E-commerce rules: A one-size-fits all approach; some need to be relaxed

By Raj Ramachandran & Sindhu Nayak

Online shopping in India, particularly in the FMCG sector, has gained overwhelming prominence since the pandemic, despite the initial hiccups during the lockdown. Against this backdrop, the recent rules relating to e-commerce, issued by the ministry of consumer affairs, food and public distribution, under the Consumer Protection Act, 2019, are all the more relevant. The Consumer Protection (E-Commerce) Rules, 2020, notified on July 23, regulate all commercial transactions involving goods or services, sold over a digital or electronic network by retailers in India or overseas to consumers in India.

The e-com rules currently recognise two e-commerce business models, namely, marketplace model and inventory-based model. While regulating e-commerce entities, the rules have separate specified provisions for marketplace- and inventory-based entities, and for sellers who sell on the platform operated by a marketplace e-commerce entity.

In an attempt to ensure transparency and boost consumer awareness, the e-com rules require that all information on the return, refund, exchange, warranty and guarantee, delivery and shipment of the goods or services being sold, including their country of origin, be provided on the platform. Such details enable consumers to make an informed decision in their choice of products. The focus on the country of origin requirement is significant, given that India and several other countries are currently re-negotiating their free trade agreements.

The e-com rules prohibit unfair trade practices by entities and sellers on marketplaces and manipulation of price. The term “unfair trade practice” has been defined quite widely in the Consumer Protection Act to include any unfair method or deceptive practice on the part of the e-commerce entity or seller with the intention of promoting the sale of the commodities being offered. The entities are prohibited from manipulating the price of the goods or services to gain unreasonable profit by imposing unjustified price or charges on consumers. These regulations are crucial, particularly since even essential goods and services are currently on demand given the pandemic. That said, it remains unclear as to what would constitute price manipulation and, further, how the e-commerce entities and sellers are expected to navigate these roadblocks without falling foul of such provisions. It is relevant to note that the reference to price manipulation is contained in the definition of ‘restrictive trade practice’ under the Consumer Protection Act.

Other rules also seem quite onerous. For instance, both the marketplace entity and sellers are now required to set up a grievance redressal mechanism. Given the sellers on marketplaces range from artisans to large corporations, small businesses may not be in a position to comply. For the sake of consistency and uniformity in quality, it may be preferable to allow smaller organisations to either collectively have a mechanism in place or allow the marketplace entity to coordinate and consolidate such an arrangement.

The rules also prohibit an e-commerce entity from levying a charge for cancellation post confirmation, unless the e-commerce entity agrees to pay similar penal charges in case it cancels the order. While the provisions may be intended as safeguards that ensure a level-playing field, some of these conditions are impractical. Applying identical rules does not convey a business-friendly approach.

The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 currently recognise the marketplace and inventory model, and permit 100% FDI under the automatic route to marketplace entities as also to those engaged in single-brand retail. Foreign investments, up to 51%, are permitted in multi-brand retail with prior government approval.

As per the non-debt rules, entities engaged in single-brand retail are permitted to undertake retail trading through e-commerce on the condition that they open a brick-and-mortar store within two years from the date it commences online retail. Retail trading, in any form, by means of e-commerce, is not permissible for entities engaged in inventory-based multi-brand retail trading and having foreign investment.

The commercial sector is anxious for India to consider relaxing some of these requirements, or extending the time period for compliance, given that brick-and-mortar operations may not be possible in the foreseeable future.

Ramachandran is Partner, and Nayak, senior associate, J Sagar Associates. Views are personal