Regulating e-commerce: Do we see oversight or an overdose?

By Karan Chandhiok and Lagna Panda, Chandhiok & Mahajan

The Ministry of Consumer Affairs, Food and Public Distribution recently proposed amendments to the Consumer Protection (E-commerce) Rules, 2020 (rules). The rules came into force in 2020 and were framed under section 101(2)(zg) of the Consumer Protection Act, 2019 (CPA), which empowers the government to take measures “to prevent unfair trade practices in e-commerce, direct selling under section 94”. Various terms and phrases used in the proposed amendments are vague and lack clarity, and some proposals not only go against consumer interests such as banning flash sales, but are ostensibly beyond the mandate of the parent legislation – the CPA.

Karan S. Chandhiok, Partner, Chandhiok & Mahajan
Karan S. Chandhiok
Chandhiok & Mahajan

Section 2(47) of the CPA, which defines unfair trade practices, and section 94 of the CPA demonstrate that the objective of the CPA is protecting the interests of end-consumers. What is worrying is that the proposed amendments do not aim to protect consumer interests, but protect the commercial interests of sellers on e-commerce marketplaces. They prohibit e-commerce marketplaces from selling goods or services to sellers registered on their platforms; logistics providers from offering differential but objectively justified treatment to sellers, and e-commerce marketplaces from advertising sellers offering subsidised sales, which are some of the proposed amendments that have no relation to consumer protection.

Proposed rule 5(12) states that e-commerce marketplaces have to disclose both the name of the provider of cross-selling data and the data used for cross-selling made available by the provider. E-commerce marketplaces use cross-selling to show users products that are related to the products they have purchased or are interested in purchasing. Cross-selling data in the possession of e-commerce marketplaces would be proprietary and commercially sensitive. It is unclear how disclosure of such data would benefit consumers or protect consumer interests.

Proposed rule 6(5) would require logistics service providers of an e-commerce marketplace to provide description of the differential treatment offered to sellers in the same category. However, no clarification has been provided as to what “same category” means. Disclosure of such commercially sensitive information has no direct bearing on consumer protection. Further, the proposal does not consider the fact that e-commerce marketplaces may work with third-party logistics providers, and there may be no direct commercial arrangements between sellers and logistics services providers.

Lagna Panda, Managing associate, Chandhiok & Mahajan
Lagna Panda
Managing associate
Chandhiok & Mahajan

Aside from the concerns highlighted above, more worrying is the apparent conflict between, and overlap of, the proposed amendments and the Indian competition law regime. Proposed rule 5(17) states that an e-commerce marketplace having a dominant position shall not abuse its dominance. The Competition Act, 2002, has been in force since 2009 and gives statutory power to the Competition Commission of India (CCI) to examine whether an enterprise has abused its dominance. In the exercise of its rule-making power, the central government cannot act beyond the mandate of the CPA and encroach on the statutory powers of the CCI.

Proposed rule 5(7)(c) states that e-commerce players should “provide ranking for goods and ensure that the ranking parameters do not discriminate against domestic goods and sellers”. E-commerce players already offer a number of parameters, based on which users can sort search results. Obligating e-commerce marketplaces to rank goods offered on their platforms by third-party sellers would only distort the level-playing field among sellers.

Proposed rule 6(8) seeks to prohibit e-commerce players from advertising sellers offering subsidised sales. This proposal is likely to reduce price competition among sellers operating on different e-commerce platforms, and has the potential of not only having an appreciable adverse impact on competition but also reducing consumer welfare.

Market studies estimate that the Indian e-commerce industry will grow significantly in the next two three years. Fidelity Information Services estimates that the Indian e-commerce industry will be worth USD111 billion by 2024. While the intention of introducing the proposed amendments may be to bring greater transparency to the e-commerce industry, this may come at the cost of reversing India’s e-commerce growth story.

Karan Chandhiok is a partner and Lagna Panda is a managing associate at Chandhiok & Mahajan

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