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Draft E-commerce Rules: Who Benefits?

While there is a lot of discretion with the government, there is going to be a lot of discretion with the consumer as well.

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The Government of India earlier this month had announced draft e-commerce rules which drew heavy flak from a large number of stakeholders involved. While its viability is still under contention, it will be worth seeing who the beneficiaries will be, and what does the legal eye have to say about it. 

What are these rules? 

The biggest point of contention has been the ambiguity around flash sales. As per Ministry of Consumer Affairs, the rules have not banned flash sales outright. However, ‘back-to-back sales’ or those ‘which limit customer choice, increases prices, and prevents a level playing field are not allowed’. While the final law is yet to be passed, this statement by the ministry has grabbed eyeballs 

The e-commerce portals will also be privy to ‘fall-back liability’, that is they are liable if a seller fails to send a product or supplies a defective item to the customer. Further, the platform will not be able to manipulate search results for consumers based on their in-house algorithm. This will prevent favouritism of certain sellers which pop-up as the first choice when we search for specific products on these platforms. To further facilitate the customer, a grievance redressal officer will be mandatory. 

In addition, the consumer data cannot be recorded or shared without consumer consent. The consent is not allowed in the form of pre-ticked boxes, which people tend to overlook while signing in. Also, these platforms will have to provide domestic alternatives to imported goods, thus giving a push to the government’s Made In India initiative. The platforms will also have to mandatorily become a part of the National Consumer Helpline.  

Does it make economic sense? 

Prima facie, the rules seem to be protecting the consumers. However, it has a cascading impact on the sellers. The initial idea totted by the government with the aim to give an equal platform to all the small e-commerce businesses and not just giants like Flipkart or Amazon. For instance, if specific products from specific sellers only are going for sale, then that will be mellowed down. This will create an equitable playground for all retailers, while giving consumers the freedom of choice to purchase from whichever seller they deem suitable.  

The offline and local retailers have been vocal about how the e-commerce companies are eating into their market. They have earlier pushed for tighter FDI rules and tighter e-commerce rules. However, given the Covid situation, we are yet to see whether the consumer will step out to purchase even if prices are at par with their online counterparts. The benefits of the rules are still only on paper. 

Further, a lot of these e-commerce giants are nervous about the massive bureaucratic activities they will have to participate in, thus taking their focus away from the main business. Some claim there is considerable overlap with existing laws, which can lead to confusion and duplication of effort. The burden on these platforms increases with the mandatory chief compliance officers they will have to appoint. Economically, it will increase compliance cost for these platforms. Also, not allowing retailers associated with the platform to sell on their portal is already being investigated by Competition Commission of India which can lead to a possible overlap with the anti-trust regulator. Also, this can impact Amazon as it holds a stake indirectly in Appario and Cloudtail, two of its main sellers. This will also impact Starbucks, a brand in which the TATA group India holds partnership. If implemented, they will not be able to sell the Starbucks products on their website. Lastly, when it comes to handling consumer data, there is already a Draft Consumer Protection Bill in the picture. 

Supporting this stance, Rahul Goel, Partner, AnantLaw, says, “The draft rules require the establishment of a grievance redressal mechanism, which is like the one prescribed under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. This is highly likely to lead to overregulation of the e-commerce platforms which also fall under the definition of intermediaries and will have to incur high compliance costs.” In addition to compliance costs, over-regulation might also harm the freedom of these platforms, leading to a disincentive for these giants to operate in India. 

The lack of clarity on what defines a ‘Flash Sale’ has left e-commerce giants in flux, making it difficult to continue business as usual. This might also have a negative impact on small businesses and MSMEs trying to sell their products on these platforms and gain profit during these sales. However, the government is yet to clarify the who and what of these new rules objectively, until which there will be some amount of confusion. Holding similar views, Kanika Chaudhary, Partner at L&L Law Partners says, “The current version of the draft regulations does create certain ambiguities. For instance, the inclusion of a related party in the definition of e-commerce entity could lead to disputes over the interpretation of the intermediary guidelines that have so far acted as a buffer for all the e-commerce platforms. Similarly, the introduction of the abuse of dominance clause, could potentially create an overlap among the roles to be played by regulatory authorities which could lead to jurisdictional disputes.”  

Further, some experts believe the rules are anti-consumer, given that customers purchasing at a discounted rate will miss the benefits, although they are allowed to do so in an offline market. Ironically these rules are under the Consumer Protection Act while some say it is consumer agnostic.  

However, before we draw a blanket conclusion about who it benefits, it is necessary to acknowledge the fact that a lot depends on the spirit in which these rules are implemented and implemented eventually. While there is a lot of discretion with the government, there is going to be a lot of discretion with the consumer as well.  

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