The impact of the new E Commerce rules on the Indian online marketplace
Mr. Paramjeet Sangwan

The impact of the new E Commerce rules on the Indian online marketplace

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On 23 July 2020, the central government notified the Consumer Protection (E-Commerce) Regulations 2020 [the "Rules"] under the Consumer Protection Act 2019. Last month the Government proposed a draft amendment to these Regulations and invited interested parties to comment on the same. Recently, various industry associations and e-commerce platforms have made their recommendations for these changes, calling for significant changes. In this article I try to organize the principles and explain the main problems with .


Ecommerce Templates

In India, e-commerce entities operate under one of two models: inventory and marketplace.These models are defined by the rules. In the inventory model, goods and services are owned by the e-commerce entity and sold directly to buyers. In other words, it keeps its own "inventory".

In the marketplace model, the e-commerce entity acts as an intermediary between buyers and sellers. For example, when we buy goods from Flipkart, we are actually buying from a seller registered on the platform; Flipkart does not sell any goods directly to us.The regulation applies to both e-commerce models.


Definition of an Electronic Commerce Entity

The proposed changes aimed to broaden the definition of “e-commerce business”. An "e-commerce entity" is any person who "owns, operates, or manages a digital or electronic device" for the purpose of electronic commerce, and includes any entity engaged by that person to fulfill orders placed by posted on its platform and any related entity person under the Companies Act 2013

According to many experts, the Regulation does not specify “order fulfilment” and a broad interpretation of this term would also include logistic service providers (since they technically help with the order fulfilment). Likewise, it could be argued that local Kirana stores also fall under the definition, even if they play a minor role in their supply chain.This will impose heavy compliance obligations on them.

However, some of these barriers are unjustified as the definition excludes sellers who offer their goods and services on an e-commerce market entity. In addition, logistics service providers are listed separately in the regulations, indicating that they do not fall under this definition.

The National Association of Software and Services Companies (Nasscom) proposed removing the word “owns” from the definition of an e-commerce entity as most entities do not own their own online platforms, only license and operate/ administer. [For example, if A owns an online platform that is licensed to e-commerce business B, then A also falls under the current definition of an e-commerce business.]


Registration of Electronic Commerce Companies

Every e-commerce business must register with the Department of Promotion of Industry and Domestic Trade (DPIIT) to obtain a registration number. The registration number must be displayed "in a clear and accessible manner" on the website.


Appointment of the officers 

Information Technology rules requires each e-commerce entity to appoint a Compliance Officer (to ensure adherence to the Policy), a Nodal Liaison (to coordinate with law enforcement), and a Resident Grievance Officer. The complaints manager's name and contact details must be prominently displayed on the e-commerce company's website and mobile application. A complaints mechanism should be set up.


Cross-sell, Mis-sell and Flash-sell

Cross-selling refers to the sale of goods and services related/complementary to the purchase made by the consumer in order for the e-commerce business to maximize its revenue. (For example, if you buy a smartphone, the website will prompt you to buy headphones.)


Mis-selling refers to the sale of goods and services by an e-commerce business by intentionally misleading that business with information about the goods and services. An e-commerce business cannot afford to fraudulently sell goods and services


Flash Sale has been defined as a sale organized by an e-commerce company by offering deep discounts on selected goods and services for a specified period of time (Example: Flipkart Big Billion Days Sale). However, the definition only covers fraudulently arranged sales, and technological means are used to allow the sale of goods and services on the platform only to a specific group of sellers managed by the entity. These flash sales were banned.


Fall-back Liability- A Contentious Clause

The draft regulation introduces the concept of a delivery obligation for an e-commerce company in the market.This means that the e-commerce company is liable if a merchant registered on its platform fails to deliver the goods and services ordered by the customer or otherwise causes damage to the customer. This allows consumers to address their complaints directly to the e-commerce operator.

The provision has been criticized by stakeholders because e-commerce companies have little control over sellers registered on their marketplace platform. They also argued that the provision contradicted the principles of the FDI policy outlined in Press Release #2 of 2018, which prohibited e-commerce companies from exercising control over sellers. [Assumes ecommerce entities in the marketplace have no control over inventory e.g.And. goods intended for sale].


Import Compliance

The e-commerce business must provide the name and contact details of the importer from whom it sourced goods and services. In addition, he must label the goods according to the country of origin and present national alternatives to the desired product in the pre-sales phase. Finally, it must also provide product and service rankings without discriminating against domestic sellers.

The DPIIT clarified that sellers must indicate the country of origin of the final product as the country of origin, bearing in mind that the production process can take place in multiple countries. However, this is not explained in the Terms and Conditions, which can cause undue confusion.

Other Important Compliance

An e-commerce company shall not use information collected through its platform to improperly benefit related parties and affiliates. It must also ensure that its affiliate/affiliate site is not listed as a direct-to-consumer seller. This, combined with a ban on quick sales, can limit consumer choice and drive up prices. For example, Tata said, "The proposed condition was problematic and provided an example where it would have prevented Starbucks, which has a

joint venture with Tata in India, from offering its products on Tata's website."

[Examples of affiliated companies – the director of an e-commerce company and his relatives, a company to which the director of an e-commerce company is affiliated, a subsidiary of that company, etc.]

[Examples of associated companies - two companies are linked by a common chain of directors/shareholders, one company has voting rights in the other company, etc.]



Several industry associations and other stakeholders have raised concerns about the changes. The National Association of Software and Services Entity (Nasscom) said some of the proposed changes "such as providing accurate information to consumers, appointing additional representatives to handle complaints, and complying with electronic equipment trade rules" fall outside the scope of privacy protections . and subject to the Consumer Protection Act, the Competition Act 2002 or the Information Technology Act 2000.

Indeed, in January, the Competition Commission of India (CCI) launched an investigation against Amazon and Flipkart under the Competition Act after receiving complaints against the e-commerce giants for offering steep discounts to sellers where they hold the price and granted preferential treatment. This policy aims to address this issue among many others.In a sense, they encroach on the domain of the ICC, which can lead to a number of different problems.

There will certainly be an industry backlash. As we have seen, while some fears are unfounded, others are very genuine. It remains to be seen how the Indian government will react to the suggestions and recommendations and then publish the final version of the rules.

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