To balance out the regulation of online market with offline market practices, the new Consumer Protection (E-Commerce) Rules, 2020 were introduced. The draft rules have recently gone through several amendments in accordance with the comments and suggestions received in 2020. The draft rules have been released to the public once again with amendments for further suggestions and recommendations.

The rules lay down definitions for several undefined terms such as “e-commerce” and “marketplace e-commerce entity”. A “platform” is defined as an “online interface in the form of any software, including a website and applications including mobile applications”. This definition would bring businesses that have built their clientele on social media platforms such as Instagram or independent selling applications into the fold.

The rules provide for a ‘fall back liability’ for e-commerce marketplace, according to which the platform will be held liable if the seller listed on the platform fails to deliver any product to the consumer. The provision increases the liability of the intermediaries which has been objected by several companies. The rules are also to be read in consonance with the Consumer Protection Act, 2019.

Flash sales by e-commerce platforms are also prohibited under the rules. The rules bring logistics providers under its jurisdiction as well, which puts in place entry barriers for new platforms. The rules make it mandatory for every platform to establish a grievance Redressal mechanism and appoint a resident grievance officer, nodal contact person and a chief compliance officer. Mandatory registration with the Department for Promotion of Industry and Internal Trade [DPIIT] has also been included in the new provisions. The necessary registration with DPIIT will be applicable on entities that are already registered with the Ministry of Corporate Affairs [MCA] too which would ultimately lead to duplicate compliances.

The objective of these rules was stated as trying to bring equality in the online and offline marketplace, safeguard the interests of consumers and provide an accountability model for e-commerce platforms. However, a bare reading of the new rules clearly depicts the motivated discrimination between businesses functioning on inventory model and on the marketplace model. Several provisions of the rules step into the jurisdiction of other legal fields such as data protection and competition. These provisions may lead to creating more ambiguity, confusion, and chaos. Several provisions do not provide much needed clarity on what the regulations would entail and what will be the consequences of non-compliance.

The impact of the rules is likely to be multiple fold on the small business that do not have the capability to adhere to these compliances. In a market environment where the government has promised to streamline and lighten the weight of compliances over enterprises; the new rules fall short on this promise as they increase the complexity of compliances.  

Several institutions have expressed their concern over the rules and stated that they would lead to inaccessibility of the market to small and medium enterprises. SME industries have time and again put forth the drawbacks of the rules. These concerns were raised before the Prime Minister and other Cabinet members. It has been suggested in the industry that rather than putting restrictions in the guise of regulation on the growing e-commerce; advantage of the opportunities should be taken by proper administrative regulations.  

The MSME industry as a whole has raised several concerns over the draft rules which may lead a halt on the growth of the industry. The setback faced by almost every business due to the pandemic makes the arrival of these rules even more daunting. E-commerce has proven to be the only savior for businesses and consumers during the pandemic. The restrictive rules will hamper the growth of businesses that was provided by the safe haven of e-commerce.   

The eco-system of selling goods directly [Direct-To-Consumer or D2C market] to the consumer can receive massive disruption due to these rules. In times when economic growth is much needed in the wake of the pandemic and lockdowns, the restrictive regulations may prove detrimental to the economy. Whereas, on the other hand, lack of regulation may hamper the growth of the sector as well. Therefore, a balanced approach is needed while finalizing the draft rules.