Emergent Effect of New Consumer Protection Act 2019 on ‘E-Commerce’ Business

Introduction

‘E-commerce’ or ‘Electronic Commerce’ in general parlance deals with the buying & selling of goods, products, and services using the internet or internet-based mediums or online transactions. Over the years, the E-Commerce industry or business has established a very pivotal and versatile outcome in shaping our lives. E-commerce as a torch-bearer has led to economic, financial, social, political progress, and development. E-commerce is prevalent in various facades of our lives such as Internet & broadband, broadcasting medium, communications, lifestyle, travel, hospitality, finance, retail, banking, online payment gateways, wholesale, Digital & physical products, service industry, pharmaceuticals, various professions, music & film industry, education, health, transport government services and on the day to day services.

The New Consumer Protection Act

On 20 July 2020, the Ministry of Consumer Affairs, Food and Public Distribution through its notification in the Official gazette brought into force the new Consumer Protection Act, 2019 (‘Act’) by repealing the old Consumer Protection Act, 1986 (“Old Act”). The new regime of the consumer laws aims to establish ‘Consumer Protection Councils’ and ‘Central Consumer Protection Authority (CCPA)’ for redressal of consumer-related issues, apart from already established commissions at District, State, and National level. The Act brings the concept of ‘Mediation’ as an Alternate Dispute Resolution mechanism. The Act has introduced the element of ‘Product Liability’, defined under Section 2(34) of the Act. The Act has redefined the meaning and impact of ‘Unfair Trade Practices’ and ‘Misleading Advertisements’. In a powerful move, the Act now prescribes ‘Declaratory’ powers to Commissions under the Act to nullify unfair contract terms and declare them void-ab-initio. With a view of making the Act more stringent and stricter, penal actions and punishments have been introduced, wherein ‘Imprisonment’ may extend from two (2) years to seven (7) years along with fine which may extend from INR. 5 Lacs to INR. 50 Lacs, depending upon the circumstances, situations, and conditions prescribed under the Act.

Inclusion of “E-Commerce”

Considering the enormous and swift growth in the E-commerce sector and businesses, the Ministry of Consumer Affairs, Food, and Public Distribution to cope up with the rapid technological advancements in e-commerce businesses, has framed this new Act. The Act now includes various new definitions stipulated as under: – 

• The definition of ‘Consumer’ under Section 2(7) of the Act, in its explanation (b), prescribes that; the expressions “buys any goods” and “hires or avails any services” includes offline or online transactions through electronic means or by teleshopping or direct selling or multi-level marketing;
• The definition of ‘e-commerce’ under Section 2(16) of the Act, means buying or selling of goods or services including digital products over digital or electronic network;
• The definition of ‘electronic service provider’ under Section 2(17) of the Act, means a person who provides technologies or processes to enable a product seller to engage in advertising or selling goods or services to a consumer and includes any online market place or online auction sites;
• The definition of ‘endorsement’ under Section 2(18) of the Act, in relation to an advertisement, means: –

(i) any message, verbal statement, demonstration; or

(ii) depiction of the name, signature, likeness or other identifiable personal characteristics of an individual; or

(iii) depiction of the name or seal of any institution or organisation, which makes the consumer to believe that it reflects the opinion, finding or experience of the person making such endorsement;

*This is relevant in the context of online / internet app-based endorsement business, which is found to be in violation of the Act.

• The definition of “goods” under Section 2(21) of the Act, means every kind of movable property and includes “food” as defined in clause (j) of sub-section (1) of section 3 of the Food Safety and Standards Act, 2006. 

*This is relevant in the context of online / internet app-based foodservice aggregators/business.

• The definition of “misleading advertisement” under Section 2(28) of the Act, in relation to any product or service, means an advertisement, which: – 

(i) falsely describes such product or service; or

(ii) gives a false guarantee to, or is likely to mislead the consumers as to the nature, substance, quantity or quality of such product or service; or

(iii) conveys an express or implied representation which, if made by the manufacturer or seller or service provider thereof, would constitute an unfair trade practice; or

(iv) deliberately conceals important information;

*This is relevant in the context of online / internet app-based ‘misleading advertisement’, in violation of the Act.

• Section 94 read with Section 101 and Section 101 (2)(zg) of the Act, prescribe the measures to be taken by the Central Government to prevent unfair trade practices in e-commerce, direct selling under section 94, and accordingly make appropriate rules. 

The Inception of the Consumer Protection (E-Commerce) Rules, 2020

On 23 July 2020, the Ministry of Consumer Affairs, Food and Public Distribution through its notification published in the official gazette, in the exercise of the powers conferred by sub-clause (zg) of sub-section (1) of section 101 of the Consumer Protection Act, 2019 (35 of 2019), the Central Government made; The Consumer Protection (E-Commerce) Rules, 2020 (‘Rules’).

• As per Section 2 of these Rules, it is applicable to: – (a) all goods and services bought or sold over digital or electronic network including digital products; (b) all models of e-commerce, including marketplace and inventory models of e-commerce; (c) all e-commerce retail, including multi-channel single-brand retailers and single-brand retailers in single or multiple formats; and (d) all forms of unfair trade practices across all models of e-commerce. Moreover, these rules shall apply to an e-commerce entity which is not established in India and offers goods or services to consumers in India.
• The definition of “e-commerce entity” under Section 3(b) of these Rules, means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity.
• The definition of “grievance” under Section 3(c) of these Rules; means an e-commerce entity which owns the inventory of goods or services and sells such goods or services directly to the consumers and shall include single-brand retailers and multi-channel single-brand retailers.
• The definition of “inventory e-commerce entity” under Section 3(f) of these Rules; shall have the same meaning as to it clause (v) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000).
• The definition of “marketplace e-commerce entity” under Section 3(g) of these Rules; means an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers.
• The definition of “platform” under Section 3(i) of these Rules; means an online interface in the form of any software including a website or a part thereof and applications including mobile applications. 
• The definition of “seller” under Section 3(l) of these Rules; means any person who accesses or avails any computer resource of an e-commerce entity.

Duties of e-commerce entities

Some of the key duties are mentioned below: –

• An e-commerce entity 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 thereunder;
• Every e-commerce entity shall provide the following information in a clear and accessible manner on its platform, displayed prominently to its users, namely: (a) legal name of the e-commerce entity; (b) principal geographic address of its headquarters and all branches; (c) name and details of its website; and (d) contact details like e-mail address, fax, landline and mobile numbers of customer care as well as of grievance officer.
• Every e-commerce entity shall establish an adequate grievance redressal mechanism having regard to the number of grievances ordinarily received by such entity from India, and shall appoint a grievance officer for consumer grievance redressal, and shall display the name, contact details, and designation of such officer on its platform.
• Every e-commerce entity shall ensure that the grievance officer referred to in sub-rule (4) acknowledges the receipt of any consumer complaint within forty-eight (48) hours and redresses the complaint within one month from the date of receipt of the complaint.
• Where an e-commerce entity offers imported goods or services for sale, it shall mention the name and details of any importer from whom it has purchased such goods or services, or who may be a seller on its platform.
• E-commerce entity shall ‘not’ impose cancellation charges on consumers canceling after confirming purchase unless similar charges are also borne by the e-commerce entity if they cancel the purchase order unilaterally for any reason.
• Every e-commerce entity shall only record the consent of a consumer for the purchase of any good or service offered on its platform where such consent is expressed through an explicit and affirmative action, and no such entity shall record such consent automatically, including in the form of pre-ticked checkboxes.
• Every e-commerce entity shall affect all payments towards accepted refund requests of the consumers as prescribed by the Reserve Bank of India or any other competent authority, within a reasonable period, or as prescribed under applicable laws.
• “No” e-commerce entity shall – (a) manipulate the price of the goods or services offered on its platform in such a manner as to gain unreasonable profit by imposing on consumers any unjustified price having regard to the prevailing market conditions, the essential nature of the good or service, any extraordinary circumstances under which the good or service is offered, and any other relevant consideration in determining whether the price charged is justified; (b) discriminate between consumers of the same class or make any arbitrary classification of consumers affecting their rights under the Act.

Adopting the Information Technology (Intermediary Guidelines) Rules, 2011, for seeking exemption from liability under sub-section (1) of Section 79 of the Information Technology Act, 2000 for Liabilities of marketplace e-commerce entities: –

• A market place e-commerce entity which seeks to avail the exemption from liability under sub-section (1) of section 79 of the Information Technology Act, 2000 (21 of 2000) shall comply with sub-sections (2) and (3) of that section, including the provisions of the Information Technology (Intermediary Guidelines) Rules, 2011.

Notwithstanding the above, below are some additional liabilities of marketplace e-commerce entities: –

• Every marketplace e-commerce entity shall require sellers through an undertaking to ensure that descriptions, images, and other content pertaining to goods or services on their platform is accurate and corresponds directly with the appearance, nature, quality, purpose, and other general features of such good or service.
• Every marketplace e-commerce entity shall provide the following information in a clear and accessible manner, displayed prominently to its users at the appropriate place on its platform: –

(a) details about the sellers offering goods and services, including the name of their business, whether registered or not, their geographic address, customer care number, any rating or other aggregated feedback about such seller, and any other information necessary for enabling consumers to make informed decisions at the pre-purchase and post-purchase stages;

(b) a ticket number for each complaint lodged through which the consumer can track the status of the complaint;

(c) information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, and grievance redressal mechanism, and any other similar information which may be required by consumers to make informed decisions;

(d) information on available payment methods, the security of those payment methods, any fees or charges payable by users, the procedure to cancel regular payments under those methods, charge-back options, if any, and the contact information of the relevant payment service provider; 

(e) all information provided to it by sellers under sub-rule (5) of rule 6;

• Every marketplace e-commerce entity shall include in its terms and conditions generally governing its relationship with sellers on its platform, a description of any differentiated treatment which it gives, or might give between goods or services or sellers of the same category.
• Every marketplace e-commerce entity shall make reasonable efforts to maintain a record of relevant information allowing for the identification of all sellers who have repeatedly offered goods or services that have previously been removed or access to which has previously been disabled under the Copyright Act, 1957 (14 of 1957), the Trade Marks Act, 1999 (47 of 1999) or the Information Technology Act, 2000 (21 of 2000): Provided that no such e-commerce entity shall be required to terminate the access of such seller to its platform pursuant to this sub-rule but may do so on a voluntary basis.

Duties of sellers on the marketplace: – Most of the duties of sellers on the marketplace are correspondingly reciprocal in mentioned in the liabilities of marketplace e-commerce entities. However, some distant ones are mentioned below: – 

• No seller offering goods or services through a marketplace e-commerce entity shall refuse to take back goods, or withdraw or discontinue services purchased or agreed to be purchased, or refuse to refund consideration if paid, if such goods or services are defective, deficient, or spurious, or if the goods or services are not of the characteristics or features as advertised or as agreed to, or if such goods or services are delivered late from the stated delivery schedule: Provided that in the case of late delivery, this sub-rule shall not be applied if such late delivery was due to force majeure.
• Any seller offering goods or services through a marketplace e-commerce entity shall provide the following information to the e-commerce entity to be displayed on its platform or website: (a) all contractual information required to be disclosed by law; (b) total price in single figure of any good or service, along with the breakup price for the good or service, showing all the compulsory and voluntary charges such as delivery charges postage and handling charges, conveyance charges and the applicable tax, as applicable; (c) all mandatory notices and information provided by applicable laws, and the expiry date of the good being offered for sale, where applicable; (d) all relevant details about the goods and services offered for sale by the seller including country of origin which are necessary for enabling the consumer to make an informed decision at the pre-purchase stage; (e) the name and contact numbers, and designation of the grievance officer for consumer grievance redressal or for reporting any other matter; (f) name and details of importer, and guarantees related to the authenticity or genuineness of the imported products; (g) accurate information related to terms of exchange, returns, and refund including information related to costs of return shipping in a clear and accessible manner; (h) relevant details related to delivery and shipment of such goods or services; and (i) any relevant guarantees or warranties applicable to such goods or services.

Duties and liabilities of inventory e-commerce entities: – Most of the duties and liabilities are similar to what has been discussed and mentioned above. However, some distant ones are mentioned below: – 

• No inventory e-commerce entity shall falsely represent itself as a consumer and post reviews about goods and services or misrepresent the quality or the features of any goods or services.
• Every inventory e-commerce entity shall ensure that the advertisements for the marketing of goods or services are consistent with the actual characteristics, access, and usage conditions of such goods or services;
• Any inventory e-commerce entity which explicitly or implicitly vouches for the authenticity of the goods or services sold by it, or guarantees that such goods or services are authentic, shall bear appropriate liability in any action related to the authenticity of such good or service.

Penalty for the Contravention: – The provisions of the Consumer Protection Act, 2019 shall apply in case of any violation of the provisions of the aforesaid rules.

Conclusion

The emerging effect of the Consumer Protection Act, 2019, and Rules endorse a robust and comprehensive due diligence mechanism, which aims to strongly enforce consumer laws for E-commerce business. Albeit, the new law may be highly appreciated from the end of the consumers, but it could give discomfort to various stakeholders in the E-commerce business for its rigorous compliance, new incurring costs in the present time, and penal consequences in case of non-compliances along with payment of fines. Nevertheless, the Consumer Protection Act, 2019 and its Rules has definitely come as a revolution in the consumer laws regime in India and aims to strengthen the whole ecosystem of consumer laws in India. 

The above article has been authored by Mr Gaurav Mahajan, who is a Corporate, Commercial, and Technology Attorney.

**The views expressed are solely those of the author and should not be attributed to the author’s firm or its clients, or any other organization.

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