Govt proposes stiff compliance measures for e-commerce companies

The Centre is planning fresh guidelines for e-commerce companies, including the appointment of a chief compliance officer, giving preference to the sale of locally produced goods, mandatory registration of e-tailers with the Department for Promotion of Industry and Internal Trade (DPIIT), in an attempt to tighten the regulatory regime and make these companies more accountable.

A slew of amendments have been proposed under the Consumer Protection (E-Commerce) Rules, 2020 ‘to protect the interests of consumers and encourage free and fair competition in the market’, the consumer affairs ministry said on Monday. It has sought comments from relevant stakeholders by July 6.

According to the proposed rules, e-commerce companies will not be allowed to organise a flash sale that allows sale of goods at significantly reduced prices or high discounts. Separately, the consumer affairs ministry clarified that conventional e-commerce flash sales are not banned but specific flash sales or back to back sales which limit customer choice, increase prices and prevent a level playing field are not allowed.

The proposed rules have been released at a time when DPIIT is also trying to roll out a comprehensive e-commerce policy aimed at addressing the regulatory challenges sector. A senior government official told Business Standard that the e-commerce policy will be implemented by making changes in the Foreign Direct Investment rules, consumer protections rules as well as Information Technology Act.

The guidelines also state that e-tailers will now have to send a notification and suggest “alternatives” before products are purchased by consumers to give a fair opportunity to goods manufactured in India. They will not only have to rank goods but also have to come up with a framework such that the ranking does not discriminate against domestic goods and sellers.

Business Standard reported that the Centre might tighten the “country of origin” norms for e-commerce players in a bid to push the sale of locally produced goods on their platforms that could be done through amendments to the Consumer Protection Rules.

E-tailers cannot mislead consumers by manipulating search results on their platforms. They will have to ensure that marketplaces do not use any information collected through their platform for unfair advantage of their associated enterprises. Besides, no marketplace e-commerce entity shall sell goods or services to any person who is registered as a seller on its platform.

E-commerce companies engaged in cross-selling of goods or services will have to disclose to their users, by providing the name of the entity providing data for cross-selling, as well as the data used for cross-selling on the platform. Cross-selling is a marketing practice of selling complementary products to customers, thereby getting them to purchase more. Selling products to a consumer by “deliberate misrepresentation” of information about the goods is also not allowed.

Similar to the newly notified Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, under the IT Act, the Consumer Protection Rules are proposing a grievance officer, a chief compliance officer and a 24x7 nodal officer to be appointed by e-commerce firms. Compliance of these requirements has already caused a storm between the government and social media firms operating in the country.

“By requiring e-commerce entities to register with the DPIIT and appoint a chief compliance officer, nodal officer and grievance officer who are citizens of (and resident in) India, the proposed rules seek to hold e-commerce entities in the country accountable. At first glance, it will be interesting to see how practically these changes are implemented,” Archana Tewary, partner, J Sagar Associates.

In addition, a clause on logistics has been added: “No logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category. Provided that each logistics service provider of a marketplace e-commerce entity shall provide a disclaimer including terms and conditions governing its relationship with sellers on the marketplace e-commerce entity platform, a description of any differentiated treatment which it gives or might give between sellers of the same category,” the new rules propose.

Amazon India, for example, has its own logistics arm, and the provision seems to be aimed at ensuring such logistics providers are not given preference over others. “LocalCircles has done extensive work with the Department of Consumer Affairs since 2017 to bring out consumer-centric e-commerce rules and is happy to see many of those recommendations around best before dates, seller information access to consumer, etc., being included,” said Sachin Taparia, founder & chairman, community social media platform LocalCircles.

“Looking at the proposed rules, however, from the lens of a small business (MSME and start-ups in the e-commerce sector) many of whom are on LocalCircles, a good bit of work still needs to be done to ensure these rules work for them, and not take away their competitive differentiators or make doing business difficult,” he added.

“Every e-commerce entity shall, as soon as possible, but not later than 72 hours of the receipt of an order, provide information under its control or provide assistance to the government agency which is lawfully authorised for investigative or protective or cyber security activities,” the rules said.

“Since the notification of rules in 2020, the government has received several representations from aggrieved consumers, traders, and associations complaining against widespread cheating and unfair trade practices being observed in the e-commerce ecosystem….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 result 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,” the ministry said.