Consumer Protection Rules, 2020: A Conceptual Framework Towards Transparency In Digital Market

BY ANURAG MOHAN BHATNAGAR AND AMIYA UPADHYAY, THIRD-YEAR STUDENTS AT NLU, ODISHA

Introduction

With a vision to impede unjust trade practices in the e-commerce industry, immediate selling, and to safeguard the interest and the rights of the consumers, the Central Government has come up with Consumer Protection (E-commerce) Rules, 2020 (‘the Rules’). The Central Government has the authority to take certain actions to avert unfair trade practices in the e-commerce industry as under section 94 of the Consumer Protection Act 2019 (‘the Act’). The rules concerned, have been worked out as under the powers provided in section 101 (1) (zg) of the Act. One of the basic definitions that have come up under the new rules, include “e-commerce entity” that is, “any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity”.

Furthermore, the Central Government has also replaced a three-decade-old (1986) act with a new Consumer Protection Act 2019 which came into effect in July 2020. The present piece seeks to present a detailed analysis of the Rules including certain loopholes within the same, and the similarities or differences between competition laws (antitrust laws) and consumer protection laws. Further, the authors have also formulated a cross-jurisdictional analysis with USA and the European Union (EU).

Critical Analysis

The replaced Act lacked the vision to provide justice to the consumers and was time-consuming. As per the new Rules, the seller has to mandatorily show details such as price, information about refund/exchange, delivery, and shipment, grievance redressal, etc. The Rules also mention that the sellers cannot make unjustified profits by manipulating the price of the goods (rule 4(11) (a)).In the case of M/S Cargo Tarpaulin Industries vs Sri Mallikarjun B.Kori, the National Consumer Disputes Redressal Commission held that it is an offence to sell any good at a price higher than the current retail price of that good.

While, the report given by the Competition Commission of India (‘market study’) covered most of the difficulties faced by the consumers, it only comprised of objective facts with the end goal of research and did not establish an authoritative or a binding legal obligation. On the other hand, these rules not only legally bind the e-commerce platforms but also deal with major issues present in the market study such as platform neutrality and search rankings (rule 5 (3)(f)). Regulatory authorities have been strict about search rankings ever since they found Google liable in Matrimony.com Ltd v. Google LLC and Ors.

Platform neutrality means that e-commerce platforms cannot discriminate in favour of their services. For instance, Flipkart could not favour its products in the search rankings on its marketplace while demoting the other retailers on the platform. Thus, a platform cannot act as both a marketplace and a competitor on that marketplace. In Re: All India Online Vendors Association, Flipkart was alleged for leveraging its position as a marketplace to extend preferential treatment to WS Retail on its platform. Preferential treatment is accorded by numerous e-commerce players in India by marketing and selling products of their own subsidiaries, related parties or others. By doing so, the undertaking imposes dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at competitive disadvantage. Under rule 5(3), marketplace e-commerce entities are required to disclose any differentiated treatment which it is / maybe extending to goods, services or sellers of the same category. As such, the e-commerce platforms will need to disclose descriptions of practices like premium/preferred listing, skewed search results, sponsored deals etc. in the terms and conditions governing the relationship with the sellers on the platform. This will help in curbing such discriminatory profit-making practices.

Further, the Act aims to establish a Central Consumer Protection Authority (‘CAPA’), Disputes Redressal Commission, Central Consumer Protection Council. These bodies shall carry out investigations in certain matters about misleading advertisements, product liability, and unfair trade practices.

The Rules have also mapped out a grievance redressal system for complaints. Under the Rules, grievance is classified as any complaint with respect to violations of the Act or the Rules, made to any e-commerce entity. The Rules have made it essential for every e-commerce entity to appoint a nodal grievance officer, whose designation and contact information has to be displayed on its website. Further, it is essential for every e-commerce entity to certify that the appointed officer acknowledges the receipt of the complaint in 48 hours and furnish rectification of the same within 1 month from the receipt date. From the perspective of a consumer, the clause of “acknowledging the receipt” of the complaint will act as improving the transparency in the redressal system and obviously, a time-bound dispute redressal system will qualify as a righteous move.

Inter alia, other relevant duties of the e-commerce platforms include non-imposition of cancellation charges, explicit consent of consumers and effective refunding. According to the clauses under rule 7, e-commerce entities will not impose cancellation charges on consumers who cancel after confirming the purchase, unless the e-commerce entity is also bearing similar charges. Furthermore, the consent acquired from the customer while purchasing must be express and voluntary. In this way, the e-commerce entities will not under any conditions include pre-ticked boxes in consent forms. In addition, products and services will be taken back and refunds shall be given if there is an occurrence of defective, inadequate or bogus and counterfeit, or not at standard with or not of the characteristics advertised or when delivered late from the schedule, except if brought about by force majeure.

Relationship between Antitrust and Consumer Protection: Under One Umbrella

Prima facie, the objectives of both the legislations are quite similar as both deal contortions in the market place, which is driven by supply and demand. While the Competition Law ensures access to goods and services at competitive prices for consumers and averts illicit activities which could hamper an environment of healthy competition, Consumer Protection on the other hand, aims to safeguard the basic right of the consumers to be guaranteed access to diverse goods and services at competitive prices.

The relation between both the laws can be expressly witnessed in the Competition Act itself, as under section 4, “where an enterprise or a group shall be termed as abusing its dominant position if it limits technical development relating to goods or services to the prejudice of consumers”. A similar reference can also be seen in section 18 of the Competition Act whereby the “interest of consumers must be protected”. Thus, it can be reasonably argued that both the legislations ultimately support one another as two parts of an overarching unity, and that overarching unity is consumer sovereignty.

Loopholes and Criticism of the Rules

Rule 2 states that the Rules does not apply to a natural person where the activities are being carried out in personal capacity. The Rules should have included all the stakeholders within its purview to be qualified as an extensive piece of legislation. Secondly, the Rules could have mapped out a detailed rate list of the delivery charges, which the sellers charge on the e-market, which are often unnecessarily higher than what a common man would be willing to fork out. Thirdly, the malpractice of drip pricing has not been addressed. Drip pricing is an act where the seller consistently increases the price of the goods at different stages of online shopping till the final stage of payment. Lastly, the rules have surprisingly not included any legal structure other than a company, such as a limited liability partnership (‘LLP‘). This preclusion would definitely hamper many e-commerce entities which are functioning under different legal structure.

Furthermore, there are certain terms in the Rules which might create confusion or conflict such as “unjustified prices”, “arbitrary classification” and “unreasonable profits”. Arguably, clauses like “restricting access to sale/discounts on products/services” can be termed as arbitrary categorization since they affect the rights of consumers directly.

Cross-Jurisdictional Analysis

Before the Indian Ministry of Consumer Affairs, market research and examinations on the impact of digital marketplaces have similarly been carried out by consumer protection and competition law watchdogs of many other jurisdictions. Some of the noteworthy regulations introduced in other jurisdictions are as follows:

USA: The two agencies involved in online consumer protection in the US are the Federal Trades Commission (‘FTC’) and the Federal Communications Commission (‘FCC’). While the FCC reviews consumer complaints, the FTC investigates and takes actions against those involved in illicit trade practices. Previously, the FTC had released a dotcom disclosure guidance document in which it mentions that how intently it manages the structure and substance of information distributed in the online marketplace to prevent unreasonable or deceptive activities and protect the consumers from such practices. In any case, while the sectoral division of regulators may provide cures for that specific sector, it isn’t without its disadvantages, lack of co-operation between the regulators and overlapping decisions of authorities, just to name a few.

EU: The EU introduced new rules for consumer protection in January 2020. This initiative adopted by the commission urges more transparency on e-commerce marketplaces, same consumer rights for “free digital services”, better search rankings, transparency in customer reviews, customized pricing.  It also focuses on forbidding purchasing of tickets online through bots and encouraging honest discount claims. The directive also mentions levying penalties on those e-commerce platforms which violate these consumer rules, which is up to 4 percent of the platform’s overall turnover.

Conclusion

In an industry that is going through a phase of expansion and technological advancement, robust legislation such as the Act was the need of the hour. Certainly, the Rules can be considered as a step in the right direction. Even though some of the provisions of the Rules might be in contravention to the sellers but overall, these rules were needed because until now, there was no particular legislation that dealt with unconventional issues resulting from the e-commerce industry. Lastly, these Rules cover all the contemporary issues and act as much-awaited legislation governing the new e-commerce industry and shall aim to let out some uniformity in the market.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s