The Transitional Difference Between the Interim Measures of Court and Arbitral Court under the Indian Arbitration and Conciliation Act,1996
October 15, 2021
Privatization of Public Sector Banks: Can Judiciary Play a Role to Protect the Interests of Employees?
October 15, 2021

The Draft E-Commerce Rules: Why It Might be a Potential Concern for Online Retailers?

It has now been globally accepted that digital companies need targeted regulations. For instance, the US has been vocal about the need for their Big Tech to have tighter regulations in order to create an equal playing field. Similarly, a draft of E-commerce rules has proposed changes to the e-commerce rules under the Consumer Protection Act, 2019 and subsequently kicked up a storm. The aim of the rules is said to be in the interest of the consumers as a clear regulatory environment is created in the space of e-commerce. These rules seem to be more stringent than the previous one proposed in 2020. These changes are varied and go beyond electronic retailers (e-tailers) like Amazon and Flipkart as it does not distinguish between foreign and domestic e-commerce. Experts are still reviewing the proposals and the implications are still being debated.


Why are online retailers concerned about the new draft e-commerce rules?

 

Flash-sale

Pre-decided sale events to launch products with limited stock at a reduced price is called a flash sale and the government in its new proposal banned flash sales. Initially it was a flat out ban on all these sales but it was later revised to ban on only ‘conventional’ flash sales. This has left online retailers scratching their heads about what ‘conventional’ flash sales actually mean. The question is if in order to clear stock, an e-commerce entity announces a flash sale of 30% off for say two hours, does that entail a ‘conventional’ flash sale or just a problematic one?

It was again later clarified that discounts can be disclosed on websites as flash sales as long as they ‘benefit’ the consumers and if complaints arise from consumers, then action will be taken based on the merit of the complaint. The aforementioned exposes these e-commerce entities to potential government action which is also unclear. The discount sales that the e-commerce entities provide notice an increase of orders and sometimes upto 80%. The gray area needs to be addressed around the flash sales as big e-commerce companies are responsible for the intricate operating structures created, this allows these entities to work around the restrictions on inventory that ultimately they control.

Advertisement

The draft asks all e-commerce entities to stop false advertising about product quality, price and guarantee. The total prices of the goods and services must be displayed mandatorily along with the break-up of extra charges. Additionally, it does not allow for these retailers to advertise discounts offered by sellers. Therefore, it is being said that this could affect the business of  advertising on retailer’s websites.

Country of origin

An added requirement in the draft is that all online retailers should specify the country of origin for all their products in an effort to push the ‘Made in India’ campaign. This is no easy feat for multinational e-commerce entities such as Amazon and Flipkart who list millions of products online. Experts say that it would be extremely difficult for these companies to list alternate local or domestic products whenever someone looks up an imported product and to also make sure the products ranked are not discriminatory against domestic products.

Related parties

Furthermore, related parties to online retailers such as Flipkart and Amazon may not be allowed to sell in the marketplace. For example, minority shares of sellers like Cloudtail and Appario are owned by Amazon and if this draft comes to fruition, then these prominent sellers will have to close shop. Previously, in order to create an equal playing field for sellers, companies like Amazon were asked to reduce their shareholding in related party companies or their preferred sellers down to 24%. Experts believe this rule would not actually enhance consumers’ choice on the platform, it would in fact limit it. The new rules are not clear as there is still doubt on the definition of related party, if entities are completely banned to have a stake in a seller company and if yes, then companies are looking at gruesome restructuring.

Fall-back liability

Usually when a consumer has a problem with the goods purchased, the e-commerce entity redirects them to their respective sellers to manage the grievance, but fall-back liability enables the consumer to directly reach the platform. Experts say that while the rules talk about the relationship between the e-commerce entities and sellers or lack thereof, the liability rule is in total contrast to the aforementioned. E-commerce entities are now of the opinion that while the rules require that all online platforms host sellers but refrain from selling goods and services themselves, the liability rule says that these e-commerce entities will be the ones held accountable for the shortcomings of their sellers. The question is if an e-commerce entity can be held liable for the actions of the seller even if it has no sway in the inventory?

Other changes

One significant rule is that e-commerce entities are not allowed to charge cancelation charges on consumers after confirmation, unless these entities are willing to pay the same charges in case orders are canceled from their side. The draft states that online retailers cannot modify search results in order to manipulate customers. The workings of these algorithms still continues to be a mystery but accusations of particular sellers and brands being favored and promoted through modified search results are always thrown at companies like Flipkar and Amazon. The new drafts require that all sellers of the same category should be treated equally by service providers. Typically goods for e-commerce entities as requested are shipped through in-house service providers prominent in the marketplace so that deliveries go out faster. Big E-commerce entities like Flipkart and Amazon cannot attach their names to e-commerce brands if such practices amount to anti-consumer interest and anti-competitive. E-commerce entities often misrepresent the quality and the guarantee of their products by falsely representing themselves in order to post reviews and generate traffic on their online platforms, the new rules prohibit this.


Analytical Conclusion

 

The Ministry of Consumer Affairs is now welcoming comments for changes in the Consumer Protection (E-Commerce) Rules, 2020. As the introduction suggests that the rules aim to provide more clarity for e-commerce regulation, the opposite seems to be happening. Businesses are scrambling with uncertainty and it is only further causing inconvenience to consumers. E-commerce has played an important role in navigating the deadly pandemic and over-regulating the industry could only shake its functioning. If there is no uniformity and clarity amongst the Acts, then it will only place more burden of compliance and increase costs in case of failure on smaller e-commerce players. E-commerce cooperation is essential in ensuring consumer welfare is made a priority,  but at the same time stringent regulations do not provide the companies with any wiggle room and will cause more ambiguity over their functioning. Considering these rules only apply to e-commerce platforms and not to their brick and mortar competitives, it shows that only the interests of traditional retailers are kept in mind instead of uplifting the consumers or the MSMEs. Enhancing transparency in pricing, creating an environment for competition and protecting consumer information is the direction the policy should intend to take in the name of consumer welfare.

While the drafts are trying to achieve the best for consumers, they are clearly falling short. Individuals who are stakeholders in the industry such as consumer bodies, logistical companies should have their input heard if the draft wants to head in the right direction.




ABOUT THE AUTHORS

Dipendu Das is a 2nd year B.A. LL.B. student at NUSRL, Ranchi

Debarati Pal is 2nd year B.A. LL.B. student at NUSRL, Ranchi

Leave a Reply

Your email address will not be published. Required fields are marked *