On 15 May, the Secretary to the Ministry of Consumer Affairs stated that the government plans to introduce new rules on e-commerce under the Consumer Protection Act, or CPA, 2019. These proposed rules will build on previous efforts to regulate the sector, such as the E-Commerce Rules 2020 and the 2021 draft amendments to the E-commerce Rules. However, framing them will be easier said than done as there are several hurdles along the way. These include the absence of definitional clarity on the scope of the rules, imposing fallback liability on e-commerce marketplaces and overlapping compliance regimes.
Absence of definitional clarity
The CPA imagines a broad scope of e-commerce, which is defined to include “digital products”, that, in turn, are left undefined. Colloquially, digital products can encompass any range of things, from video-on-demand to software as a service. While no domestic legal instrument defines digital products, India’s Comprehensive Economic Cooperation Agreement with Singapore uses the term expansively and includes computer programmes and other digitally encoded products.
The proposed rules should remove the duplication of unnecessary compliances and reflect the reality that e-commerce is a complex mix of digital and physical worlds. For instance, online gaming is currently regulated by the Ministry of Electronics and Information Technology. If a user has a complaint about refunds on deposits made in an online game, she can approach the Grievance Appellate Committee, the dispute resolution mechanism created under the Information Technology Rules 2021. Simultaneously, the CPA allows users to approach the District Consumer Redressal Commissions to resolve their problems.
Fair trade and fair algorithms
Governments around the world are also increasing regulatory scrutiny of business-to-business (B2B) arrangements and agreements in e-commerce, and India is no different. For instance, the E-Commerce Rules 2020 require these marketplaces to disclose preferred relationships with their sellers.
Similarly, the government considered rules to enhance fairness and transparency in search and ranking algorithms for e-commerce last year. The Telecommunications Engineering Centre has also set draft standards on fairness assessment and rating of artificial intelligence systems, which could also potentially apply to e-commerce. But since e-commerce algorithms are based on a combination of factors, including consumer demand and differentiated B2B relationships, mandates on fairness may have unintended consequences. For instance, intellectual property (IP) laws, like copyright and trade secrets, protect proprietary algorithms. Therefore, legal disputes will ensue if the rules mandate IP disclosure to assess fairness. Thus, it is essential to establish conceptual clarity on these issues before creating and introducing them within any rules for e-commerce.
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Fallback liability
The scope of e-commerce is not just digital; complex physical supply chains underpin it. Therefore, affixing liabilities of each node in these chains is a work in progress in India. Imagine a user who wants to buy a laptop from an e-commerce marketplace. The marketplace website provides access to all the sellers, and the user can choose from among them. In this scenario, the marketplace does not have an inventory of laptops; instead, it is just an intermediary for the user to get in touch with the sellers and facilitate the delivery of the product. Thus, if the product is defective, it is the sellers who should be held accountable. Conversely, if the marketplace were directly selling the laptops, then it would be liable for any defects.
Courts, too, have reaffirmed this stance, and marketplaces have been deemed intermediaries under Section 79 of the Information Technology Act. As a result, they are immune to any liability that might arise if the product is defective.
Several e-commerce businesses have liberal policies on the return of products and providing refunds to consumers. However, in India and across the world, this veritable race to win customer loyalty can have an adverse impact on the profits of these companies. The returns procedure often involves free pickups of products, as well as additional costs incurred on their logistics and storage, which the company bears.
The government has been planning to introduce a provision to hold e-commerce businesses liable for their sellers’ inability to provide goods and services since 2021. But imposing such a liability will create an overbroad obligation on businesses that do not deal in goods inventory. It would also breach the legal immunity granted to e-commerce marketplaces. Additionally, companies that are already finding it difficult to be profitable will be saddled with additional financial liabilities.
India’s digital ambitions are contingent on an enabling framework for e-commerce businesses that account for a large share of investments and job creation. The new discussions provide an opportunity to clarify legacy issues in a manner that will help promote innovation and protect consumers.
The author works at Koan Advisory Group, a technology policy consulting firm in New Delhi. Views are personal.
This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.
(Edited by Zoya Bhatti)