Proposed Amendment to the E-Commerce Rules – Keeping E-commerce Entities on a Tight Leash

With a motive to regulate the e-commerce space in the interest of the consumers, the government has recently proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020 (“Amendment Rules”).

Key changes

While there are reports of a strong pushback from a variety of players, especially on the fallback liability on a marketplace entity (i.e., liability in case a seller fails to comply), provisions on flash sales and prohibition on associated enterprises of a marketplace entity to be listed as sellers on the platform, the amendments also reflect a potentially significant increase in the compliance burden on the companies in this space. Some of the key highlights of the proposed amendments are as follows:

(i)     Registration: The Amendment Rules require every e-commerce entity to be registered with the Department for Promotion of Industry and Internal Trade (DPITT), and ensure that the registration number is displayed prominently to its users in a clear and accessible manner on its platform. Guidance on the procedure to be followed by the entities for obtaining the registration number is awaited.

(ii)   Appointment of personnel: The Amendment Rules require every e-commerce entity to establish a grievance redressal mechanism, and appoint the following:

(a) a chief compliance officer (Indian citizen and managerial personnel or senior employee of the entity) responsible for ensuring compliance with applicable law and for observing due diligence on third-party information;

(b) a nodal contact person (Indian citizen and employee of the e-commerce entity other than the chief compliance officer) responsible for 24×7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions made under applicable law;

(c) a resident grievance officer (Indian citizen and employee of the e-commerce entity).

Upon receipt of a complaint, a grievance officer is required to acknowledge its receipt within forty-eight hours and redress it within one  month  from the date of receipt of the complaint. While the existing rules only required an appointment of a nodal person, and compliance with the Information Technology (Intermediaries Guidelines) Rules, 2011 to afford intermediary liability protection under the Information Technology Act, 2000, the present regime would require an e-commerce entity to establish a dedicated in-house compliance team that actively monitors consumer complaints, thereby restricting scope for outsourcing the same. This compliance team would operate separately from the compliance team constituted under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, which also require grievances (i.e., beyond consumer complaints) to be acknowledged within twenty-four hours and redressed within fifteen days from the date of receipt of such grievance.

(iii) Additional compliance re imported goods: The Amendment Rules require e-commerce entities importing goods or services into India to provide comprehensive information about the seller and country of origin of the product, as well as display information regarding the origin of goods at the pre-purchase stage along with suggestions of India-manufactured alternatives, to ensure a fair opportunity for domestic goods. E-commerce entities are also required to add a ‘filter’ feature on their website for displaying India-manufactured goods. While this provision aims to encourage the government’s “Make in India” programme, entities will be required to significantly revamp their website to include domestic products in comparison to the imported goods.

(iv) Dissemination of information: Every e-commerce entity is required to provide information under its control or possession, or assistance to government agencies, within seventy-two hours of receipt of such order. However, the Amendment Rules are silent on the nature of information or control that an e-commerce entity is anticipated to exercise. Given this, e-commerce entities will be required to compile and store all information received from its users, and retrieve such information in a short time. Such companies may consider using cloud services or the like to meet the aforementioned requirements, subject to compliance with Indian data localization norms.

(v)   Specific compliance by a market-place entity: Every market-place entity is required to ensure that its related party and its associated enterprise are not listed as a seller on its platform. While ‘related party’ has been interpreted as per the Companies Act, 2013, the definition of an ‘associated enterprise’ of a market-place entity is broad enough to include any enterprise which in any manner is connected to the market-place entity, therefore posing a challenge on the market-place entity or group entities to float its own brand on its platform.

Compliance Burden and Road Ahead

While the proposed amendments have gathered a lot of attention on some of the key changes, they are still in draft stage, with the government considering public comments. In whatever form the amendments are finally released, e-commerce entities need to be mindful of, and start preparation for, the compliance burden that the amendments impose. E-commerce entities will have to maintain adequate resources to track compliance on a day-to-day basis, as well as appoint advisors to sign off on compliance with the rules, in order to avoid being caught on the wrong side of the law accidentally.

Authors:
Pranav Atit, Partner
Rachana Rautray, Senior Associate
Mansi Jain, Associate

 

Date: August 17, 2021