Courts from the point of view of determining the obligations of an Inventory E-Commerce Entity under the Act and E-Commerce Rules.

E-commerce entities who own, operate or manage digital or electronic facility or platform for e-commerce activities between third party sellers and buyers and also sell goods and services owned by it, directly to the consumers using their facility or platform, shall be required to comply with the obligations applicable to not only a Marketplace E-Commerce Entity but also Inventory E-Commerce Entity and Seller.

The introduction of the E-Commerce Rules therefore bring about several compliances to be ensured by e-commerce businesses so as to avoid a detrimental run in with the law.

Kindly treat this as an information update and the same shall not constitute as an advisory by the firm.

Optimus Legal

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[1] Section 2(7) [2] Section 2(17) [3] Section 2(16) [4] Section 94 [5] Section 101 (1) (zg) [6] Rule 2 [7] Rule 3(b) [8] Rule 3 (f) [9] Rule 3(g) [10] Rule 4 [11] Rule 4(11) [12] Rule 6 [13] Rule 7

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