The Ministry of Consumer Affairs (MCA) on June 21, 2021, suggested amendments to the Consumer Protection (E-commerce) Rules, 2020 (“E-Commerce Rules”), with the aim of tightening the functioning of large online marketplaces.

The E-Commerce Rules were first notified in July, 2020 to prevent unfair trade practices in e-commerce, direct selling and also to protect the interest and rights of consumers. An ‘E-commerce entity’ is defined in the E-Commerce Rules as any person who owns, operates or manages digital or electronic facilities 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 E-Commerce Rules provide that sellers offering goods or services through a marketplace e-commerce entity should not adopt any unfair trade practice whether in the course of the offer on the e-commerce entity’s platform or otherwise. A seller shall not falsely represent itself as a consumer and post reviews about goods or services or misrepresent the quality or the features of any goods or services.

However, since the notification of the E-Commerce Rules, the Government has received a surfeit of complaints and representations from aggrieved consumers, traders and associations complaining against widespread cheating and unfair trade practices being observed in the e-commerce ecosystem.

Prevalence of such unfortunate incidents has negatively impacted the consumer and business sentiment in the market, causing immense distress and anguish to many. It was observed that there was an evident lack of regulatory oversight in e-commerce space which called for urgent measures. Moreover, the rapid growth of e-commerce platforms has also brought into the purview the unfair trade practices of the marketplace e-commerce entities engaging in manipulating search results to promote certain sellers, preferential treatment to some sellers, indirectly operating the sellers on their platform, impinging the free choice of consumers, selling goods close to expiration etc.

Additionally, conventional flash sales by third party sellers are not banned on e-commerce platforms. However, certain e-commerce entities were engaging in limiting consumer choice by indulging in “back to back” or “flash” sales wherein one seller selling on platform does not carry any inventory or order fulfilment capability but merely places a “flash or back to back” order with another seller controlled by platform.

To protect the interests of consumers, prevent their exploitation and encourage free and fair competition in the market, the Government of India has proposed the following key amendments:

  • To ensure compliance of the Consumer Protection Act, 2019 (“Act”) and the E-Commerce Rules, appointment of Chief Compliance Officer, a nodal contact person has been proposed, for 24×7 coordination with law enforcement agencies, officers to ensure compliance to their orders and appointment of Resident Grievance Officer for redressal of the grievances of the consumers on the e-commerce platform, has been proposed. This would ensure effective compliance with the provisions of the Act and E-Commerce Rules and also strengthen the grievance redressal mechanism on e-commerce entities.
  • It has been proposed that a framework be put in place for registration of every e-commerce entity with the Department for Promotion of Industry and Internal Trade (DPIIT) for allotment of registration number which shall be displayed prominently on website as well as invoice of every order placed on the e-commerce entity. Registration of e-commerce entities would help create a database of genuine e-commerce entities and ensure that the consumers are able to verify the genuineness of an e-commerce entity before transacting through their platform.
  • To protect the interests of consumers, mis-selling has been proposed to be prohibited i.e. entities selling goods or services by deliberate misrepresentation of information by such entities about such goods or services. To ensure that consumers are aware about the expiry date of the products they are buying on the e-commerce platform all sellers on marketplace e-commerce entities and all inventory e-commerce entities should provide best before or use before date to enable consumers to make an informed purchase decision.
  • To ensure that the domestic manufacturers and suppliers get a fair and equal treatment on the e-commerce platform, it has been provided that where an e-commerce entity offers imported goods or services, it shall incorporate a filter mechanism to identify goods based on country of origin and suggest alternatives to ensure fair opportunity to domestic goods.
  • To ensure that consumers are not adversely affected in the event where a seller fails to deliver the goods or services due to negligent conduct by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity, provisions of Fall-back liability for every marketplace e-commerce entity have been provided.

The government has sought views from stakeholders by July 6th, 2021 on the suggested amendments. The proposed amendments as outlined above aim to bring transparency in the e-commerce space and further strengthen the regulatory regime to curb the prevalent unfair trade practices. The proposed changes come at a time when large e-commerce marketplaces are undergoing investigations for alleged abuse of market dominance and providing preferential treatment to certain sellers on their platforms.