De-Coding the Draft E-Commerce Rules of 2021 | Corporate Attorney in Delhi NCR | Corporate Lawyer in Delhi NCR |

Corporate Lawyer in New Delhi | Corporate Lawyer in India | Corporate Lawyer in Delhi NCR | Corporate Lawyer in Delhi | Corporate Lawyer in Noida | Corporate Lawyer in Gurugram | Corporate Attorney in Delhi NCR | Corporate Attorney in Delhi | Corporate Attorney in Noida | Corporate Attorney in Gurugram | Corporate Attorney in New Delhi | Corporate Attorney in India |

“The Draft E-commerce Rules of 2021 has been formulated to improve the e-commerce structure in India. Further, a level playing is sought between the startups in India and the big Corporations in India. This is further aimed at creating an appropriate mechanism for ecommerce portals and ecommerce websites in India for their functioning which includes a proper complaint mechanism.

Thus, the startups in India should become aware about the laws of India including the consumer laws and the IT laws and should become well compliant towards them “

The government has proposed changes to the e-commerce rules under the Consumer Protection Act to make framework under which firms function more rigorous. While a number of new provisions are similar to what the Centre sought of social media companies through IT Intermediary Rules announced earlier this year, several proposals in the e-commerce rules are aimed at mounting liabilities for online retailers for goods and services purchased on their platforms. Non-compliance with the terms, if implemented, could be liable to be punished with prison terms and fines of at least Rs. 25,000 under Consumer Law. These rules are made to strengthen the legal system with respect to the functioning of the e-commerce platforms.

Commonalities with the IT Intermediary Rules
On the lines of the IT Intermediary Rules announced for social media companies in February, 2021, the Consumer Affairs Ministry has proposed to mandate e-commerce companies appoint a grievance officer, a chief compliance officer and a nodal contact person “for 24×7 coordination with law enforcement agencies” so that the e-commerce platforms can reach out to them. The e-commerce companies will be asked to share information with a “government agency which is legally authorized for investigative or protective or cyber security activities, for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offenses under any law for the time being in force, or for cyber security incidents”.

The draft rules were issued by the Consumer Affairs Ministry. The new which are open for public consultation until July 6, 2021 are as follows:

1. Affiliates as Sellers: E-commerce companies must ensure none of their “related parties and associated enterprises (entity having 10 percent or more common ultimate beneficial ownership)” are enlisted as sellers on their shopping websites, and no allied entity should sell goods to an online seller operating on the same platform. The rules potentially present a bigger setback for Flipkart and Amazon, as they contain clauses that could impact their business structures.
2. Flash Sales Ban: Flash sales can be defined as any event where there are deep discounts given with a specific intention of attracting customers. E-commerce companies should ban “specific flash sales”. As per the draft, conventional e-commerce flash sales are not banned, specific flash sales or back to back sales which limit customer choice, increase prices and prevents a level playing field are not allowed. Indian traders say the U.S. firms work with select sellers to offer certain models of smart phones and other products during these promotions, an allegation that the companies deny. Online sales are greatly popular on all websites, including Amazon, Flipkart and Reliance’s JioMart.
3. Private Labels: The rules stated that the brands related with the e-commerce entity will be barred from promotion or sale on its platform. This has seen hurting private labels, which are brands owned or licensed by companies like Amazon to certain sellers, that then market them on their online platforms. In recent years, both Indian and foreign players have developed extensive private label offerings which help them boost their overall profitability.
4. Imported Products: Websites selling imported products should identify the name and details of importers and so-called “country of origin”. They should display similar domestic products and give an informed option to the consumers. Moreover, they should add a filter mechanism and display notification to recommend “alternatives to ensure a fair opportunity for domestic goods”.
5. Misleading Ads & Pinning Down the Liability: E-commerce businesses are not authorized to display or promote any “misleading advertisement” on its platform. They also must within 72 hours of receiving an order assist government agencies for investigative or cyber security-related activities. The new rules also provide greater accountability/liability to e-commerce firms, which could be held liable if a consumer suffers due to a seller’s negligent conduct or failure to deliver goods. Earlier, intermediary platforms used to shift the liabilities to the seller of those particular goods and services and only they had to resolve the issue independently. But, the rules have introduced the notion of “Fall-Back Liability” which states that e-commerce firms will be held accountable if the seller without due care and attention fails to deliver goods or services on their platform, which causes loss to the customer. E-commerce platforms urge the consumers to the respective sellers to solve any grievance, when problems arise with goods purchased from their marketplaces. With fall-back liability, it would be easier for the consumers to reach out to the platform itself.
6. Search Results: Online websites must not manipulate search results and product rankings to mislead users while ensuring its parameters do not discriminate against domestic goods and sellers. The rules also propose that e-commerce companies restrict from “manipulating search results or search indexes”, in what comes as a response to a long- standing demand from sellers and traders to prevent preferential treatment to certain platforms.
7. Compliance Needs: E-commerce companies are required to put a grievance redressal mechanism, including appointing a chief compliance officer. Current government mandates for social media companies to make such appointments increase compliance requirements for e-commerce companies.
8. Consent: E-commerce companies will also be restricted from providing information pertaining to the consumer without express and affirmative consent to any third person. No entity shall automatically record consent, even in the form of pre-ticked checkboxes. The consent should be voluntarily and willingly. Additionally, there is increasing government pressure for made-in-India products, the companies will have to provide domestic alternatives to imported goods.
   The draft amendment also proposes to ask e-commerce firms to mandatorily become a part of the National Consumer Helpline so that if any consumer has any grievance it can directly make a complain to the Helpline.
9. Registration: Currently, e-commerce entities are registered under the Companies Act, Indian Partnership Act or Limited Liability Partnership Act and not separately with Department of Promotion for Industry and Internal Trade (DPIIT) . Any online retailer will first have to register itself with the DPIIT. Differential treatment in case of delivery of the products or services could profit some sellers and de-motivate the others. Thus, to standardise the rules propose that logistics service provider of a marketplace e-commerce entity ensure that they shall not provide differentiated treatment between sellers of the same category.

The ecommerce draft rules have been amended to help the startups in India to compete properly while rendering best in class services. Further, an improvement in the product quality is also kept into consideration. 

The entire purpose for framing the rules is about promotion of local goods. It’s good for made-in-India products but not for the platforms. The proposed changes aim to curb e-commerce entities’ dominant position and to bring transparency in the market. The notification detailing the rules were issued after complaints of widespread cheating and unfair trade practices were observed in the e-commerce ecosystem. The rules have been proposed to protect the interests of consumers and encourage free and fair competition.
Authored By: Adv. Anant Sharma & Aashita Khandelwal