The Government of India through its Ministry of Consumer Affairs, Food and Public Distribution, in exercise of its powers conferred under the Consumer Protection Act, 2019 had notified the Consumer Protection (E-Commerce) Rules, 2020 (‘E-commerce Rules’). The Government has now, on 21 June 2021, proposed certain amendments in the E-commerce Rules and is receiving comments or suggestions from the stakeholders.
The proposed amendments, once notified, will not only impact the e-commerce operators (both marketplace as well as inventory-based model entities) but also entities which are engaged by such operators in fulfilment of orders placed by buyers on an electronic portal or mobile based application (‘Platform’).
We would discuss a few of the relevant proposals which will significantly impact the e-commerce industry:
- Definition of e-commerce entity[1]:
It means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce including any entity engaged by such person for the purpose of fulfilment of orders placed by a user on its platform and 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.
The proposed definition of e-commerce entity covers (a) any entity engaged by e-commerce entities for fulfilment of orders and (b) related parties (as defined under the Companies Act, 2013).
The proposal has widened the ambit of e-commerce entities. It seems to include third party service providers engaged by an e-commerce entity for fulfilment of orders placed by a buyer on the Platform. The obligations, currently, casted on e-commerce entities will apply on such entities as well.
- Registration of e-commerce entity[2]:
The e-commerce entity which intends to operate in India is required to get registered with the Department for Promotion of Industry and Internal Trade within the prescribed period for allotment of a registration number. The said registration number and invoice of everyday order is to be displayed prominently to the users in a clear and accessible manner by an e-commerce entity on the Platform.
As regards display of registration number by proposed entities (i.e. third-party service providers engaged by an e-commerce entity to fulfil orders), the entities may not have a Platform to display the number. Therefore, in order to avoid ambiguity, a suitable clarification with respect to display of their registration number at the registered office or at all the offices should be issued by the Government.
Further, a regulatory compliance will be imposed on e-commerce entities, especially the requirement of displaying invoices on Platform. It will require e-commerce entities to update their IT systems to reflect the requisite details.
- Proposed definitions[3]:
- Cross-selling:
It means 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 with an intent to maximize the revenue of such e-commerce entity.
As regards cross-selling, an e-commerce entity engaged in cross-selling of goods or services is required to disclose the following to its users in a clear and accessible manner on its platform:
- Name of the entity providing data for cross-selling, and
- Data of such entity used for cross-selling.
While undertaking cross-selling as a marketing strategy by an e-commerce entity, one needs to consider as to whether an e-commerce entity is required to disclose the name of seller or itself or merchandising profiler (engaged by e-commerce entity), as an entity providing data for cross-selling.
- Fall-back liability:
It means (a) liability of a marketplace e-commerce entity, (b) where a seller registered with such entity fails to deliver the goods or services ordered by a consumer, (c) due to negligent conduct, omission or commission of an act by such seller and (d) which causes loss to the consumer.
In the foregoing event, the marketplace e-commerce entity will be subject to a fall-back liability.
It is worthwhile to note that such proposals will create additional liability on marketplace e-commerce entity for the default of the seller. The consumers will be able to reach out to e-commerce entity irrespective of the terms and conditions displayed on the Platform or agreed with sellers by an e-commerce entity. To safeguard the interests, the agreements entered into by e-commerce entities with sellers may be suitably amended to include protective terms and conditions, including having an indemnity clause.
- Appointment of officers[4]:
An e-commerce entity will now be required to appoint three categories of officers:
- Chief compliance officer: He will be responsible for ensuring compliance with relevant laws (Acts and Rules made thereunder). He will be liable in any proceedings with respect to any relevant third-party information, data or communication link made available or hosted by e-commerce entity. He should be managerial personnel or such other senior employee of an e-commerce entity who is a resident and citizen of India.
- 24x7 nodal contact person: He will be liable for coordination with law enforcement agencies and officers to ensure compliance. He should be an employee of an e-commerce entity, other than the chief compliance officer. He should also be resident and a citizen of India.
- Resident grievance officer: He should be an employee of an e-commerce entity, who is resident and a citizen of India.
Similar obligations to appoint officers have been cast upon significant social media intermediaries by the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.
- Related parties and associated enterprise[5]:
The marketplace e-commerce entity is to ensure that:
- it does not use any information collected through its Platform for unfair advantage of its related parties and associated enterprises;
- none of its related parties and associated enterprises are enlisted as sellers for sale to consumers directly; and
- nothing is done by related parties or associated enterprises which the e-commerce entity cannot do itself.
Related parties are the persons defined under the Companies Act, 2013. Whereas, the relationship of two or more enterprises as an associated enterprise depends upon factors such as common chain of directors or managing partners, specified % of holding of the shareholders, specified % of ultimate beneficial ownership, right to veto, voting power, etc.
It is worthy to note that the related parties and associated enterprises should not be enlisted as sellers by a marketplace e-commerce entity, for sale to consumers directly.
The proposed amendment is likely to impact the present business model of various e-commerce entities and such e-commerce entities may be required to re-visit their existing business models.
- No sale by e-commerce entity to the seller[6]:
The proposed amendment restricts marketplace e-commerce entity to sell goods or services to any person who is registered as a seller on its Platform.
The said amendment is likely to impact e-commerce entities where products are sold by an e-commerce entity (either in the capacity of manufacturer of product or trader of product) to the seller registered on the Platform.
On a concluding note, we would like to highlight that the proposed amendments in E-commerce Rules will impact the entire e-commerce industry. Appropriate steps may be taken by the companies by re-visiting their present business models, amending existing agreements entered into with the sellers registered on the Platform and terms and conditions displayed on the Platform, in order to become ready and complaint with the proposed amendments in E-commerce Rules.
[The authors are Executive Partner and Principal Associate, respectively, in the Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, Gurugram]
[1] Rule 3 of the proposed E-commerce Rules
[2] Rule 4 of the proposed E-commerce Rules
[3] Rule 3 of the proposed E-commerce Rules
[4] Rule 5 of the proposed E-commerce Rules
[5] Rule 6 of the proposed E-commerce Rules
[6] Rule 6 of the proposed E-commerce Rules
