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Will buying online continue to be a ‘steal’? India’s Draft E-Commerce Rules weigh in

In its anxiety to bring about some parity between the e-commerce giants and their brick-and-mortar counterparts, the Ministry of Consumer Affairs, Food and Public Distribution (“Ministry”) has floated the draft Consumer Protection (e-commerce) Rules, 2019 (“Draft Rules”) under the Consumer Protection Act, 2019. The Ministry sought comments from stakeholders on the Draft Rules by December 2, 2019. Once notified, e-commerce entities have to comply with the conditions laid down in the Draft Rules within 90 days.

In the last few months, the Government has undertaken a slew of measures to regulate the e-commerce industry keeping in mind the wide reach and impact of these platforms. The FDI Policy in e-commerce forced online entities to tweak their business plans and become pro-consumer. The Draft E-commerce Policy released in March 2019 also accords top priority to consumer interest. Similarly, the Draft Rules impose a host of obligations on e-commerce entities as well as the sellers registered on e-commerce platforms.

We have discussed below some of the salient features of the Draft Rules.

Predatory Pricing

We often come across deep discount sales by e-commerce giants such as Flipkart and Amazon offering branded merchandise at throwaway prices. This practice of offering products at low prices, which local vendors cannot compete with, is known as predatory pricing. Conceptually, marketplaces are not allowed to exercise control over the prices of the products on their platforms including on the matter of discounts. However, the big players in the industry do have a significant say in deciding product prices and end up financing the discounts offered by sellers. For instance, e-commerce entities recommend discounts to the sellers registered on the platform but don’t force them to adopt these prices. The sellers, however, end up keeping these suggested prices because the platform finances the discounts. These discounts offered by the e-commerce giants have a direct impact on the business of the physical stores, which are fighting the battle of their lives against the deep-pocketed online retailers.

To deal with this issue, the Government has time and again, at the insistence of small traders, issued warnings to e-commerce entities to stop such unfair trade practices. The Draft Rules reiterate the stance of the Government and prohibit e-commerce entities from directly or indirectly influencing the price of the goods or services and direct them to maintain a level playing field.

A similar concern can also be seen among the anti-trust agencies of the EU and the US. In fact, Amazon is already under the radar of these agencies for its alleged anti-competitive behavior.

Fake Reviews and Advertisements

The prevalence of “fake reviewers” is at an all-time high. The reviewers post fake reviews about products they have never tried in return for rewards. These reviewers compromise the customer’s trust in the product and lower the quality of the shopping experience. The Draft Rules vaguely address these concerns by prohibiting e-commerce entities from posting reviews about goods and services in their name. Recognizing the high stakes in ensuring the authenticity of reviews, e-commerce companies often take steps to blacklist accounts of fake reviewers and penalise sellers for engaging in fraudulent reviews.

Fake advertisements also add to the turmoil of e-consumers. To attract consumers, online portals regressively use advertising and promotions. However, this has led to an increase in misleading advertisements and claims with regard to quality, quantity, services, prices and discounts on products. Recently, the Advertising Standards Council of India’s Consumer Complaints Council (“CCC”) ruled that Flipkart’s advertisements claiming ‘100% original products’ are misleading by exaggeration. Similarly, the CCC also ruled that OLA Cab’s claim for ‘OLA Micro @ Rs6/km’ was found to be misleading by omission and not substantiated. In order to keep these fake ads in check, the Draft Rules require the e-Commerce platforms to ensure that the advertisements for marketing of goods or services are consistent with the actual characteristics, access and usage conditions of such goods or services.

Am I Buying Fake?

The e-commerce industry has also been grappling with the challenge of counterfeit products. These goods don’t just harm the goodwill of the legitimate brands but are also harmful to consumers. Brands like Sketchers and Ray-Ban have dragged e-commerce giants to the courts for allegedly selling counterfeit versions of their products. In October 2018, India’s drug regulator issued notices to Amazon and Flipkart for allegedly selling “spurious and adulterated” cosmetics including imported brands. Surveys reveal that every one out of three online shoppers has at some point received fake products while shopping online.

Recognizing the risk of sellers tricking customers, the Draft Rules require the sellers to make thorough disclosures under applicable consumer laws so as to protect consumers from new forms of unfair trade and unethical business practices. Further, sellers must clearly mention safety and healthcare warnings of the goods. The e-sellers must also provide a shelf life (the span of time that a commodity may be stored and be fit for use) that is equivalent to the goods purchased by consumers from mom and pop stores.

The Draft Rules go one step further in safeguarding the interest of consumers and provide that if the e-commerce entity is informed about any counterfeit product being sold on its platform, it must take down the listing and notify the consumers of the same after undertaking thorough due diligence.

Delivery and Return Policy

The key differentiator between an e-transaction and a store purchase is that the latter allows a customer to feel and touch the goods. On e-commerce websites, consumers often end up buying a product merely because they find it eye- catching when they view it on the screen. Ultimately, when the product arrives at their door step, the customer might not be satisfied with the product. There have also been instances of delivery of faulty goods such as a bar of soap instead of a smartphone, a brick instead of a laptop, etc.

To deal with these challenges, the Draft Rules provide that e-commerce entities must accept the return of defective or spurious goods and refund must be processed within a maximum of 14 days. Although most e-commerce entities already have their specific return and refund policies in place, once the Draft Rules come into force these policies will have to be aligned with the law.  

Similarly, the Draft Rules also require the sellers to be upfront about exchange, returns, refund policies and also take responsibility for the warranty/guarantee obligations of the goods and services sold.

Who can I complain to?

Government statistics reveal that e-commerce companies led by Flipkart topped the list of consumer complaints received on the government’s national helpline. Most complaints against e-commerce companies relate to spurious products, problems in exchange and delayed delivery. To address this growing concern, e-commerce entities will now be required to establish a robust mechanism to facilitate registration of grievances by customers. The Draft Rules provide a fixed timeline for such complaint redressal and ask e-commerce platforms to appoint grievance officers in this regard.

Conclusion

The Draft Rules are definitely aimed at advancing fair competition, safeguard consumer interest and bringing in transparency, impartiality and accountability. The Draft Rules are also in line with the Recommendations of the Council on Consumer Protection in E-commerce adopted by the US Federal Trade Commission.

The Draft Rules put the intermediaries directly in the line of fire by imposing a number of additional liabilities on them. E-Commerce platforms such as Amazon, Flipkart and  Snapdeal that are essentially protected by the safe harbour provisions (intermediaries cannot be liable for any third-party information, data or communication link made available or hosted) will now need to set up elaborate mechanisms to protect the consumers from the malpractices of the sellers registered on their platform.

The issue of deep discounting is surely a big conundrum of the e-commerce industry. Although the traders’ associations may have a lot to cheer about in the Draft Rules, consumers will not be too happy about letting go the opportunity to acquire merchandise at throwaway prices. Moreover, the provisions prohibiting e-commerce entities from influencing prices of goods are ambiguous and open to interpretation. It will be the duty of the Government to ensure that e-commerce entities follow the rules, when enacted, not only in letter but also in spirit.

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