Regulation of online sales and services

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Regulation of online sales and services

Thursday, 01 July 2021 | Subhash C Pandey

Regulation of online sales and services

Proposed changes provide a framework to protect buyers from unfair practices and prevent exploitation of indigenous or small-level sellers

The Union Government had notified the Consumer Protection (E-Commerce) Rules, 2020 on July 24, 2020, under the Consumer Protection Act, 2019. The Ministry of Consumer Affairs has invited comments by July 6 on significant amendments proposed to be made to them.

Since CPA, 1986 was enacted, consumer markets for goods and services have undergone a drastic transformation. The most important are the changes to e-commerce. Online sales usually offer convenience to consumers and also better prices but there are often problems of delivery of substandard goods and refusal to return, replace or refund.

The consumer should theoretically be the king at a time when consumer demand is affected by the pandemic. The governments and banks are being prodded to boost consumer demand through liberal incentives, subsidies, and lending. Of course, the extent of competition varies from sector to sector.

There is a persisting need for consumers' awareness about paying the right price for the right product and the enforcement of consumer rights. That applies to both online and offline sellers.

Worldwide, governments are struggling to save brick and mortar shops from the stiff and often unfair competition from sellers operating through digital platforms. The problems are more between online and offline sellers than between online sellers and consumers. Online sales offer convenience, lower prices with occasional problems about defective products.

The latest rules address three types of tensions and frictions. Between online sellers and the consumers; between online and offline sellers and between ordinary online sellers competing with ‘preferred’ online sellers, preferred by e-commerce platforms due to their own financial interests.

The rules are aimed not just at marketplaces like Amazon, Flipkart, Snapdeal, etc., which are supposed to merely provide an IT platform to connect buyers and sellers (without being unduly partial to any particular buyer or seller) as also the direct sellers or retailers who own the goods they sell online. Since services are also covered, aggregators like Ola, Uber, Zomato, AirBNB, and the like would also fall within the ambit of the rules.

Thus, the rules at present cover ‘e-commerce entities’ which are pure marketplaces as well as inventory-led models of e-commerce where the IT platform operator owns the inventory of goods and services being sold. The amendments seek to cover even logistics companies involved in storage, transport, and delivery of online sales. ‘Related parties’ are also sought to be regulated by the rules.These rules donot apply to a natural person, like a farmer or craftsman, selling online directly.

The e-commerce entities are liable to ensure that advertisements of goods and services are consistent with their actual characteristics and usage conditions. They must sell only what they display. They should not be spurious or counterfeit items.

Every marketplace e-commerce entity must disclose full details of the sellers offering goods and services like the name of their business, address, customer care number, or rating.

The amendments also seek to create a ‘fall-back liability’ on the e-commerce entity itself for default by sellers. The marketplace e-commerce entity will be liable if a seller registered on the platform fails to deliver the ordered goods or services causing loss to the consumer due to negligent conduct, omission, or commission of any act by such seller.

Posting fake reviews of products on the e-commerce site is common malpractice and has been banned. The rules also provide that sellers on the marketplace shall not refuse to take back goods, or withdraw or discontinue services purchased or agreed to be purchased, or refuse to refund consideration, 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. A major concern has been some big e-commerce platforms giving preferential treatment to some sellers (in which they have a financial interest). It is alleged that some big e-coms use their wholesale units to indirectly list products on their websites through select sellers, bypassing foreign investment restrictions that prohibit direct sales to individual Indian consumers by a foreigner.

The rules currently provide against predatory pricing practices through preferred vendors by banning discrimination among buyers and among sellers on the platform. Of course, bulk buyers will get bigger discounts but similarly placed sellers and buyers cannot be discriminated against.

The amendments stipulate that e-commerce firms must not list any related enterprise as a seller on their shopping websites and that no affiliate entity should sell goods to an online seller operating on its platform.

Flash sales offering huge discounts during a small timeframe benefit ordinary consumers. The amendments seek to prohibitsuch flash sales where only preferred sellers controlled by e-commerce platforms get an opportunity to sell. This prohibition may perhaps be turned ineffective by including some non-preferred sellers also in flash sales. Presumably, objectionable flash sales will invite punitive action only against e-commerce platforms and the consumers buying stuff in such sales will not be affected..

Under the rules, E-tailers - digital sellers or service providers - have to compulsorily display details like the 'country of origin' of the goods, their policies on return, refund, exchange, warranty and guarantee, delivery and shipment, detailed price break-up, and modes of payment.

One of the objectives of the new e-commerce rules is to create consumer awareness to promote Indian products over imported ones. The amendments provide that if a retailer is showing imported goods for sale, the customer should be informed about who is the importer and be given “suggestions of alternatives to ensure a fair opportunity for domestic goods”.

Every seller is required to provide details of a grievance officer who can be approached in case of any problem and take prompt action to redress the grievances. These rules are to ensure transparency, accountability, and giving consumers a right to informed choice before deciding to purchase something online. E-commerce entities that do not comply with the rules will face penal action.

There is a growing tussle between BigTech companies and governments worldwide because of the enormous power these companies have begun to wield and because they frustrate government policies about thepublic interest.The amendments provide a framework to protect the buyer as well as prevent exploitation of indigenous or small-level sellers online from unfair practices. How exactly the malpractices on e-markets would be identified, monitored, and effectively penalised would be a real implementation challenge. This is particularly so when consumer courts carry a substantial backlog of pending cases.

The rules donot differentiate between big entities like Amazon, Flipkart, Snapdeal, BigBasket, JioMart, etc., and smaller e-com companies. As with social media regulations, it would be better if the regulatory burden is also different for big and small e-coms, like, say, based on transacted turnover.

(The writer is former Special Secretary, Ministry of Commerce and Industry, Government of India. The views expressed are personal.)

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