By: Archita Sharma
E-commerce has revolutionised the way consumers interact with sellers to purchase goods and services. The industry is expected to rise to nearly $200 billion in size by 2026. So as to regulate the growing e-commerce network and protect consumer rights, the government issued the (hereinafter ‘E-commerce Rules, 2020’) in July 2020. Within a year, the government also came out with proposed amendments to the E-Commerce Rules, 2020 (hereinafter ‘proposed amendments’) and invited comments from various stakeholders. The aim was to curb unfair trade practices, protect consumer interests and increase consumer welfare. Currently, the rules are yet to be notified.
Through this article, the author analyses two ambiguous provisions of the amendment rules i.e., ranking of imported products and liability for the logistics service provider. Thereafter, the author states the regulatory overlaps of the amendment rules with the Competition Act, 2002 and complications arising as a result of that; and finally, concludes that if the said amendments are implemented as they are, they could harm both business interests and consumer welfare alike.
RANKING OF IMPORTED PRODUCTS
The proposed amendments impose a duty on e-commerce entities to rank imported goods available on their platform. The ranking is defined under Rule 3(n) as the “relative prominence or relevance given to the goods or services offered through a marketplace e-commerce entity as presented, organised or communicated by such entity.” Rule 7(c) also mandates that ranking parameters must not be discriminatory towards domestic goods and sellers. A combined reading of the rules indicates that each e-commerce entity is free to decide its own parameters. However, the rules do not clearly define what should and should not be included in these ranking parameters. This can give rise to multiple problems.
First, the entire concept of ‘ranking’, according to the current definition, comes down to meaning that e-commerce entities will be displaying one product as relatively better than the other. In the absence of a given set of parameters in the rules, each e-commerce entity will come up with its own ranking criteria. This leaves no mechanism to determine whether the parameters were objectively decided or not. As a result, the entire exercise of ranking imported products would become highly subjective.
A direct consequence of such subjectivity will be situations where different e-commerce websites rank the same set of products differently. This can be disadvantageous for consumers because they may lose out on genuinely good products merely because it has been ranked low by an e-commerce website. Sellers with better quality products may also simultaneously lose if an e-commerce website gives a poor ranking to their products based on their subjective parameters. Instead of simplifying consumer choices, the practice would complicate them. Differential ranking on various websites will lead to unnecessary manipulation of consumer choice with respect to the purchase of products.
Second, the proposed amendments simply state that the ranking parameters should not discriminate against domestic goods. They do not, however, specify what would constitute discrimination against domestic goods. This brings grave ambiguity and uncertainty to the rule. It restricts the ease of doing business by putting e-commerce entities under constant fear of potential violations of the rule. The ambiguity might also force e-commerce platforms to highlight domestic goods to prevent unintentional cases of liability. In such instances, the consumers would lose out on better products simply because domestic goods have been given undue preference in ranking. Additionally, since the proposed amendments provide no mandatory requirements for parameters, it will be difficult for an e-commerce entity to justify its parameters and show that they are not discriminatory.
The subjective exercise has the potential to negatively affect both consumer and business interests. Therefore, the government should come out with detailed provisions defining ranking and discrimination to resolve the ambiguities or drop the provision altogether.
LOGISTICS SERVICE PROVIDER RULE.
Rule 6(5) of the proposed amendments provides that “no logistics service provider of the marketplace e-commerce entity shall provide differentiated treatment between the sellers of the same category.” According to the explanation given to the rule, the logistics service provider would include rail, water, road transport, cold storage, cargo transport, port terminals or similar services.
To extend the liability of an e-commerce entity for the conduct of its logistics service provider is extremely onerous for three reasons. First, practically it would be very difficult for an e-commerce entity to keep a check on the activity of each of its logistics service providers in the supply chain.
Second, the compliance cost entailed in ensuring that logistics service providers do not violate the rule will be enormous. The amendments fail to distinguish between e-commerce entities based on their size and market power. In this case, the compliance cost will severely affect the efficiency of small scale platforms. Emerging start-up e-commerce entities will have difficulty tapping into the market, which could restrict the growth of potential competitors to existing e-commerce giants.
Third, the phrase ‘sellers of the same category’ have not been used in the Consumer Protection Act, 2019. It was introduced in the E-commerce Rules 2020 and further used in the proposed amendments. However, the definition for the same has been given in neither the E-commerce Rules, 2020 nor the proposed amendments. As these rules are fairly recent, there is a lack of authoritative judicial pronouncement as to which sellers are considered to be of the ‘same category’. The question of whether ‘sellers of the same category include sellers of the same products or complementary products or related goods remains unanswered. Apart from products, the question of the same category based on factors such as geographical extent, size, etc. also remains unanswered. This is another instance where the rules lack clarity and leave space for multiple interpretations.
Such a provision must be dropped from the draft amendments in order to ensure a level-playing field for all entities in the market and enhance consumer choices in the long run.
OVERLAP WITH COMPETITION LAW
Consumer Protection Law aims to uphold consumer rights and provide speedy redressal of grievances. It regulates the interaction between consumers and sellers. The Competition Act, 2002, on the other hand, works to ensure that there is healthy competition in the market where no player indulges in practices that impede competition, and restrict consumer choice. They do so by regulating the interaction among different sellers in the market. Even though both laws work towards increasing consumer welfare, they regulate separate domains and use different mechanisms.
In light of this, Rule 5(17) of the proposed amendments, which reads “No e-commerce entity which holds a dominant position in any market shall be allowed to abuse its position”, unnecessarily enters the domain of competition law. The Competition Commission of India (hereinafter ‘CCI’) has the expertise in adjudicating issues relating to abuse of dominant position under the Competition Act, 2002. To unnecessarily burden consumer forums in dealing with the issue they do not have expertise in will negatively affect adjudicatory proceedings and hamper consumer interests. Additionally, the Competition Act, 2002 prohibits any court from discussing matters that are in contravention of the same. This clash has not been addressed in the draft amendments and if implemented as it is, the amendments will bring in a procedural conundrum. The ambiguity and confusion might open a floodgate of litigation and consequently, delay the adjudication process. This goes against the fundamental intent behind the Consumer Protection Act, 2019 which was to simplify the adjudication process for the consumers and speed up consumer justice.
Another clause that unwisely imports aspects of competition law is Rule 5(16) which reads, “No e-commerce entity shall organise a flash sale of goods or services offered on its platform.” The clause puts a blanket ban on flash sales when the CCI is still in the process of investigating the impact of these practices on consumer choices. The current competition law position in India intends to look into such practices on a case to case basis. This is because, while such practices can have the impact of threatening competition, they also in many instances increase consumer welfare by providing goods at extremely cheap prices. Therefore, the assumption of proposed amendments that all instances of flash sales limit consumer choice is faulty. Implementing this amendment, without waiting for the CCI’s report on the issue of flash sales, will be a precocious move with the potential of harming consumer satisfaction.
In order to prevent the rules from having an adverse effect on consumer welfare, it is imperative that the exact definition of words is provided and provisions overlapping with competition law are removed. In the current state, less discussed provisions such as ranking and logistics service providers put an excessive burden on e-commerce platforms. They, directly and indirectly, work against consumer welfare and should be accordingly amended or dropped.
(Archita is a law undergraduate at National Law School of India University, Bengaluru. The author may be contacted via email at firstname.lastname@example.org)
Cite as: Archita Sharma, ‘Proposed Amendments to E-Commerce Rules, 2020: Lack of Clarity and Judicial Overlaps’ (The RMLNLU Law Review Blog, 12 April 2022) <https://rmlnlulawreview.com/2022/04/12/proposed-amendments-to-e-commerce-rules-2020-lack-of-clarity-and-judicial-overlaps/> date of access