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Harnessing the Digital Giants

As in the case of the new IT rules—aimed at controlling social media majors Facebook, Twitter and WhatsApp, as well as digital news portals like The Wire, Scroll and The Quint—the objective behind the draft e-commerce rules is shadowing.

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By Shivanand Pandit

To design the strict structure under which firms function, the government has suggested changes to the electronic commerce rules under the Consumer Protection Act 2020. The amendments, suitably underlined using track modifications, go beyond boosting consumer protection per se. The aim appears to be to control dominant players and the government has decided to tighten its rules of e-commerce, taking on overseas titans, such as Amazon and Flipkart-Walmart, in particular, with implications for national retail majors namely Reliance. Nevertheless, numerous industry experts are of the opinion that the new e-commerce draft rules as announced by the government will influence a widespread variety of companies, across sectors, comprising the likes of Swiggy, Zomato, BigBasket, Ola, Uber and several others, raising their compliance burden.

The proposals take birth at a time when big e-commerce marketplaces, such as Flipkart and Amazon India, are being examined by the Competition Commission of India (CCI) for suspected misuse of market supremacy and giving preferential treatment to sellers in the segment wherein they hold indirect stakes. The CCI investigation also concentrates on deep-discounting exercises being carried out by e-commerce marketplaces, which have led to grievances from offline vendors. In June 2021, the Karnataka High Court dismissed Flipkart and Amazon India’s appeal challenging CCI’s inquiry, stimulating the firms to appeal the order at a Division Bench of the Court for relief.

Although many new provisions in the new e-commerce draft rules are similar to what the government applied for social media companies through the Information Technology (Intermediary Guidelines and digital Media ethic code) Rules, 2021, stated earlier this year, quite a few propositions are targeted at raising accountability for online retailers for goods and services purchased on their platforms. Primarily, the draft regulations published by the consumer affairs ministry seek to clearly prohibit “specific flash sales” or deep discounts offered by e-commerce firms. However, regular e-commerce flash sales are not forbidden. Flash sales or back-to-back sales which constrain customer preferences, enhance prices and avoid a level-playing field are not permitted. Such sales, accompanied by discounts that contain huge losses, are implemented by e-commerce giants to attract consumers to their marketplaces and offered on products and brands in which they have an interest.

Though prohibiting flash sales may be appropriate to markets where many e-commerce units follow this practice, it will probably hurt the inventory of those units. Moreover, as per the new e-commerce draft rules, such sales need to be organised fraudulently intercepting ordinary course of business using technology to enable only certain sellers or sellers controlled by the e-commerce firm to carry out sales. The most troublesome parts are the non-existence of metrics for what would comprise “fraudulent interception” and “ordinary course of business”.

The new e-commerce guidelines have also stated the concept of “fall-back liability”, which mentions that e-commerce entities will be held responsible in case a seller on their platform fails to supply goods or services, resulting in loss or damage to the customer. Customers will now be able to reach out to the platform itself, instead of contacting respective sellers to solve any problem.

Responding to a long-lasting demand from sellers and merchants to stop special treatment to specific platforms, the government has proposed multiple provisions whereby e-commerce firms should not mislead or misrepresent to users. However, it is hard to identify what could be interpreted as manipulation and whether search result or index certainly misinforms a customer. In addition, “mis-selling” has also been announced as a banned action, based on intentional falsification of information to the consumer. But the definition of the term “mis-selling” creates an absolute pressure of compliance of a difficult-to-observe standard and its usage also looks contrary to the concept of “deliberate misrepresentation”.

The rules also intend to control the usage of data obtained by e-commerce entities through their business operations. E-commerce companies will be restrained from making available to any person information relating to the consumer without specific and assenting approval. No entity shall record approval mechanically, including in the form of pre-ticked checkboxes. They should not employ information accumulated for sale of goods carrying an identification or trademark which is common with that of the market e-commerce enterprise if such systems amount to biased trade custom and imposes on the welfares of consumers.

While the intention here appears to be to safeguard confidentiality and check prejudicial competition utilising information gathered through e-commerce operations, the rules offer privileged access to the government to the data. The rules specify that as soon as possible, not later than 72 hours after receiving the order, every e-commerce entity shall offer information under its control or ownership, or support to the government organisation which is legally allowed for inspective or defensive or cyber security happenings, for the intention of verification of identity, or for the stoppage, uncovering, inquiry, or examination, of crimes under any law for the time being in force, or for cyber security events. As in the case of the Information Technology regulations targeted at controlling social media majors, such as Facebook, Twitter and WhatsApp, as well as digital news portals like The Wire, Scroll and The Quint, the objective here is shadowing.

There are a multitude of notable obligations that are recommended for a marketplace unit. As per the rules, any online retailer will primarily have to register itself with the Department of Promotion for Industry and Internal Trade (DPIIT). The rules suggest that no logistics service provider of a marketplace e-commerce entity shall offer distinguished action between sellers of the similar group. Taking on from the DPIIT’s foreign direct investment policy for e-commerce marketplaces, parties and associated firms linked to e-commerce corporations will not be permitted to be enrolled as sellers on the respective platforms. While the limitation of B2C supply is logical, there is a clear discrepancy in defining “related party”.

The enterprises have also to guarantee that their related parties or associated units do nothing that the enterprise itself would not be allowed to do. Probably this will have consequences on cross-border business models and accomplishment of FDI stipulations. They will have to confirm that marketplaces do not utilise any information assembled via their platforms for the unfair advantage of their own connected enterprises. For instance, Nyakaa, an e-commerce company, cannot use the data it gathers through its platform to supply its own products. Likewise, Amazon has a private label called “Solimo”, and as per the new regulations, it cannot endorse “Solimo” over other brands selling same material.

The guidelines additionally mention that e-commerce firms will now have to send a notification and recommend “alternatives” before products are bought by consumers to give a reasonable prospect to goods manufactured in India. They will not only have to grade goods, but also introduce an outline so that the grading does not differentiate against domestic goods sellers. The government decided to tighten the “country of origin” standards for e-commerce players in a bid to push the sale of locally manufactured goods on their platforms. Entities argue that with such prohibitions, building a private label will be near impracticable.

Also Read: SCBA Bids Farewell to Supreme Court Justice Ashok Bhushan

As a final point, even though the purpose to generate a sharper governing atmosphere for e-commerce firms in the interest of consumers is evident from the draft amendments to the e-commerce rules, there is potential for business ambiguity and consumer inconvenience. The government has missed many points while framing the new rules.

It is ironic that in a year in which the e-commerce industry has been of so much use to households and has generated thousands of jobs and attracted foreign capital, the government wants to place more problems in its way. The draft rules may have their heart in the accurate position, but they warrant finetuning before implementation. Several stakeholders, such as inventory and marketplace e-commerce establishments, logistics firms and consumer bodies, are communicating their views to the concerned ministry in this respect and this would go a long way addressing the grey areas.

—The writer is a financial and tax specialist, author and public speaker based in Margao, Goa

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