1 . Cross-selling [Proposed Rules 3(c) & Sub-Rules 11 & 12 under the heading “Duties of Vendor”]

The definition of cross-selling as proposed in Rule 3(c) is as follows:

“Cross-selling” means sale of goods or services which are related, adjacent or complimentary to a purchase made by a consumer at a time from any ecommerce entity with an intent to maximise the revenue of such e-commerce entity”.

The underlying assumption in cross-selling is that the product being offered as a part of cross-selling is related or adjacent to the main product. For sellers who are engaged in selling a wide or diverse range of products, it is not necessary that the products being cross-sold are always related or adjacent to the main product.

However, if the concept of adjacent or related products is interpreted to mean products offered by the same seller or vendor (who is offering the main product) irrespective of the differences in nature, characteristics, purpose or applications between the main product and the product being offered as a part of cross-selling (as a combined package), then the definition needs to adequately reflect the same.

Further, as per normal understanding, complimentary products are products which are offered free along with the main product being purchased. This is usually done to push the sales of the main product. However, the point to be examined is whether the price of the main product has been camouflaged to discreetly cover the cost of the complimentary product. The definition of “unfair trade practice” in the Consumer Protection Act, 2019 also encompasses a scenario where an impression is sought to be created that something is being offered for free whereas it is fully or partly covered by the price being charged for the transaction as a whole. Cross-selling may therefore involve an element of unfair trade practice and the disclosure requirements under cross-selling should be robust enough to unearth such practices, if they so exist.

2. Flash Sale [Proposed Rule 3 (k)]

The definition of flash sale as proposed in the draft note is as follows:

“Flash sale” means a sale organized by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw a large number of consumers

Provided such sales are organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.”

The proposed amendments further state that no e-commerce entity will organize a “flash sale” of goods or services offered on its platform.

A complete reading of the proposed amendments tends to suggest that the concept of “flash sale” is essentially being seen only from the perspective of market place e-commerce entity. This is so because there is a reference to favouring only a specified seller or group of sellers over others. The underlying assumption is that a level playing field between different sellers on a platform ensures free and fair competition which is in turn in consumer interest.

However, an “inventory e-commerce entity” could also be selling its own products to consumers (from its own inventory) and may indulge in such disruptive pricing to the detriment of other sellers in the market, including other e-commerce entities. Whether such disruptive pricing would be covered under the definition of “unfair trade practices” as defined in the Consumer Protection Act, 2019 or under the Competition Act or under any other law needs examination. However, the Consumer Protection Rules need to cover disruptive pricing practices by inventory e-commerce entities as well.

The current Rules clearly provide that no e-commerce entity will engage in price manipulation to make an unjustified profit or gain. However, disruptive pricing which involves substantial discounts for a limited period of time may not necessarily be covered by this clause. It could be best interpreted as a market distorting and anti-competitive practice and the guidelines for that need to be clearly defined.

3. Mis-selling [Proposed Rule 3 (k)]

The proposed amendment defines “mis-selling” as follows:

“mis-selling” means an e-commerce entity selling goods or services by deliberate misrepresentation of information by such entity about such goods or services as suitable for the user who is purchasing it.

Explanation:

Misrepresentation here means:-

(i) the positive assertion, in a manner not warranted by the information of any entity making it, of that which is not true;

(ii) any display of wrong information, with an intent to deceive, gain an advantage to the e-commerce entity committing it, or any seller claiming under it; by misleading consumer to the prejudice of e-commerce entity, or to the prejudice of anyone claiming under it;

(iii) causing, however innocently, a consumer to purchase such goods or services, to make a mistake as to the substance of the thing which is the subject of the purchase”.

The scenarios covered under the aforementioned definition are to a certain extent also covered under “unfair trade practices” as defined in the Consumer Protection Act. However, mis-selling may not just be about wrong information or unjustified assertions. It could also be about disclosures which, though correct, are incomplete and give only a partial picture of the product or service being offered. This may mislead the customers into making a wrong decision. The definition should be generically wide enough to cover such scenarios.

4. Nodal Officer (Proposed Rule 5-Sub Rule 1- Duties of e-commerce entities)

The proposed amendment regarding nodal contact person runs on the following lines:

“Where an e-commerce entity is a company incorporated under the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) or a foreign company covered under clause (42) of section 2 of the Companies Act, 2013 (18 of 2013) or Partnership incorporated under the Indian Partnership Act, 1932 (9 of 1932) or a Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009) an office, branch or agency outside India owned or controlled by a person resident in India as provided in sub-clause (iii) of clause (v) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), it shall appoint a nodal person of contact or an alternate senior designated functionary who is resident in India, to ensure compliance with the provisions of the Act or the rules made there under.”

There are some issues which need examination in this context:

  1. E-Commerce entity includes any person who owns, operates or manages an electronic or digital facility or platform for electronic commerce. The definition of person under the Consumer Protection Act, 2019 also includes individual, association of persons (registered as society), Hindu undivided family etc. The concept of nodal person of contact needs to be made applicable to all forms of e-commerce entities and not just companies or partnership firms. There are certain e-commerce entities which are run as trusts and the same needs to be accounted for as well.
  2. Nodal contact persons are required not just for artificial legal entities (like companies) but also for those entities where is no difference between the entity and its owners. The proposed amendment does cover partnership firms but does not include other such forms of ownership where there is no difference between the entity and the owners.
  3. The proposed amendments (Rule 5 – sub-Rule 5) also provide that every e-commerce entity will have to appoint a Chief Compliance Officer, a Nodal contact person and a Resident Grievance officer. This is in keeping with the Information Technology (Intermediaries Guidelines) Rules, 2021 as online marketplaces are also covered under the definition of “intermediaries” in the said Rules.

However, it is not clear whether the Nodal contact person being referred to in this sub-rule is same as the Nodal contact person proposed in Rule 5, Sub-Rule 1. This is because the sub-rule 5 places the onus of compliance on the Chief Compliance Officer whereas sub-rule 1 places the onus of compliance on the Nodal contact person. Further, the Nodal Contact person in sub-rule 5 is responsible for coordination with law enforcement agencies and for compliance with their orders and requisitions rather than compliance with the related Act, Rules and Regulations.

5. Misleading advertisement [Proposed Rule 5-sub Rule 4]

“No e-commerce entity shall allow any display or promotion of misleading advertisement whether in the course of business on its platform or otherwise.”

One of the duties imposed on the marketplace e-commerce entities (in the Consumer Protection Rules, 2020) is to ensure that sellers on the platform correctly display the statutorily required information about themselves, their policies, contact details and the products and services they offer. The same has to be secured through an undertaking from such sellers.

Further, online market places are considered as intermediaries under the Information Technology (Intermediaries Guidelines) Rules, 2021. Accordingly they have to exercise due diligence to ensure that no information is hosted which is clearly unlawful or which attempts to mislead someone for financial gain [Rule 3(1) of the said rule].

Posting mis-leading advertisements is also considered to be an offence under the Consumer Protection Act as well as under related rules. Marketplace e-commerce entities (being intermediaries) do enjoy immunity under section 79 (1) from third party data, information or communication links provided they comply with subsections (2) and (3) of the same section. What is needed are a set of rules which will help define whether a market place entity was complicit in the posting of a misleading advertisement and the procedure which will be followed for conducting such an investigation.

Ordinarily, a market place e-commerce entity can take action against a misleading advertisement suo-moto or it can act on a grievance registered by a customer or any other interested party against the misleading advertisement. Only when it takes such action will it enjoy the immunity under Section 79(1) of the IT Act.

6. Redressal Mechanism

As stated earlier, marketplace e-commerce entities may be considered as online marketplaces and accordingly they will be covered under the definition of intermediaries under the Information Technology (Intermediaries Guidelines) Rules, 2021.

There is a redressal mechanism which is prescribed under the aforementioned Rule and there is a similar mechanism also prescribed under Consumer Protection Rules 2020 (read in conjunction with the proposed amendments). Both the Rules provide for a Resident Grievance Officer to address grievances but there are some differences between the two:

  1. The Information Technology (Intermediaries Guidelines) Rules 2021 requires the Grievance officer to acknowledge a complaint within 24 hours and take action on the same within 15 days. The Consumer Protection Rules require the Grievance officer to acknowledge the complaint within 48 hours and resolve the complaint within a month. The problem is that there are some grievances which would be covered by both the Consumer Protection Act & Rules as well as Rule 3(1) Information Technology (Intermediaries Guidelines) Rules 2021 (e.g. publishing misleading information for financial gain). The law should clearly provide a mechanism for deciding which option is to be primarily pursued in such cases to avoid confusion. Normally every law is to be considered in addition to and not in derogation of other existing laws but the Rules should clearly lay down the primacy of the appropriate option.
  2. The Information Technology (Intermediaries Guidelines) Rules 2021 also state that Rule 15 and Rule 16 (of the said Rules) also apply to intermediaries. Rule 15 and Rule 16 come into play when the inter-departmental Committee feels that there is a need to either modify or delete some content or where there is a need for taking action for reasons enumerated in Section 69A(1) of the Act. These sections would normally apply to publishers of online curated content, publishers of news and current affairs content and social media intermediaries. It would not in the normal sense apply to e-commerce entities.

However, if the products or services being offered for sale on an e-commerce entity are of an objectionable nature and clearly detrimental to public order, morality, decency or the safety and security of the masses, it would clearly fall within the ambit of Rules 15 and 16. If that is the case, the grievance redressal mechanism would take a very different route. Any consumer grievance which is normally not resolved by the e-commerce entity would go to the Consumer Dispute Redressal Forum (District, State or National, depending on the amount involved). However, in cases involving the grounds of public order, decency, morality, safety and security of the country etc, the issue would be handled by the Ministry of Information and Broadcasting based on the recommendations of the inter-departmental committee. Scenarios such as this need to be spelt out more clearly based on a list of FAQs).

7. Determination of Origin of Goods

The proposed amendments require e-commerce entities to declare the country of origin of goods. This amendment, while well intentioned, will be difficult to implement unless the Rules of Origin are clearly spelt out.

Currently, Rules of Origin in the context of international trade are defined through the prism of:

a. Preferential Rules Of Origin

These apply to imports under Free Trade Agreements (FTA) or Preferential Trade

Agreements (PTA). Each PTA or FTA has its own well defined Rules of Origin.

b. Non-Preferential Rules of Origin

These apply to imports from non FTA/ non-PTA countries. There is currently no agreement

between WTO member countries regarding non-preferential Rules of Origin but most

countries normally defines origin in terms of the place where the last significant value addition took  place. India does not have any clearly defined non-preferential Rules of Origin.

There is the added context of goods which are manufactured domestically but for which some of the inputs or components may have been imported or some job-work may have been carried out outside India. As if this were not enough, there are Rules of Origin prescribed for certain products where there is a Central government scheme for providing preference to domestically manufactured goods in government procurement.

It is apparent that given the multiplicity of Rules, greater clarity is required in this context. The matter assumes even more significance when one considers the extremely complex global supply chains for most products which could extend over several countries and trading blocs. In most cases, these lines are not clearly defined.

8. Rule 6-Sub Rule 7 –Proposed amendment to the Consumer Protection Rules 2020

The proposed amendment states that the marketplace e-commerce entity shall not sell any goods or services to any of the sellers on the platform. However, the following issue need to be examined in the context of this proposed amendment:

The FDI policy circular states that “E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory-based model. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.” The FDI policy circular does envisage a possibility (in the case of market place e-commerce entity) that up to 25% of the purchases of the vendor can be from the marketplace entity. However, as per the proposed amendment to the Consumer Protection Rules, there is a blanket prohibition on the sale of any goods and services by the marketplace entity to the sellers of goods and services on the platform. This contradiction needs to be sorted out.

9. Rule 5 –Sub Rule 14(c)-Proposed amendment

“No e-commerce entity mislead users by manipulating search result or search indexes having regard to the search query of the user.”

While this move is well intentioned, it can be made more effective by incorporating certain indicative (and by no means exhaustive) instances and parameters which could act as a benchmark as to what may constitute manipulation of search results.

10. Liabilities of E-commerce entities and sellers on the marketplace

The proposed amendments require the sellers and the e-commerce entity to make a number of disclosures about the product and terms of sale e.g. expiry dates, best before dates and warranties. It would be advisable to also have mandatory disclosure requirements regarding conditions and method of usage and possible after-sales service requirements as the same can have a considerable bearing on the purchase decisions.