Consumer Protection Act: Class action suit provision to keep e-commerce firms on toes for product defects

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Published: July 22, 2020 10:23 PM

The Consumer Protection Act has conferred the CCPA with the power to order trader or manufacturer or advertiser or publisher to discontinue advertising found to be misleading following an investigation. The act stated that failure to comply with the orders can attract penalty up to Rs 50 lakhs.

The notification of the Act with setting up of the CCPA to enable class action lawsuits has been welcomed by retail consumers.

E-commerce companies like Amazon and Flipkart will now have to keep an even closer eye on the quality of goods sold on its marketplace with the introduction of the provision for class action lawsuits in the newly notified Consumer Protection Act, 2019. The act, which also covered e-commerce sector, provided for recalling of goods that are not safe or dangerous to use, reimbursing the price of the goods, or discontinuing “of practices which are unfair and prejudicial to consumers’ interest,” the act noted. It included setting up of a central authority called Central Consumer Protection Authority (CCPA) to look into such class action lawsuits for matters pertaining to violation of consumer rights or unfair trade practices or false or misleading advertisements impacting.

“E-commerce companies are already ensuring with their internal quality assurance processes and vendor audits, that products are genuine and nothing is misleading, So, I don’t anticipate it to be a new issue from the product damage point of view but it increases the compliance, audit and governance requirements for companies to ensure suppliers comply with these. While slippages sometimes do happen due to process issues, the rigour around these process will increase now,” Ankur Pahwa, Partner and National Leader, E-commerce and Consumer Internet, Ernst & Young India told Financial Express Online.

Flipkart, for instance, through its seller rating mechanism, which tracks customer rating, the number of returns, and seller cancellations, understands how credible is the seller. A drop in ratings beyond “a preset cut-off limit, the issue is flagged and investigated” and if found guilty, the seller is blacklisted from the marketplace and products are de-listed, Flipkart said in one of its blogs. Amazon too has provision to “immediately suspend or terminate your selling privileges or return, dispose of or destroy inventory in our fulfillment centres,” apart from withholding or forfeiting remittances and payments, according to details available on its seller central page as part of its Anti-Counterfeiting policy.

Amazon and Flipkart didn’t comment for this story.

Also read: Consumer behaviour shift: Small town buyers more inclined towards e-commerce in post-Covid world

Under the Act, CCPA will house an Investigation Wing led by a Director General to carry out an investigation under the act. The act has also conferred CCPA with the power to order trader or manufacturer or advertiser or publisher to discontinue advertising that is found to be misleading following an investigation. The act stated that failure to comply with the orders can attract penalty up to Rs 50 lakhs and prohibiting endorsements that may extend to three years.

The notification of the Act with the establishing of CCPA to enable class action lawsuits has been welcomed by retail consumers. According to a survey conducted by community social media platform LocalCircles, which received over 48,000 responses from consumers based in 270 districts in India, 95 per cent respondents said that introduction of class action lawsuits helps ease the redressal process for misleading advertisement, defective products, and deficient services. Moreover, 75 per cent consumers who were subject to an unfair trade practice in the past three years weren’t able to get support from the brand or service provider to solve it, the survey noted. Also, 51 per cent respondents claimed they couldn’t assistance from the brand or manufacturer to fix a defective product.

“For instance, we have complaints from consumers who ordered refrigerators or air conditioners in March and April this year but they weren’t delivered earlier via an online platform citing lockdown as a reason. They allege several months later they have been asked to reorder the same products at lower discounts and that their money was kept by the platform for several months,” Sachin Taparia, CEO, LocalCircles told Financial Express Online. Since the issue has been reported by a number of consumers, per the recently notified Consumer Protection Act 2019, they can potentially file a complaint with the CCPA or the Dept of Consumer Affairs urging them to evaluate this for class action, he added. If the government implements this well, it can solve a lot of issues related to product defects, service deficiencies, and misleading ads both in the offline and online sectors, Taparia said.

This is likely to increase the compliance cost for companies including e-commerce companies and suppliers as they will have a lot of back-to-back arrangements to address these types of issues. “However, increasing the cost will be marginal because a lot of these companies are already taking steps towards it,” Pahwa added.

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