OP. ED.Practical Lawyer Archives

Introduction

For better protection of Indian consumers, the Central Government has enacted the Consumer Protection Act, 20191 (“the Act”) which came into force on 20-7-2020. The Act has ushered in wide range of consumer protection by broadening the ambit of market places like direct selling, e-commerce activities, online shopping and adding other required concepts such as product liability, unfair contracts, etc. In addition to these it also provides for the establishment of the Central Consumer Protection Authority2 (CCPA) that exercises its duty towards protecting the consumer as a class from unfair trade practices, misleading advertisements and regulating issues related to consumer rights. Thus, while executing its responsibilities, the CCPA on 4-7-2022 issued the “Guidelines to Prevent Unfair Trade Practices and Protection Consumer Interest with Regard to Levy of Service Charge in Hotels and Restaurants”, against the levy of service charges by restaurants/hotels with a view to tackle the alarming concern of forcefully imposing service charges on the consumers. Wherein the National Restaurant Association of India (NRAI) challenged such claims before the Delhi High Court on the grounds that the service charges are based on the restaurant policy and is not illegal or involves unfair trade practices in any manner. The opinion of the Associations about the said guidelines has been that it has no legal basis and rather than being a positive addition to the functioning of the hospitality industry, it will be detrimental to the establishments and its workers. As a result, the present article attempts to analyse the ongoing controversy and obtain an in-depth understanding pertaining to the legality of the issued guidelines.

Delhi High Court on levy of service charges by restaurants/hotels

The NRAI challenged the guidelines by CCPA in the Delhi High Court by filing a writ petition vide National Restaurant Assn. of India v. Union of India3. The guidelines have been put on a stay by order dated 20-7-20224, until the date of next hearing scheduled on 25-11-2022. For the time being, the Court directed that:

(i) it is the responsibility of the hotels/restaurants to prominently display on the menu card about the levy of service charge which shall depict the obligation of the consumers to pay accordingly; and

(ii) no service charge can be imposed on take away orders. In this regard, the Court sought responses from the Government (respondent in the present case).

Nonetheless, the decision by the High Court at present seems to be a preliminary order. In the light of which the guidelines have been stayed based solely on the petitioners’ contentions, referring expressly to two cases (Nitin Mittal v. Pind Balluchi Restaurant5 and S.S. Ahuja v. Pizza Express6) and two reports (Dewan Chaman Lal Committee, 19587 and Wage Board Notification, 1964) which are suggestive and are not in accordance with the present legal changes.

Legality of the guidelines

The primary objective and intention of the Government to regulate this domain has been explicitly articulated. It is noteworthy that this industry is completely dependent on the consumer demands and interests, wherein the default imposing of service charges which clearly hampers and violates consumer rights will tend to have a grave impact on the establishments in some way or the other. The levy of service charges is often being confused by the innocent consumers to be levied by the Government. Whereas, it is completely voluntary on the part of the consumers, but they end up paying for it either by being forced or by being muddled. This practice thus, results to be an unfair trade practice. On the other hand, the existence of the service charges in itself does not have any statutory backup, the contention posed by the NRAI was that it has been into practice since more than 80 years. But a particular practice even though if it has been a part of past functioning needs to be reformed if it is detrimental to the rights and leads to serious concerns regarding its legality.

First, it should be known that the Goods and Services Tax (GST) framework implemented by the Government is wide enough in nature to cover service charges. As depicted by the name in itself “services” are included in it and moreover, when Section 15(2)(c)8 of the Central Goods and Services Tax (CGST) Act, 2017 is viewed carefully it can be observed that it is broad enough to cover service charges.

Second, even though the Associations claim that the amount collected is being distributed among the staff, but there are high chances that it is not. This issue has been even brought up by the Central Board of Taxes9 which clearly depicts the lack of transparency and deceitful practice going under the shadow of “service charges”. Due to the absence of any rule with reference to the maintaining of records and any manner in which it is distributed, it is highly likely that the amount collected in the name of the staffs are directly being added to the profits of the establishments without even reporting it. Thus, these guidelines are not only in the interest of the consumers but also the employees associated to this industry. Furthermore, there are long line of cases that adds up to the fact that the price of food and services are very well included in the sale price for the foods/goods10. Also, the establishments presently are making the service charges mandatory despite the fact that the consumer likes the rendered service or not, which even defeats the whole purpose of the aspect “deficiency in services” under the CPA, 2019.

Third, the Dewan Lal Committee Report on the basis of which the High Court has given the order is merely a report which puts forth a suggestion to the replacement of the tip system by service charges, however, there are numerous legal backing which elucidates that both these systems are completely different from each other. The former being completely voluntary, and the latter is a compulsory default payment. Similar view was taken in Sun-N-Sand Hotel (P) Ltd. v. State of Maharashtra11. Moreover, the Madras High Court in Hotel Ashoka v. State of T.N.12 rightly stated that there is no clear connection between the client who is serviced by an employee and the entire group of employees to whom the perks are given. The customer might not be aware of the establishment’s employee count, their job titles and pay scales, or the real services they provide. There are also high chances that the consumers end up paying for those services that he/she not even availed of. Which is clearly the violation of the consumers’ rights.

Fourth, the levy of service charges particularly at hotels and restaurants will set a wrong precedent for the entire service sector. As it will pave way for every store, industry or establishment that provides any kind of service to charge for the same arbitrarily. This will lead to the hike in prices uncontrollably and the consumers will be compelled to bear with it by putting their rights and interests at a stake. In addition to that, the guidelines have been issued in public interest and for the protection of a large number of consumer rights and welfare. Thus, giving the clear signal towards authenticity of the guidelines.

Fifth, this practice of service charges also attracts the provision of Section 2(46)(vi), “unfair contracts”. The general rule implicates that a contract between a manufacturer or trader or service provider on one side and the consumer being on the other, consisting of such terms that leads to significant changes in the rights of such consumer is an unfair contract13. By the purview of sub-clause (vi) of the said section, the service charges being imposed on the consumer unreasonably and obligating them to pay for it irrespective of their likeness towards the services, which ultimately puts the consumer in a disadvantage, would be covered under Section 2(46)(vi)14. Herein, such charges being forcefully levied on the consumers, not only raises question regarding the excess prices that the consumers are being charged off but also its legitimacy.

Sixth, the Delhi High Court in Commr. VAT v. India International Centre15, provided a feasible arrangement for the tips collection. It expressly states the non-requirement of reflecting such charges in the bill. Instead, it states that the management who is collecting tips on behalf of its staff is merely a “trusty”, and the establishments can come up with a system wherein they pool all the tips and the same is distributed equally among the staff. This ultimately would be in the welfare of the hotel staff as well as the consumers. As the voluntariness involved in such charges will prevail and the tip collected can be distributed equally thus, upholding the aspect of socioeconomic angle, and eliminating any scope for unfairness.

Seventh, this ban can promptly be based on fulfilment of the legislative motive behind Section 17116 of the CGST Act, which prohibits profiteering by sellers or service providers. Earlier restaurant chains were all taxed under the service tax and State value added tax regimes, which used to differ along State lines. Now, with GST regime, uniformity of tax to be levied on the restaurants have been brought all over the country thus, there are great chances that at some parts of the country the taxes on consumers or restaurant goers would have got reduced due to the GST law. However, if the restaurant owner charges an extra service charge, the benefits of such a reduction of tax may not accrue to the consumer going against the intent of Section 171 of the CGST Act hence, the proponents of a uniform ban on service charge gain some grounds. Subsequently, even with the constitutional perspective, these guidelines can be exclaimed to be a right and necessary step in the interest of public justice.

Lastly, as per the report of Ministry of Consumer Affairs, GoI, more than 1100 complaints and consumer harassment cases have been filed in last couple of years specifically on levy of service charges,17 hence raising a serious cause of concern. Corroborating to the same, there have been judgments pronounced by the District Consumer Disputes Redressal Commission, like the matter of Arkadeep Sarkar v. Yauatcha18 and Amit Mahajan v. Brewmaster19 which dealt with the issue of consumer harassment and forceful imposing of service charges even if the consumer is not satisfied with the services. The Court in the said matters held the restaurants liable for gross unfair trade practice and deficiency in services20. On the other hand, where the associations claim that there is no illegality associated to it, but the cases of misbehaviour, embarrassment, and clear violation of consumer rights by the establishments pushes the whole notion towards the illegal nature of this practice. It should also be noted that the survival of the industry depends on the growth of the consumer demands, these conducts by the hotels and restaurants are highly discouraged and gradually raise the need for a stricter scrutiny.

Conclusion

These guidelines are a milestone towards better accountability, protection of consumers’ rights and a safety net of the public welfare. Essentially, it brings a clarification among the consumers as to what charges are government levied and what are completely voluntary; and protects consumers further from harassments. With the implementation of these guidelines the consumers will not only know better about their rights but would also gain an understanding about the prices and taxes that they are being charged off. It will also act as a shield between those establishments that by default levy service charge in the name of its staff but does not distribute or maintain records of the same, resultantly, protecting the hotels/restaurants staff as well. Finally, the absence of a regulating body to ensure the authenticity of such charges, clearly leaves a door open for the CCPA to stop unfair trade practices. Hence, it is essential to enforce and ensure proper implementation of the issued “Guidelines to Prevent Unfair Trade Practices and Protection Consumer Interest with Regard to Levy of Service Charge in Hotels and Restaurants” by CCPA in spirit to protect the objectives of the CPA, 2019.


* Professor of Law, Chair Professor, Chair on Consumer Law and Practice, Legal Education Innovation Awardee, National Law School of India University, Bengaluru. Author can be reached at <ashokpatil@nls.ac.in>.

*The article has been published with kind permission of Eastern Book Company cited as (2022) PL November 66.

1. Consumer Protection Act, 2019.

2. Consumer Protection Act, 2019, S. 10(1).

3. 2022 SCC OnLine Del 2172.

4. Ibid.

5. 2012 SCC OnLine NCDRC 444.

6. 1999 SCC OnLine MRTPC 2.

7. Report of Hotel Standards and Rate Committee, 1958.

8. Central Goods and Services Tax, 2017, S. 15(2)(c).

9. Press Trust of India, “Hotels not Giving Service Charge to Staff to be Liable to Income Tax: CBDT”, Business Standard, (22-11-2018), <https://www.business-standard.com/article/current-affairs/hotels-not-giving-service-charge-to-staff-to-be-liable-to-income-tax-cbdt-118112200729_1.html.> (last visited at 22-7-2022).

10. Sun-N-Sand Hotel (P) Ltd. v. State of Maharashtra, 1968 SCC OnLine Bom 172.

11. 1968 SCC OnLine Bom 172.

12. 1976 SCC OnLine Mad 447.

13. Consumer Protection Act, 2019, S. 2(46).

14. Consumer Protection Act, 2019, S. 2(46)(vi).

15. 2010 SCC OnLine Del 4788.

16. Central Goods and Services Tax Act, 2017, S. 171.

17. NCH Grievances on Service Charges, <https://consumeraffairs.nic.in/NCH_Grievances_on_Service_Charge.xlsx>, (last visited on 28-7-2022).

18. CC/391/2019, decided on 7-1-2022 (District Consumer Disputes Redressal Forum, Kolkata Unit II-Central).

19. CC/481/2018, decided on 26-9-2018.

20. M. Mohana Sundaram v. Buhari Restaurant, CC/412/2014, order dated 15-3-2019. (District Consumer Disputes Redressal Forum, Chennai).

Delhi High Court
Case BriefsHigh Courts

   

Delhi High Court: In a suit for permanent injunction restraining the defendants from using the mark ‘Shopibay’ which was similar to the plaintiff’s mark ‘eBay/EBAY’, the Single Judge Bench of Navin Chawla, J. granted permanent injunction to ‘eBay’ and held that the adoption of mark by the defendant was dishonest and intended to deceive customers, hence, awarded Rs. 2 lakhs damages in favour of eBay.

Background

Plaintiff provides an online marketplace for sale of goods and services through their e-commerce platform with the domain name www.ebay.com and had a domain name specific for Indian users, that is, www.ebay.in which was created in 2005. The plaintiff’s ‘eBay Marks’ had been given protection under the provisions of the Trade Marks Act, 1999 (Act) by way of registrations and had also been accorded statutory and common law protection internationally.

In 2017, plaintiff came across a trade mark application filed by the defendant seeking registration of its mark ‘shopibay’, to which, plaintiff opposed. Upon investigation, it was found that defendants used the domain names www.shopibay.com and www.myshopibay.com which offered consumers links to various e-commerce platforms, including hosting the plaintiff’s main name www.ebay.com. The website of the defendants featured the plaintiff’s ‘eBay Marks’ and made a claim that the plaintiff was one of the partners of the defendants and was seen to offer the same services as that of the plaintiff. Moreover, defendants expanded their scope of business and apart from providing e-commerce services, the defendants also opened a brick-and-mortar store and began promoting their business on www.indiamart.com.

Analysis, Law, and Decision

In 2019, this Court granted an ex-parte ad-interim injunction in favour of the plaintiff and restrained the defendants from using the impugned trade mark ‘shopibay’ or any other mark deceptively similar to the plaintiff’s registered trade marks.

The Court opined that the mark adopted by the defendants, that is, ‘shopibay’ was deceptively similar to that of the plaintiff and was clearly intended to ride on the goodwill and reputation of the marks of the plaintiff. Further, it was an infringement of the marks of the plaintiff and amounts to passing off the goods and services of the defendants as that of the plaintiff. The defendants not only took unfair advantage of the plaintiff’s reputation and goodwill but also deceived consumers of their association with the plaintiff. Such acts of the defendants would also lead to dilution of the mark of the plaintiff.

The Court further opined that as far as the domain name of the defendants was concerned, the same was also deceptively similar to that of the plaintiff. It was likely to deceive a consumer of its association with the plaintiff. The Court relied on Anugya Gupta v. Ajay Kumar, 2022 SCC OnLine Del 1922, wherein this Court had held that “the right of a proprietor in a domain name was entitled to equal protection, applying the principles of the trade mark law. The use of the same or similar domain name might lead to diversion of users, which could result from such user mistakenly accessing one domain name instead of another. Therefore, a domain name might have all the characteristics of a trade mark and can find an action for passing off.”.

Further, in relation to the corporate names of the defendants, the Court opined that the ‘shopibay’ mark being phonetically similar to the mark of the plaintiff was also likely to deceive consumer of the association of these companies with the plaintiff. Thus, the Court held that plaintiff was entitled to damages of Rs. 2 lakhs in addition to the suit’s costs, and a permanent injunction was granted in favour of the plaintiff against the defendants.

[Ebay Inc. v. Mohd. Waseem T/As Shopibay, 2022 SCC OnLine Del 3879, decided on 17-11-2022]


Advocates who appeared in this case :

For the Plaintiff(s): Advocate Nancy Roy;

Advocate J. Sharanya.

Allahabad High Court
Case BriefsHigh Courts

Allahabad High Court: In a writ petition filed by Flipkart, seeking quashing of the First Information Report (FIR) for offences under Sections 406, 420, 467, 468, 471, 474 and 474-A of the Penal Code, 1860 (IPC), the division bench of Suneet Kumar and Syed Waiz Mian, JJ. while quashing the FIR, has observed that an intermediary is not liable for any third-party information, data or communication link made available or posted by it, as long as it complies with Sections 79(2) or 79(3) of the Information and Technology Act, 2000 (‘IT Act’), and as Flipkart is an intermediary providing merely access to sellers/buyers and has exercised ‘due diligence’ under Section 79(2)(c) IT Act, 2000, thus, it is exempted from any liability under the IT Act.

The issue of the case is whether an intermediary as defined under Section 2(1)(w) of the IT Act, 2000 would be liable for any action or inaction by a party or a vendor/seller making use of the facilities provided by the intermediary in terms of buyers/sellers terms of use of the company.

In this case, the respondent alleged that he ordered a laptop from Flipkart, but it was having processor of brand ‘A.M.D’ instead of brand ‘Intel’, thus, the delivery of the product was not as per the specifications for which order was placed. Thus, aggrieved, the respondent registered a complaint with Flipkart regarding the alleged discrepancy of the product. The complaint was taken up by Flipkart as per their Dispute Redressal Policy, with the seller, but he declined to replace or refund the consideration of the product, stating that the product was dispatched as per specifications purchased by the respondent. Thereafter, the respondent lodged a complaint against Flipkart.

Flipkart raised a challenge to the impugned FIR seeking its quashing, inter alia, on the ground that it is an e-commerce platform that provides access to buyers and sellers through their website, where they meet and interact to execute purchase and sale transactions, subject to terms and condition as set out in the buyers/sellers terms of use (‘Flipkart Terms of Use’), and Flipkart is not a party to or in control of any such transaction between its users. Thus, claimed protection under Section 79 I.T. Act, 2000.

The Court observed that Section 79 is a safe harbour provision. Further, internet intermediaries give access to host, disseminate and index content, sell-buy products and services originated by third parties on the internet, that includes e-commerce intermediaries where the platforms do not take title of the goods being sold. Moreover, as per Section 81 of IT Act, 2000, Section 79 has an overriding effect.

The Court referred to the ruling in Avnish Bajaj v. State (NCT) of Delhi, 2004 SCC OnLine Del 1160, and observed that intermediaries stand on a different footing being only facilitator of the exchange of information or sales. Further, prior to the amendment the exemption under Section 79 did not exist, therefore, an intermediary was liable for any third-party information or data made available by it, but the 2008 amendment introduced Chapter XII to the IT Act, 2000, which ceased the liability of an intermediary, if it satisfied certain requirements as detailed in Section 79 of IT Act, 2000.

The Court observed that Flipkart does not follow inventory-based model of e-commerce, where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly, thus it comes within the meaning and definition of ‘intermediary’ under Section 2(1)(w) of the IT Act, 2000, and would be entitled to the exemption from liability in terms of Section 79 IT Act, 2000, if the requirements are met.

It was also observed that Flipkart is not the seller, and the sellers are registered with it, who sellproducts and services on its platform and are solely responsible to the customer. Further, it cannot be expected that the provider of the online marketplace is aware of all the products sold on its website, but such provider must put in place a robust system to inform all sellers on its platform of their responsibilities and obligations under applicable laws in order to discharge its role and obligation as an intermediary, and if the same is violated by the seller, then he can be proceeded against ,but not the intermediary.

The Court also observed that as per the Consumer Protection (E-Commerce) Rules, 2020, Flipkart would come within the meaning of a marketplace e-commerce website, thereby affording it the above exemption so long as the requirements under Section 79 are met. Thus, as Flipkart has complied with the requirements of Sections 79(2) and 79(3) I.T Act, as well as, the Information Technology (Intermediaries Guidelines) Rules, 2011, thus it is exempted from any liability under Section 79 IT Act, 2000, as no violation can ever be attributed or made out against the directors or officers of the intermediary, as the same would be only vicarious, and such proceedings as initiated against them would be unjust and bad in law.

[Flipkart Internet Private Limited v. State of UP, 2022 SCC OnLine All 706, decided on 17.10.2022]


Advocates who appeared in this case :

Kartikeya Saran, Advocate, Counsel for the Petitioner;

Government Advocate Samarth Sinha, Counsel for the Respondent.

NCDRC
Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): While deciding upon the instant complaint concerning alleged unfair trade practice followed by Flipkart of tampering with a product’s MRP, the Bench of Mamidi Christopher (President), S. Sandhya Rani and K. Venkateshwarlu (Members) observed that there is tripartite contract between the seller, service provider (herein ‘Flipkart’) and the consumer. The seller and service provider are liable for any defect, deficiency of service and unfair trade practice on the services provided or good/product sold by them. It was held that Flipkart had tampered with the original MRP of the product (herein ‘oil sachet’) and charged an amount more than the MRP from the consumer, thereby illegally extorting the consumer and causing economic loss and mental agony. Flipkart’s conduct thereby falls within the ambit of deficiency in service and unfair trade practice.

Facts of the Case: Flipkart engages in providing trading/selling facilities over the internet through its website flipkart.com and mobile application- an online marketplace. Flipkart. The Complainant ordered 2 Freedom Refined Sunflower Oil pouches (1000 ml. each) from Flipkart and the order was successfully delivered on 25-04-2021. The value of the order is Rs. 480 (each oil packet cost Rs. 240), the shipping charge- Rs. 103 and total price was Rs. 583.

After receiving the order, the complainant discovered that Flipkart was selling the product at a price which was more than the MRP. The MRP was wiped off the products, however the complainant stated that the MRP of the oil pouches was Rs. 170, while the complainant had to pay Rs. 240 (total Rs. 480) for each oil pouch. As per the complainant, Flipkart in total collected extra Rs. 140/- on MRP.

Contentions

The complainant submitted that wiping -off the MRP amounts to an unethical and unfair trade practice which also amounts to deficiency in service. The complainant further stated that due to the sufferings caused by COVID-19 it has become very hard to meet basic needs; but the E- Commerce portals are raking in huge cash by selling more than MRP.

Per- contra, Flipkart denied the allegations and contended that the 2017 Amendment in Legal Metrology (Packaged Commodity) Rules, 2011, provides that an E-Commerce entity shall ensure that all monetary declarations as specified in the Rules shall be displayed on the digital and electronic network used for e-commerce transactions. The responsibility for the correctness of such declaration shall lie with the manufacturer, the seller or the importer. It was submitted that a market-place model e-commerce entity, such as flipkart.com, has been exempted by the Rules from any responsibility regarding correctness of the information provided by the seller.

Flipkart further contended that it only acts as an intermediary through its web interface and provides a medium to various sellers all over India. It was argued that these sellers are separate entity being controlled and managed by different persons/stake holders; and Flipkart directly or indirectly does not sell any products. All the products on Flipkart platform are sold by third party sellers who avail the online market-place service so provided, and the terms are decided by the respective sellers only.

It was submitted by Flipkart that the contractual/commercial terms include price, shipping cost, payment method, payment terms, date, period and mode of delivery, warranty related to products and services and after sale services related to sales and services. Flipkart does not have any control or does not determine or advise or in any way involved in the offering or accepting of such contractual, commercial terms between the buyer and seller.

Observations: Upon perusal of the facts and contentions, the Commission considered that whether there existed a deficiency in service and the extent of such deficiency.

The Commission perused the relevant provisions of Consumer Protection Act, 2019 defining “deficiency”, “unfair trade practice” and the relevant provision of Consumer Protection (E-Commerce) Rules, 2020.

It was observed that Unfair Contract means a contract between a manufacturer or trader or service provider, having such terms which causes a significant change in the rights of such consumer, thereby imposing on the consumer any unreasonable charge, obligation or condition which puts such consumer to disadvantage. The Bench pointed out that the Opposite Parties are the agents who sell the product, and are duty bound to ensure its quality and if the product is found defective, agent shall be vicariously liable for the loss caused to the purchaser, along with the manufacturer of the product.

The Commission pointed out that Opposite Parties are in contract and agreement with the manufacturer who are service providers through the e-commerce entity and are bound by the contract between the manufacturer, product seller and the consumer and therefore must provide the information and details about the product to the sellers offering goods.

Decision: With the afore-stated observations, the Commission held that the Opposite Parties have not performed their duties of sellers on market-place as laid down in the Consumer Protection E-Commerce Rules, 2020.

The complaint was allowed partly, and the Opposite Parties were directed jointly and severally to return the additional extra charge of Rs. 140 and to pay an amount of Rs. 50,000 towards compensation and Rs. 3,000 towards costs, to the complainant.

[Shaikh Umar Farooq v. Flipkart Internet Private Limited, 2022 SCC OnLine NCDRC 519, decided on 26-07-2022]


Advocate who appeared in this case :

A. Narendar Rao, Advocate, for the Opposite Party No. 1,


*Sucheta Sarkar, Editorial Assistant has prepared this brief.

Op EdsOP. ED.

   

Unperturbed by the relentless growth, the latest Ministerial Conference (12th MC) under the aegis of WTO organised in Geneva went ahead with the extension of a moratorium on the customs duty levied upon electronic commerce (e-commerce)1. In 1998 during the 2nd MC, all the members of the WTO under the General Council agreed not to impose customs duties on electronic transmissions (Declaration on Global Electronic Commerce or Declaration)2. It is pertinent to note that the Declaration is not perpetual i.e. after every two years, members agree to extend the moratorium at the biennial WTO MC, and it applies only to electronic transmissions (ET) of digitised products.

With the exponential growth of internet usage and partially due to the absence of physical imports during the surge of COVID-19, e-commerce has flourished unabatedly. This could be authenticated by the proliferation of digitisation of previously physical goods and their transmission through the internet leading to losses in Customs revenue. In her working paper, Senior Economic Affairs Officer Rashmi Banga argues that “Developing countries can generate 40 times more tariff revenue than developed countries by imposing customs duties on ET”3. Also, the asymmetrical development of digitalisation (often quoted as the digital divide) does carry severe implications for the domestic industry, which may be too naïve to face such competition. In this context, it is essential to highlight the role of traditional tariffs in supporting nascent domestic digital industries. Not only are these developing countries losing out on fiscal space, but the Declaration has jolted its regulatory space as they are unable to regulate growing imports of digitisable products.

Although it might seem axiomatic as it just takes a lack of consensus amongst the member States to discontinue this moratorium, the real challenge lies in defining the scope of electronic transmission. Currently, there are only 49 products that qualify as digitisable products capable of being transmitted digitally4, but this list is not exhaustive, which means that intensification in the loss of revenue would then be an inevitable corollary. It is no gainsaying that the impact of the 4th Industrial Revolution through automation has already inhibited the developing country's ability to collect customs duties, and 3D printing technologies substantiated this concern. In posterity, with the advent of 3D printing technology, physical goods will be digitised even more rapidly, thereby circumventing the previously negotiated General Agreement on Tariffs and Trade (GATT) bound rates on physical goods. Now on unravelling these intricacies, one could quickly figure out that developing countries have legitimate concerns, but their proposed solution is misguided. Unilateral imposition of customs duties on ET will not only distort the growth of the digital economy but will also be cost-prohibitive and technologically unfeasible for those developing countries themselves.

The perplexity does not end here, as WTO also grapples with attributing ET as goods, services, or intellectual property. It is a most apposite inquiry upon the given issue, as the selection of a particular head will entail the application of a specific regime i.e. GATT, General Agreement on Trade in Services (GATS) or Trade-Related Aspects of Intellectual Property Rights (TRIPS), and to add to that, customs duties are solely applicable to the goods. The Working Committees had been constituted to undertake critical appreciations of these issues, but in the pursuance of the absence of any accord amongst the member States on this issue, it has been covered up with an agreement that the existing practice of no customs duties should continue. These factors cumulatively provide a much-needed impetus to the developing nations to oppose the prolongation of this moratorium jointly.

To address the concerns of revenue losses, developing countries are advised to consider imposing non-discriminatory internal taxes and international taxation. But it is too simplistic to agree with such suggestions as these measures do not gel well with the infant industry, which might anticipate certain assistance from their respective Governments, and substituting internal taxes as an alternative to customs duties does not serve that purpose. Viewed as a viable alternative, the exponents of this suggestion lose sight of the fact that the findings (Emram and Stiglitz, 2005) confirm that the large informal sector tends to remain out of the tax net.5 Regarding international taxation, various developing countries are at the forefront of spearheading the market-based taxation rights, which (amongst other things) aims to address tax challenges arising from the digitalisation of the economy and reallocate taxing rights for large businesses to market jurisdictions. Through its participation in the G20 and Organisation for Economic Cooperation and Development (OECD's) base erosion and profit shifting (BEPS) initiative, developing countries have committed themselves to a multilateral approach for securing a fairer, stable, and non-discriminatory tax policy, yet as of date, nothing substantial has been achieved through this consensus-based approach.

While vocal about these issues, developing countries, like India and South Africa, tried to espouse the cause of disintegrating ET from digitised goods and taxing such products, which are feasible due to technological development (India-South Africa Joint Communication, 2021).6 In other words, this narrative implies that a moratorium is imposed upon electronic transmission, i.e. bits and bytes, and not on the content or product to be transmitted. This would necessitate such countries expand their harmonised system (HS) codes to include goods that can be digitised. One of the most significant limitations of existing literature is that it has not been able to contemplate the list of such putative products which could be digitised, adding salt to the wound.

In light of the aforesaid analysis, it is befitting to use this opportunity to justify the title of this submission. The rationale for ascribing the current moratorium as an “uncanny impasse” lies in the fact that these are momentous challenges, and any suggestions to curb these effects are on the scale of pragmatism of not much avail. Developed countries are keen to keep this declaration alive and pegging too much hope on the continuance of this moratorium as they advocate the positive impacts of the digital economy which outweighs the potential forgone government revenues. These contentions fall short in critically examining the challenges faced by developing nations due to the infrastructural/technological divide, thereby causing huge losses in revenue and depleting policy space. So, the underlying question is “what did this moratorium reap for the developing countries.” Hence, the Declaration is labelled as an eternal conundrum for developing countries as they are still figuring out its potential benefits along with the way forward.


† Assistant Professor in Legal Research at Rajiv Gandhi National University of Law, Punjab. Author can be reached at <saurabh_faculty@rgnul.ac.in>.

1. WTO, Twelfth WTO Ministerial Conference (June 2022), <https://www.wto.org/english/thewto_e/minist_e/mc12_e/mc12_e.htm> last seen on 20-6-2022.

2. WTO Ministerial Conference, Declaration on Global Electronic Commerce, WT/MIN (98)/DEC/2 (1998), 1 (25-5-1998), <https://www.wto.org/english/tratop_e/ecom_e/mindec1_e.htm> last seen on 19-6-2022.

3. Rashmi Banga, “Growing Trade in Electronic Transmissions: Implications for the South”, (2019) UNCTAD Research Paper No. 29/2019, <www.wto.org/english/tratop_e/ecom_e/wkmoratorium29419_e/rashmi_banga.pdf> last seen on 20-6-2022.

4. India and South Africa, The E-Commerce Moratorium: Scope and Impact (WT/GC/W/798, 2020) Work Programme on Electronic Commerce, Para 2.15, <https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=264789%2C264692%2C263985%2C262610%2C262031%2C261632%2C261432%2C261434%2C259951%2C259601&CurrentCatalogueIdIndex=4&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True#> last seen on 18-6-2022.

5. M. Shahe Emran and Joseph E.Stiglitz, “On Selective Indirect Tax Reform in Developing Countries”, (2005) 89(4) Journal of Public Economics, <https://www.sciencedirect.com/science/article/abs/pii/S0047272704000933> last seen on 20-6-2022.

6. India and South Africa, The Moratorium on Customs Duties on Electronic Transmissions: Need for Clarity on its Scope and Impact (WT/GC/W/833, 2021) Work Programme on Electronic Commerce, Para 2.15. Also available at <https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/GC/W833.pdf&Open=True> last seen on 18-6-2022.

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: In an interesting case Ziyad Rahman A.A., J., directed the District Police Chief to take action against the e-commerce company, Flipkart for delivering wrong product.

The petitioner had ordered a laptop with specification of “Acer Aspire 7 Core i5, 9th Gen (8GB/512 GB SSD/Windows)” for a total consideration of Rs.53,890 through an e-commerce entity named Flipkart, operated by Filpkart Internet Pvt. Ltd. However, the product received by him was a totally different one.

The grievance of the petitioner was that though he had submitted a complaint before the Station House Officer (SHO), Kaduthuruthy Police Station, no action was taken with regard to his complaint. Aggrieved by the inaction of the SHO, the petitioner approached the District Police Chief with his grievances.

In the instant petition, the petitioner had sought consideration of the said complaint by the District Police Chief.

Considering the arguments advanced by the petitioner, the Court directed the District Police Chief to take up the complaint and issue proper direction to the officers concerned to redress the grievance of the petitioner as expeditiously as possible. The Court added that an appropriate decision shall be taken within a period of one month.

[Aby Thomas v. Director General of Police, 2022 SCC OnLine Ker 3732, decided on 23-06-2022]


Advocates who appeared in this case :

Arun Mathew Vadakkan and Don Paul, Advocates, for the Petitioner;

Public Prosecutor Sudheer Gopalakrishnan, Advocate, for the Respondent.


*Kamini Sharma, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

District Consumer Disputes Redressal Commission (DCDRC), Gondia: In the instant ‘unique’ complaint, relief in the nature of directions to Facebook were sought vis-a-vis discontinuation of unfair/ restrictive trade practices; not putting up misleading advertisements and neutralization of the effect of misleading advertisements on their platform. The coram of Bhaskar B. Yogi (President) and Sarita B. Raipure (Member) directed Facebook and Meta Inc. to run scam related awareness advertisement on various media, social sites, TV and OTT platforms to create awareness regarding various scam on regular basis to neutralize the impact of misleading advertisements. The Commission also stated that Facebook has a legal and social duty and obligation to provide funding to a step-by-step service to aid and advise the public regarding online frauds and scams.

Facts of the case: The complainant who hails from Maharashtra, is a daily wager coming from Below Poverty Line Family and currently remains unemployed due to Covid19 pandemic. Facebook (opposite party) is a major social networking site.

The complainant is an active Facebook user. On 16-09-2020, the complainant noticed on his Facebook-wall an advertisement of Marya Studio, offering shoes of Nike Company for Rs. 599. As the advertisement was on Facebook, the complainant did not doubt its authenticity and immediately placed the order for shoes and paid Rs. 599 through his debit card. The Complainant waited for a long time but he did not receive any text or call from the Marya Studio regarding shipping of the shoes booked by him, and since Facebook did not contain any contact details of Marya Studio, therefore the complainant googled Marya Studio’s customer care number and in result he came to the website www.consumersathi.com which showed 4-5 numbers of Marya Studio Customer Care. The Complainant called on one of the numbers and the person receiving the call introduced themselves as Marya Studio’s Customer Care Executive. The person sent a link to the Complainant and asked him to fill debit card details in that link for the purposes of refund. The Complainant was further asked to download AnyDesk App in order to receive the refund amount. The Complainant did as he was instructed and also the provided the OTP number as required by the Customer Care Executive. However, the complainant was duped for Rs. 7568.

Thereafter the complainant tried to bring this fraud to the notice of Facebook (via Twitter and then e-mail) and sought compensation of Rs. 7568, but Facebook never replied. Therefore the complainant was compelled to knock the doors of the District Commission, Gondia, against Facebook.

Contentions: The counsels of the complainant put forth the following contentions-

  • It was argued that Facebook voluntarily and intentionally runs a false, frivolous, misleading and fraudulent advertisement and causes loss to the public at large. The complainant pointed out the names of the many fake pages advertised on Facebook like- Marya Studio, Yaryastudio, Crunchkart, G9fashionnn etc. The complainant also cited the names of other persons who were victims of such fake advertisements.
  • It was argued that the complainant is unemployed has suffered a lot due to the loss of the afore-stated amount. It was stated that he has no money to buy groceries and vegetables and that him and his family members are suffering from starvation. Such circumstances have caused a great deal of mental and physical pain to the Complainant and his family.

Per-contra, the opposite parties (Facebook/ Meta) argued on the following points-

  • It was contended that Complaint is not maintainable since the Complainant is not a ‘consumer‘ of Facebook India.
  • It was submitted that Facebook India is a wrong entity for adjudicating this Complaint since it does not operate/control the Facebook service- as Facebook would be considered as an intermediary, and therefore, immune from liability under the provisions of the Information Technology Act, 2000. Furthermore Facebook would be under no obligation to proactively monitor the Facebook Service under the IT Act and as per the decision of the Supreme Court in Shreya Singhal v. Union of India, (2015) 5 SCC 1.
  • Meta submitted that it has taken reasonable steps to enforce policies to protect its users and offers several user friendly tools to enable users to report violations of these policies.

Observations: Based on the facts and contentions presented in the case, the Commission framed certain important issues and made the following observations-

  • The Commission pointed out that to establish the consumer-service provider relationship, the complainant has to prove whether he has paid any consideration for service while buying online product from third party. Perusing the details provided by the complainant, the Commission observed that complainant paid Rs 599 for purchase of the shoe, whose advertisement was hosted on Facebook. The revenue of opposite parties mainly comes by selling the space for advertising which is clear from their Memorandum of Association. The Commission thus noted that the complainant falls under the category of ‘consumer’.
  • The Commission noted that the complainant suffered from financial loss due to misleading advertisement. However, the Commission deliberated on the extent to which the opposite party was bound to compensate. The Commission perused the “Help Centre” details provided on Facebook titled “Privacy, safety and security- Shopping safety”. It was noted that transaction of buying shoes Rs. 599 was due to a misleading advertisement; but, the second transaction of sharing OTP and personal bank details by the complainant was due to his own unawareness regarding online scams, therefore can be termed as ‘contributory negligence’ for which the opposite parties are not liable.
  • It was observed that the Government of India has taken various measure to curb the menace of online fraud from time to time by inserting concerned provisions in the Consumer Protection Act and Consumer Protection (E-commerce) Rules, 2020. It was noted that the law provides a clear mandate of compliance for social media websites. The Commission pointed out that complainant was lured to purchase the product by looking to the rate of the shoes, and it is mandatory obligations of e-commerce websites to provide complete name, address, contact numbers, email address of the seller so that in case of any consumer grievance it can be redressed immediately. The e-commerce websites, as prescribed by RBI have a Corporate Social Responsibility to educate the masses regarding various online frauds. It was stated that opposite parties failed to sufficiently safeguard and protect the Indian consumers from unscrupulous exploitation.

Decision/Directions: Perusing the facts and contentions presented by the parties and making the afore-stated observations, the Commission partly allowed the complaint and made the following directions-

  • The opposite parties are to pay to the complainant the price of product (Nike shoes) not delivered i.e. Rs. 599. The opposite parties were directed to pay Rs. 25,000 for mental agony and legal costs suffered by the complainant.
  • Facebook/ Meta directed to comply the Consumer Protection (e-commerce) Rules, 2020 in letter and spirit and submit report of compliance within a period of 45 days to this Commission.
  • Facebook was directed to issue corrective advertisement in order to neutralize the effect of misleading advertisement that came to question in the instant complaint.

[Tribhuvan v. Facebook India Online Services Pvt. Ltd., Complaint No. : CC/117/2020, decided on 30-06-2022]


Advocates who appeared in this case :

Sagar J. Chavhan, Advocate, for the Complainant;

M. B. Ramteke, Advocate, for Opposite Parties.


*Sucheta Sarkar, Editorial Assistant has prepared this brief

CBIC
Legislation UpdatesRules & Regulations

   

On 30-6-2022, Ministry of Finance notified Courier Imports and Exports (Electronic Declaration and Processing) Amendment Regulations, 2022. By this amendment, Central Board of Indirect Taxes and Customs (CBIC) elaborates the provisions of import/export of jewellery sold on e-commerce exchanged through courier, which will come into force with immediate effect.

Key amendments:

  • Jewellery of precious metals and imitation jewellery are now included under the category of re-import which are being sold on any E-commerce [defined under Regulation 3(da)] platforms.

  • Application for assessment and clearance of imported or export goods, carried out by an Authorised Courier of jewellery of precious metals extends to their reimport in case of any return.

  • Regulation 6A has been newly inserted provides the conditions by which the jewellery is returned through courier mode on any e-commerce platform.

  • Importer/Exporter Code (IEC) holder which shall authorize the courier should remain the same along with the condition that terminal has to be unchanged.

  • Return of such jewellery is permitted through the same consignee and reasons for such return are to be provided to the Courier Bill of Entry.

  • Exporter, who is re-importing, will continue to have valid IEC and Registration-cum-Membership Certificate (issued by the Gems and Jewlery Export Promotion Council).

  • All the tax benefits that accrue on the export are neutralized.

  • Identity of re-imported jewellery will continue to be the same and will not be altered or enhanced.

*Shubhi Srivastava, Editorial Assistant has reported this brief.

Op EdsOP. ED.

The Government in June 2021 released the proposed amendments to Consumer Protection (E-Commerce) Rules, 2020 (hereinafter “proposed amendments”), with a view to regulate the e-commerce space more closely from a consumer protection perspective. The proposed amendments seek a substantial increase in compliances and liabilities, along with a broader scope of the term “e-commerce”. In addition to these, the proposed amendments are not in alignment with existing regulatory frameworks. One such significant overlap is with the competition law framework, and the role of the Competition Commission of India (hereinafter CCI).

 

E-commerce in India has been a beacon of competition, not just from the retailing perspective, but also various other services that have been made possible. It is a visible sign of a thriving platform economy, and has significantly changed the conduct, and content of commerce.

 

The burgeoning nature of the e-commerce market in India can be witnessed from multiple projections all of which point to an upward trajectory, and hover around an expectation of a $200 billion size by 2025[1]. This growth must also be seen in the context of Covid-19 in India, where platforms contributed to a sense of resilience and normalcy during the peak of the pandemic.

 

However, digital markets have brought with them plenty of issues concerning the jurisprudence of competition law, not just in India, but in various other countries. Matters related to non-price aspects of competition, unique selling practices of e-commerce platforms, and the ambiguous understanding of “level playing field”[2] between traditional and online businesses, have significantly challenged the Competition Commission of India’s (CCI) oversight. These new challenges have also been formally acknowledged by CCI[3], in its January 2020 report on e-commerce in India. With most of the issues yet to see completion of detailed investigation, any interim legislation may end up hampering this investigation.

 

Flash sales, as defined in the proposed amendment[4] (along with the proviso), aim to reduce the advantage that e-commerce platforms may give to certain sellers, or groups of sellers. But what must be considered is that flash sales, through discounts, and reduced prices, have the effect of greater benefit for consumers (one of the objectives of competition law), and greater competition (particularly, interbrand competition among products) across platforms. Further, while such flash sales also involve an element of special distribution arrangements, the CCI has not yet pronounced on the legality of such arrangements.  These arrangements may in fact, create an efficient supply chain. These issues are currently being explored by the CCI as part of its investigation into non-horizontal agreements under Section 3(4) of the Competition Act, 2002. This would be complemented with a better understanding of appreciable adverse effects on competition, under Section 19(3) of the Act; in terms of flash sales being perceived as an aggravating or mitigating factor, for competition.

 

While these involve a more traditional understanding of competition in India, contemporary developments around data and privacy, are newer determinants of competition[5]. The proposed amendment recognise this, when it says no e-commerce entity shall engage in abuse of dominant position[6], as per Section 4 of the Competition Act. However, the Consumer Protection Act might be a misplaced legislative framework to talk about dominance of e-commerce platforms, and rather, must be addressed on a case-to-case basis by the CCI. Competition within, and between e-commerce platforms is based on efficiencies in the supply chain, with data about consumer preferences shaping production planning and distribution channels. By reiterating the need to not engage in “abuse of dominance” in a consumer protection framework, it prematurely shapes the jurisdiction of Consumer Protection Authority (CPA) in matters of data collection, sharing, preferential selling, search indexes and rankings, and cross-selling; leading to possible jurisdictional overlaps with CCI and other regulators therefore, giving opportunity for forum shopping. Similarly, under Section 6(6)(a) of the proposed amendment (liabilities of platforms), platforms need to ensure that it does not use any information collected through its platform for unfair advantage of its related parties and associated enterprises. This is an issue under platform neutrality, with CCI now taking cognizance of a gamut of such instances[7].

 

Finally, under Rule 7(1)(b) of the proposed amendment, it has been mandatory for e-commerce platforms to identify, and highlight the “country of origin” of goods, while adding the need for providing filtering options, and suggesting domestic alternatives. This, even though well intentioned in its idea of promoting Make in India and encouraging small Indian manufacturers, may end up distorting the notion of level playing field. It may discriminate against imports, and overlook the complex process of value addition or assembly that may happen in the destination country.

 


Conflicts beyond the Competition Law


The proposed amendment reiterate many provisions listed in the FDI policy for e-commerce, such as mandatory registration, scope of related parties, country of origin, etc. However, while the FDI norms do not make a mention of platform liability[8], the proposed amendment clearly enunciate the need for one.

 

Going further, the proposed amendment have a jurisdictional overlap between the proposed Data Protection Authority (DPA) (under the Personal Data Protection Bill, 2019), and the Consumer Protection Authority. Section 5, clause 14(a) of the proposed amendment venture into aspects of data sharing and processing (based on consent), whose nuances can best be dealt with only a DPA, and an overarching data protection law.

 

Lastly, the overlap with competition law explored above, also brings the CPA in conflict with CCI, possibly contributing to more “forum shopping” and delaying strategies.

 


Conclusion


Post feedback to the draft Rules, the expectations would consist of a softer regulatory touch for e-commerce until more important legislations are passed, and of CCI developing greater expertise in digital markets. Any focus on consumer protection must be exclusive, and consumer-centric. This may draw from the EU’s the New Deal for Consumers[9], a legislation on consumer protection in e-commerce. It focuses on transparency in marketplaces and advertisements, terminability of online contracts, robust grievance redressal and compensation, and uniformity in quality.

 

As for the regulation of e-commerce as a whole, relying on consumer protection alone takes a parochial view of supply side dynamics. Another EU model might serve as a reference for e-commerce regulation in this regard, with the proposed Digital Services Act package[10]. While the Digital Services Act regulates all online intermediaries and places strict obligations for large players, the Digital Markets Act emphasises on limiting the economic power of the major players, or “gatekeepers”. Thus, with 2 distinct laws, the package aims to empower consumers, foster greater transparency and accountability, and create equitable competition.


 

[1] Invest India, Retail and E-Commerce, available HERE .

See also Saritha Rai, P.R. Sanjai, Bhuma Shrivastava, 2020, “Asia’s Richest Man Takes on Amazon in India’s Booming Online Market” HERE (posted on 11-11-2020).

[2] Chawdhry, Mohit, 2021. Levelling the Playing Field between Traditional and Digital Businesses, Report Issue 009, New Delhi: Esya Centre. Available HERE.

[3] Competition Commission of India, 2020, Market Study on E-Commerce in India: Key Findings and Observations, New Delhi: Competition Commission of India. Available HERE .

[4] Cl. 3(1)(e), Consumer Protection (E-Commerce) Rules, 2020.

[5] Competition Commission of India, 2020, Market Study on the Telecom Sector in India: Key Findings and Observations, New Delhi: Competition Commission of India. Available HERE .

[6] Cl. 5(17), Consumer Protection (E-Commerce) Rules, 2020.

[7] The Hindu BusinessLine, 2021, “Anti-Competitive Practices: NRAI Files Plaint against Zomato, Swiggy” HERE .

[8] Consolidated FDI Policy, 2020, Chapter 5.2.15.2 E-Commerce Activities, Department for Promotion of Industry and Internal Trade.

[9] European Commission, 2019. Factsheet: New Deal for Consumers. Available HERE .

[10] Allen and Overy, 2020, “The Digital Services Act Package is Here”. Click HERE.

Case BriefsHigh Courts

Bombay High Court: The Division Bench of R. D. Dhanuka and Madhav J. Jamdar, JJ. asked State Government to actions against the dealers and e-commerce websites for supplying various nonessential items in violation of government order.

The Federation of Retail Traders Welfare Association had pointed out before the Court that though various incentives were offered to hawkers and others during the pandemic crises by the State Government, no such packages had been announced for the retail traders. The petitioner had made a separate representation to the Municipal Corporation for waiver of various taxes and for various exemptions but the Municipal Corporation had informed the petitioner that the proposal for cancellation of licences issued under section 313(1) (b) (c) had been submitted to the Legal Department for their opinion and the same is awaited. Regarding waiving of licence fees for sign board licence for name board (non commercial), the petitioner was informed that no directives had been received from competent authority by the Superintendent of Licences, Municipal Corporation and thus the same could not be considered.

One of the major grievances of the petitioner was that though under various SOPs issued by the State including last SOP dated 13-04-2021 and more particularly in clause 16, E-commerce is permitted only for supply of essential goods and services, yet various suppliers are supplying non-essential services in gross violation of the said SOP. It was the case of the petitioner that though this violation was brought to the notice of the State Government, no action has been taken till date to stop the ongoing violation.

In the light of the above, the Bench directed State Government to file affidavit within two weeks to indicate as to whether any incentives which were offered to the hawkers due to their sufferings during pandemic can be offered to the retail traders. The State Government was also asked to indicate the steps already taken or would be taken against the dealers for supplying various nonessential items in violation of clause 16 of the SOP. The Bench told the State to take immediate actions against such dealers to stop the same. Lastly, Municipal Corporation was directed to file an affidavit to indicate the steps taken by it and proposed to be taken regarding waiver of licence fees and for other exemptions/concessions sought by the members of the petitioner association within two weeks.

[Federation of Retail Traders Welfare Association v. State of Maharashtra, 2021 SCC OnLine Bom 748, order dated 25-05-2021]


Kamini Sharma, Editorial Assistant has put this report together .

Appearance before the Court by:

Counsel for the Petitioner: Jamshed Mistri a/w. Dipesh Siroya
Counsel for the Respondents: AGP Jyoti Chavan, Sr. Adv. Anil Sakhare a/w Pooja Yadav i/b.
Aruna Savla

Hot Off The PressNews

The Consumer Protection Act, 2019 comes in to force from today i.e. 20th July 2020.

While briefing the media about the Consumer Protection Act, 2019 the Union Minister for Consumer Affairs, Food & Public Distribution Shri Ram Vilas Paswan said that this new Act will empower consumers and help them in protecting their rights through its various notified Rules and provisions like Consumer Protection Councils, Consumer Disputes Redressal Commissions, Mediation, Product Liability and punishment for manufacture or sale of products containing adulterant / spurious goods.

The Act includes establishment of the Central Consumer Protection Authority (CCPA) to promote, protect and enforce the rights of consumers.  The CCPA will be empowered to conduct investigations into violations of consumer rights and institute complaints / prosecution, order recall of unsafe goods and services, order discontinuance of unfair trade practices and misleading advertisements, impose penalties on manufacturers/endorsers/publishers of misleading advertisements.Shri Paswan further said that the rules for prevention of unfair trade practice by e-commerce platforms will also be covered under this Act. The gazette notification for establishment of the Central Consumer Protection Authority and rules for prevention of unfair trade practice in e-commerce are under publication.

Under this act every e-commerce entity is required to provide information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, grievance redressal mechanism, payment methods, security of payment methods, charge-back options, etc. including country of origin which are necessary for enabling the consumer to make an informed decision at the pre-purchase stage on its platform.  He said that e-commerce platforms have to acknowledge the receipt of any consumer complaint within forty-eight hours and redress the complaint within one month from the date of receipt under this Act. He further added that the New Act introduces the concept of product liability and brings within its scope, the product manufacturer, product service provider and product seller, for any claim for compensation.

The new Act provides for simplifying the consumer dispute adjudication process in the consumer commissions, which include, among others,  empowerment of the State and District Commissions to review their own orders, enabling a consumer to file complaints electronically and file complaints in consumer Commissions that have jurisdiction over the place of his residence, videoconferencing for hearing and deemed admissibility of complaints if the question of admissibility is not decided within the specified period of 21 days.

An Alternate Dispute Resolution mechanism of Mediation has been provided in the new Act.  This will simplify the adjudication process.  A complaint will be referred by a Consumer Commission for mediation, wherever scope for early settlement exists and parties agree for it. Mediation will be held in the Mediation Cells to be established under the aegis of the Consumer Commissions.  There will be no appeal against settlement through mediation.

As per the Consumer Disputes Redressal Commission Rules, there will be no fee for filing cases upto Rs. 5 lakh. There are provisions for filing complaints electronically, credit of amount due to unidentifiable consumers to Consumer Welfare Fund (CWF).  The State Commissions will furnish information to Central Government on a quarterly basis on vacancies, disposal, pendency of cases and other matters.

The New Act also introduces the concept of product liability and brings within its scope, the product manufacturer, product service provider and product seller, for any claim for compensation. The Act provides for punishment by a competent court for manufacture or sale of adulterant/spurious goods. The court may, in case of first conviction, suspend any licence issued to the person for a period of up to two years, and in case of second or subsequent conviction, cancel the licence.

Under this new Act, besides general rules, there are Central Consumer Protection Council Rules, Consumer Disputes Redressal Commission Rules, Appointment of President & Members in State/District Commission Rules, Mediation Rules, Model Rules and E-Commerce Rules and Consumer Commission Procedure Regulations, Mediation Regulations and Administrative control over State Commission & District Commission Regulations.

The Central Consumer Protection Council Rules are provided for constitution of the Central Consumer Protection Council, an advisory body on consumer issues, headed by the Union Minister of Consumer Affairs, Food and Public Distribution with the Minister of State as Vice Chairperson and 34 other members from different fields. The Council, which has a three-year tenure, will have Minister-in-charge of consumer affairs from two States from each region- North, South, East, West, and NER. There is also provision for having working groups from amongst the members for specific tasks.

Click here for presentation on salient features of CPA 2019

Also Read:

Substantial portion of Consumer Protection Act, 2019 along with related Rules to come into force on 20th July, 2020


[Source: PIB]

COVID 19Hot Off The PressNews

Ministry of Home Affairs issued an Order yesterday on amendments in the consolidated revised guidelines on lockdown measures to allow opening of shops. (https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1618049)

This Order implies that:

  • In rural areas, all shops, except those in shopping malls are allowed to open.
  • In urban areas, all standalone shops, neighborhood shops & shops in residential complexes are allowed to open. Shops in markets/market complexes and shopping malls are not allowed to open.

It is clarified that sale by e-commerce companies will continue to be permitted for essential goods only.

It is further clarified that sale of liquor and other items continues to be prohibited as specified in the National Directives for COVID-19 management.

As specified in the consolidated revised guidelines, these shops will NOT BE PERMITTED TO OPEN in areas, whether rural or urban, which are declared as CONTAINMENT ZONES by respective States/ UTs.


Ministry of Home Affairs

[Press Release dt. 25-03-2020]

[Source: PIB]

Op EdsOP. ED.

Economics has made a substantial contribution to our understanding of the law, but the law has also contributed to our understanding of economics.… The study of law gives economists an opportunity to improve the understanding of some of the concepts underlying economic theory.”

— David D. Friedman

Law and economics refer to the study of the application of the economic theories of law on the applications of law, was a brainchild of the Chicago School of Economics. The bringing together of the legal theory and economic reasoning brings out the psychological aspects of the changes that the new legal trends bring about and its impact on the rationality of the people. Law and economics albeit being new and recent, has been a development and a work in progress as we look at and the divergence of which cannot be fully explained and known presently. With the evolution of science and technology and the internet reaching its far heights, the value of consumer protection and more use of legally binding contracts and agreements are becoming increasingly at par with the ever-growing industries everywhere. With the advancement of the e-commerce industry, the business to business (B2B) and the business to customer (B2C) governing laws have turned out to be a major concern of this uprising front of the industry. The B2B laws govern the transactions between two or more businesses, whereas the B2C laws govern the laws and their contracts with the general public. Varied applications of the economic impacts of the law on the country and the people and vice versa is just a glimpse of what this developing study of law and economics pertains to.

Electronic commerce has been defined as the purchase and sale of commodities via the use of the internet. There can be sale of physical products as well for which money transfer takes place online. E-commerce takes into account different forms such as retail, wholesale, crowdfunding, subscription, physical products and services. The embellishment reasons of e-commerce are that with immense ease, it also cuts down on the cost of inventory management due to which it attracts new customers and bring them into the field of the online market. This enables a trader to stay open all the time and sell their products all across the nation.

E-commerce in India comprises the second largest user base in the world but the market is comparatively smaller than that of the United States or France. It is believed that e-commerce will grow at a very high rate in India touching $150 billion by 2020. Presently, Flipkart Pvt. Ltd. and Amazon.com Inc. are dominating the Indian markets but over time with an increase in the middle-class population, new entities will establish themselves. E-tail and e-travel will dominate the Indian market in the near future. India’s e-commerce industry is expected to contribute 4% of GDP by 2022 and match with China’s demands in 5-6 years.

Nevertheless, the major players in the Indian e-commerce sector underwent a jolt before the new year after the Department of Industrial Policy and Promotion tightened some of the Foreign Direct Investment rules through a Press Note which came as a huge setback for Amazon and Flipkart, the dominant players in the Indian e-commerce sector. This paper analyses the changes brought in by the Press Note 2 and how such changes are going to have an effect on the e-commerce sector in the upcoming times. Unfortunately, it seems the road ahead is full of obstacles.

Introduction

The last week of 2018 brought forth a new development with the new e-commerce policy being announced by the Government.  They went ahead and tightened some norms and regulations for the e-commerce players, a move that struck hard to the likes of Flipkart and Amazon, for now, they cannot sell products of companies in which they have stake.[1] The Department of Industrial Policy and Promotion (DIPP) in its Press Note 2 (Press Note) issued in December last year, made significant changes to Foreign Direct Investment (FDI) rules in the e-commerce sector in India.[2]

The big trigger which led to such changes was the increasing complaints being made to the Competition Commission of India (CCI) and All India Vendors Association (AIVA) from the small brick and mortar traders against Amazon and Flipkart, that they have been favouring their own subsidiaries on their platform to such an extent that the revenues of small scale traders are taking a hit. Some of these changes have been made in the backdrop of a lot of opposition and resistance from the trader’s association such as the Confederation of All India Traders (CAIT).[3] It is pertinent to note that the Press Note was released to acknowledge some of the major concerns raised by the trader’s association after the CCI approved the merger between Walmart and Flipkart where Walmart which happens to be the largest private employer in the USA purchased majority of the shares of Flipkart, the largest e-commerce company of India.[4]

The important point to take into consideration is that a small number of sellers in Flipkart’s online marketplace played a major contribution in its substantial shares. These small sellers were also the customers of Flipkart in the (B2B) segment as a result of which they were given preferential treatment by way of hefty discounts from both the B2B segment and online marketplaces.[5] However, even after taking note of such major concerns, the CCI decided not to address such competition concerns on the grounds that such concerns were not incidental to the impugned combination, thus playing a safe hand. The failure of CCI to address such issues led to the Government making major policy changes to provide relief to the small traders and sellers.

These changes aim to make the marketplaces far more genuine for there has always been complaints that the online marketplace as a channel offers regulatory arbitrage. The whole logic and the reasoning of a marketplace functioning is to have a genuine marketplace where there are only connecting sellers and buyers. This reasoning often used to get questioned. The FDI e-commerce policy clearly states that while FDI is allowed in the marketplace but it is not allowed in the inventory-led model.[6] The likes of Amazon and Flipkart hold major stakes in their online marketplace such as Cloudtail and RetailNet respectively which are big sellers on their respective platforms. This led to preferential treatment by way of providing hefty discounts to such marketplaces. With the new changes coming into place major players such as Amazon and Flipkart will have to make sure that they maintain fair play on the platform and maintain an arm’s length distance while providing discounts to such sellers.

While these changes are welcomed and the intention of the Government in bringing such changes might be to curb the unfair practices and ensure fair play in the marketplace, however, these changes are not entirely free from the lacunas and the Government will have to address such grey areas in the near future for proper functioning of the marketplace.

Business Models

In order to understand the changes brought in by policy, it becomes important to first understand the inventory-led model and which are the prevalent business models in the e-commerce sector.

Inventory Model: A brand while selling online on sites like Amazon and Flipkart is most likely to first sell to an intermediary alpha seller entity like Cloudtail or RetailNet and then these entities are selling to the end consumer on the e-commerce marketplaces like Amazon and Flipkart.

Marketplace Model: In this model, the brand directly sells to the end consumer via Flipkart or Amazon with e-commerce marketplaces. This can be done in two ways. First, one could ship the product form his own warehouse directly to the end customer which is said to be the pure marketplace model or, second, one could follow the Fulfilled by Amazon (FBA) model or Flipkart Advantage (FA) model where a brand could keep some of its stock in Amazon and Flipkart warehouses and then when the orders are received these stocks are shipped to the end consumers from those warehouses, the products being owned by the vendors while they use their warehousing services.

Changes

The DIPP issued guidelines and clarifications on rules pertaining to FDI in e-commerce. The highlights of the Press Note were the definitions of the marketplace and also the fact that the Press Note categorically states that FDI will be prohibited in inventory-led e-commerce models while 100% FDI through the automatic routes will be allowed in marketplace models.

Firstly, the policy mandates that 100% FDI is only allowed in the e-commerce marketplace model.[7] Secondly, no equity participation is allowed by the marketplace in the selling entity[8] thus prohibiting such marketplaces from selling products of entities related directly or indirectly on their platform. Thirdly, the marketplace cannot exercise control on the inventory. In fact, they have clarified this point further by saying that not more than 25% sales of the selling entity can come from one marketplace or a group[9] such as Flipkart, Myntra and Jabong which are one group. Fourthly, no exclusivity can be offered by the marketplace.[10] Fifthly, discounts and cashbacks cannot be influenced by the marketplace[11], although this rule has been in place for some time now but the word “cashback” has been added because people were circumventing in discounts in form of cashbacks. Sixthly, the contact details of the selling entity need to be clearly made visible on the marketplace to the customers.[12]

Implications

The no-equity participation rule and the 25% sales in one marketplace rule have direct ramifications for the marketplaces if they have been selling through the alpha sellers, for example, Cloudtail and RetailNet in cases Amazon and Flipkart respectively. The future of these models has now become unclear and now such brands need to think about alternative measures. Now, all the brands need to rethink about directly participating in the marketplace model. This could be done either through one’s own warehouse if they are equipped to handle single piece orders or through the models like Fulfilment by Amazon (FBA) model or the Flipkart Advantage (FA) model which are already in place.

The 25% sale in one marketplace rule and the exclusivity rule will have major ramifications for online brands and private labels of marketplaces because invariably they will end up having more than 25% of share in one marketplace. Further, the decline on the private label side can be expected which will provide an opportunity to homegrown Indian brands to go and capture the market.

If the 25% sale rule and exclusivity rule are coupled along with the curb on discounts and cashbacks rules, it becomes a great level playing field for traditional online as well as offline brands who were finding it difficult to compete due to the predatory pricing mechanism of these e-commerce marketplaces.

Furthermore, the contact details of the seller, being directly visible on the marketplace and the customer satisfaction being the responsibility of the seller would mean that brands will have to evolve their consumer relationship management (CRM) practices. Marketplace orders now need to flow into an integrated CRM where the call centre will be able to pop-up the Amazon order and answer any questions.

In the backdrop of elections as well as traders lobby putting a fair degree of pressure, the Government has made some significant changes in the policy. The few ones that merit significant attention is that though 100% FDI is permitted under the automatic route[13] it has been made applicable only to the marketplace model and not the inventory-based model of e-commerce. This provision albeit existing, was being openly flouted. However, the present Press Note went on to make this rule more stringent bringing in new regulation measures per which inventory-based model can appear only through ownership or control. A vendor is supposed to not only hold an ownership stake in the new product but also control that inventory. With the marketplace controlling that inventory, it becomes an inventory-driven marketplace in which FDI is prohibited.[14] This change in effect means that marketplace entities going forward cannot exercise any degree of control over the actual supply of the products. Further, they have also changed to the effect that insofar as any after-sales delivery and customer satisfaction is concerned, the product has to be solely handled by the sellers.[15] Both these changes are of immense implication for the ongoing marketplaces.

Other major changes that garners attention is that the Press Note imposes an embargo on the marketplaces by stating that if any of the group companies are selling more than 25% of what the vendor is selling on the marketplace, it will fail to qualify as a marketplace and will be seen as an inventory-driven FDI marketplace where FDI is prohibited.[16] According to these new regulations an entity can take up only 25% of the purchases from its subsidiary. Given the fact that entities such as Cloudtail contribute almost 40% to the business of Amazon and similarly RetailNet which contributing a fair share to Flipkart’s sales, this regulation going to have a huge impact on the big giants.

The impact of this rule can be broken down into two levels. Firstly, that the wholesale arms of these marketplaces cannot be selling more than 25% of what the vendor is purchasing. The important point to note here is that Amazon wholesale or Flipkart wholesale were supplying products in huge volumes and value to a number of vendors who were selling on these marketplaces. The new regulations have placed an embargo on such practice by restricting the vendors from purchasing more than 25% from group entities of the marketplace. Secondly, the other big restriction brought about by the new regulations is that the marketplace entity or any of the group companies of the marketplace entity cannot own a single percentage of equity in any company which is a vendor on the marketplace.[17] Such a regulation ties into the whole point of players such as Cloudtail and RetailNet or other marketplaces where there is indirect foreign investment. However, it remains to be seen whether no equity participation would also include indirect equity participation as in some of the marketplaces and seller entities the foreign investment is not there at the direct level but it is one layer above. The intent of the policymakers is clearly to keep the marketplace genuine where the scope or the relevance of the marketplace in driving sales has to be kept limited.

As a result of such regulations coming into place, Morgan Stanley warned that Walmart may exit the Indian e-commerce sector.[18] It is a major concern as Amazon decided to shut down its retail business in China after the Chinese Government imposed similar restrictions in the country.[19]

Before the new regulation coming into effect, Flipkart and Amazon could sell their own line of products such as AmazonBasics, Flipkart SmartBuy etc. which proved to be profitable for them as they could lower the costs and the supply chain process. As a result of these new restrictions marketplace such as Amazon reduced its stake in its group company Cloudtail from 49% to 24%.[20]

The Press Note also imposes a ban on the exclusive tie-ups with the sellers.[21] The intention behind this regulation is to create a level playing field and ensure uniformity in the market. This regulation seeks to take away the dominant position of some of the marketplace entities such as Flipkart and Amazon and exclusive sale of smartphone brands such as OPPO, VIVO, XIAOMI, etc. could be a thing of the past.[22] This rule restricts marketplace entities from giving preferential treatment to particular sellers and thus maintains an arm’s length basis.

Further, the Press Note mandates that cashbacks that are provided to the buyers by a group of companies of a marketplace entity should be fair and non-discriminatory.[23] This regulation has got its origin and background in the context of the fact that the earlier policy stated that the marketplace entity should not directly influence the price at which products are to be sold[24]. However, number of trader associations had raised grievances before the Government that the particular policy is not being followed in letter and spirit following which the Government went on to become extremely prescriptive to address the perceived abuse. The new regulation, however, does not change the overall nature of the restriction that was already present.

The issue of marketplaces influencing sale prices gained attention in April 2018 after the Income Tax Appellate Tribunal in Flipkart India (P) Ltd. v. CIT[25] noted that Flipkart is indulging in predatory pricing and that it has its nexus with certain specific retailers for increasing its profit. Thus, the Government vide Press Note has made efforts to curb the issue of predatory pricing and preferential treatment by clearly stating that the group companies can provide only fair and non-discriminatory cashbacks and prohibiting the marketplaces from giving preferential treatment to specific vendors. This restriction has come as great relief to brick and mortar retailers and small e-commerce players with Snapdeal’s CEO Kunal Bahl welcoming the new regulations.[26]

Plugging the Loopholes

The Government released the Press Note to establish a level playing field in the Indian e-commerce sector and making the sector fair and just for all. However, the Government in its pursuit to address the concerns of the e-commerce sector have left some grey areas which may merit re-evaluation in the future.

The timeline provided to marketplaces to implement changes was fairly short given the fact that significant changes were brought in by the Press Note and that would have required a significant amount of restructuring by the existing marketplaces as the regulations has a significant amount of ramifications for the current business model on which the current marketplaces are running. Flipkart’s Chief Executive, Kalyan Krishnamurthy in his letter to India’s industry department requested the Government for extension of time for implementing the new rules as he feared that the new regulations could cause significant customer disruption in the case of non-extension of the deadline for implementation of new rules.[27]

The new norms have also banned the exclusive tie-ups which will have big implications on a lot of brands that have been looking at specific tie-ups with either Flipkart or Amazon. The Government here has gone a little overboard in its measure to check the anti-competitive practices. In order to ensure and streamline the process of a genuine marketplace, the Government has taken away the party autonomy that comes with any business model. If a brand intends to tie-up with particular marketplace for it offers better commercial value to them then they should be allowed to do so. Such a condition restricting a vendor to tie-up exclusively with one particular marketplace does not even serves the objective the Press Note seeks to achieve which as a matter of fact has not been laid down clearly in black and white. This regulation has taken away the party autonomy and is not in line with any intent that one could have deciphered from the policy announcement.

Further, the new regulations have severely hit the marketplaces such as Flipkart and Amazon while excluding the domestic marketplace entities such as Patym Mall, Snapdeal, etc.[28] The prime intention of the Government in bringing new regulations was to create a level playing field in the Indian e-commerce sector and ensure fairness and justice. However, the new regulations failed to take the domestic entities within its ambit thus giving rise to the possibility of such domestic entities indulging in unethical business practices which would further raise competition concerns in the sector as this will give a clear advantage to these domestic players thus defeating the objective of the Government behind introducing the Press Note. While on one hand, the FDI marketplace is finding it tough to adhere to the new norms and regulations, on the other hand, these regulations provide an opportunity for the domestic players to take undue advantage.

The Press Note has also banned the marketplaces from providing hefty discounts and cashbacks. However, since the Government did not appoint any agency to ensure proper compliance of the rules, these marketplaces are likely to come up with innovative methods of providing discounts.[29] Also, there is a threat that such a restriction will have a negative impact on the customers at large as deep discounts and cashbacks are the primary incentive for most of the people in India behind shopping online. Further, these regulations do not take offline retailers within its ambit neither the same is clear from any provision which gives the offline retailers undue advantage. Further, although the Press Note talks about cashbacks provided by the group companies it is silent on the point of cashbacks provided by the marketplace entities. Marketplace entities can provide deep discounts and hefty cashbacks that could result in unfair and discriminatory pricing.

Furthermore, the Press Note failed to take into consideration the problems of implementation of some regulations. The Press Note does not even mentions any criteria to assess whether 25% purchases of a vendor are from the marketplace entity or its group companies considering the fact these marketplace entities do not even have the access to the accounts book of most of its vendor.

The new regulations also prohibit preferential treatment to any vendor in similar circumstances without providing any proper interpretation of the term “similar circumstances” thus giving uncontrolled discretionary power to the regulatory bodies.

Conclusion

The new policy brought in by DIPP should be welcomed as in the long run it has the potential of creating a level playing field. In the short run, entities might face some operational challenges of moving from the alpha seller model to the marketplace model directly. However, no matter how good the intention of the Government might be behind bringing the changes, they need to open their eyes soon and take step towards curbing the loopholes in the new policy as it clearly discriminates between foreign and domestic companies giving a clear-cut advantage to the latter. If these problems are not solved soon then the whole objective of the Government will face a major setback. In fact, as stated earlier there is a threat that major marketplace like Flipkart might end their operation in India. Such a possibility cannot be ruled out given the fact that Amazon decided to take an exit from the Chinese e-commerce sector in light of similar restrictions. Therefore, to prevent such extreme measure the Government should look forward to work in collaboration with these big entities and come up with rules, that is beneficial for all.


†  3rd year student, NUSRL, Ranchi.

[1] Govt. Tightens Norms for Etailers, Bars Exclusive Deals, The Economic Times (27-12-2018, 11.57 a.m.) <https://economictimes.indiatimes.com/news/economy/policy/government-tighten-norms-for-e-commerce-companies-for-sale-of-products/articleshow/67258251.cms>.

[2]  Press Note 2, Department of Industrial Policy and Promotion <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[3]  War Against Flipkart! Traders Association CAIT Complains to ED; Alleges Violation of Trade Rules, Financial Express (1-6-2018, 3.23 p.m.) <https://www.financialexpress. com/industry/war-against-flipkart-traders-association-cait-complains-to-ed-alleges-violation-of-trade-rules/1189833/>

[4]  Walmart International Holdings, In re, 2018 SCC OnLine CCI 103.

[5]  Walmart International Holdings, In re, 2018 SCC OnLine CCI 103, (para 13).

[6] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.3(ii)  <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[7] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.3(i) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[8] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(v)  <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[9] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(iv) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[10] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(xi) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[11] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(ix) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[12] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(vi) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[13] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.3(i) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[14] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(iv) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[15] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(vi) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[16] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(iv) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[17] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(v) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[18]  Nishanth Vasudevan and Samidha Sharma, Morgan Stanley Warns Walmart may Exit Flipkart Post New FDI Rules, The Economic Times (5-2-2019, 4.27 p.m.) <https://economictimes.indiatimes.com/industry/services/retail/morgan-stanley-warns-walmart-may-exit-flipkart-post-new-fdi-rules/articleshow/67843595.cms>.

[19]  Amazon Plans to Shut Online Store in China, BBC (18-4-2019) <https://www.bbc.com/news/business-47972634>.

[20]  Shambhavi Anand and Chaitali Chakravarty, Key Amazon Seller Cloudtail Returns in a New Avatar, The Economic Times (7-2-2019, 11.29 a.m.) <https://economictimes.indiatimes .com/industry/services/retail/key-amazon-seller-cloudtail-returns-in-a-new-avatar/articleshow/67877172.cms>.

[21] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(xi) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[22]  Subhayan Chakraborty and Karan Choudhury, New Govt. Norms may End Amazon, Flipkart Flash Sales and Discounts, Business Standard (27-12-2018, 4.22 a.m.) <https://www.business-standard.com/article/economy-policy/amazon-flipkart-may-feel-the-pinch-after-govt-bars-exclusive-deals-118122600873_1.html>.

[23] Press Note 2, Department of Industrial Policy and Promotion, Para 5.2.15.2.4(ix) <https://dipp.gov.in/sites/default/files/pn2_2018.pdf>.

[24] Press Note 3 (2016 Series), Department of Industrial Policy and Promotion, Para 2.3(ix) <http://dipp.nic.in/sites/default/files/pn3_2016_0.pdf>.

[25]  ITA No. 693. Bang/2018 (Asst. Year – 2015-16) <https://taxguru.in/wp-content/uploads/2018/08/Flipkart-India-P-Ltd.-Vs-Asstt.-CIT-ITAT-Bangalore.pdf>.

[26] Govt. Tightens Norms for Etailers, Bars Exclusive Deals, The Economic Times (27-12-2018, 11.57 a.m.) <https://economictimes.indiatimes.com/news/economy/policy/government-tighten-norms-for-e-commerce-companies-for-sale-of-products/articleshow/67258251.cms>.

[27] New E-Commerce Rules: Flipkart Warns of Major Customer Disruption, Livemint (29-1-2019) <https://www.livemint.com/industry/retail/flipkart-amazon-new-e-commerce-rules-1548756549308.html>.

[28]  E-Commerce FDI Norms Should be Applied on Domestic Players Also: CAIT, Business Standard (1-1-2019, 1.23 a.m.) <https://www.business-standard.com/article/companies/e-commerce-fdi-norms-should-be-applied-on-domestic-players-also-cait-118123100412_1.html>.

[29] E-Commerce Discounts May Continue, But in Innovative Ways, Livemint (28-12-2018, 12.39 p.m.) <https://www.livemint.com/Industry/QCRLPPX16uWwsTfFX07V0M/Ecommerce-discounts-may-continue-but-in-innovative-ways.html>.

Law School NewsOthers

The Editorial Board of the RSRR invites submissions for the RSRR Blog Series on the theme “Regulating the E-Commerce Sector in India: A Work In Progress”

Background

The exponential growth of e-commerce as a mode of conducting business raises a number of regulatory issues and legal questions. Over the past few years, the digital economy has seen a significant increase in the number of e-commerce transactions. With the unprecedented growth of the online retail sector, the need to have an adequate policy to govern it has arisen. The need for such a policy led to contemplations on the Draft E-Commerce Policy of 2018 (“Policy”).

The Policy aims to fill the legal vacuum pertaining to the E-commerce sector and bring certainty regarding the legal requirements and factors that the E-Commerce sector has to keep in mind. It aims at creating a level playing field to ensure fair competition for online marketplaces with respect to brick-and-mortar retailers. To regulate the online marketplace the Policy addresses multiple issues/topics vis-à-vis e-commerce including consumer protection, data localization, competition-distorting M&A etc.

In 2019, certain new FDI Rules issued by Department of Industrial Policy and Planning (DIPP) have been introduced which have barred online marketplaces, with foreign investments, from selling products from sellers in which the online marketplaces hold a stake. The Rules inter-alia prevents the exclusive sale of a product on a particular online marketplace. These rules have stirred the market and concretized the dire need to have a stable regulatory framework to regulate e-commerce in India. The instant series aims to facilitate discussion on the comprehensive legislation and regulation for the e-commerce sector in India.

Sub-Themes
  • Anti-Competitive Practices in the E-Commerce sector w.r.t the Brick & Mortar retailers;
  • Issues around Taxability of E-Commerce transaction;
  • Consumer Protection: Grievance Redressal Mechanism under Indian Laws;
  • Content Regulations on E-Commerce platforms;
  • Draft E-commerce Policy 2018: An Analysis;
  • The Intellectual Property Debate related to E-Commerce;
  • Standard Contracts of E-Commerce vis a vis Indian Laws;
  • Liabilities under E-Commerce transactions
  • FDI policies related to E-Commerce;
  • Curbing the menace of frauds in E-Commerce transactions;
  • Consent Requirement: contractual freedom in E-Commerce sector.

The submissions are, however, not restricted to the aforesaid sub themes, provided they fall within the ambit of the main theme.

Instructions for Authors
  • All submissions must be in Garamond, font size 12, spacing 1.5.
  • All endnotes should be in Garamond 10, single-spaced.
  • Margins: Left 1.5 Inch, Right 1 Inch, Top 1 Inch and Bottom 1 Inch.
  • Word Limit for each post is a maximum of 1500 words (Exclusive of endnotes).
  • Please ensure inclusion of endnotes instead of footnotes. A uniform style of Citation is necessary for acceptance.
  • All entries should be submitted in .doc or .docx format.
Submission Guidelines and Procedure
  • All submissions must be in Garamond, font size 12, spacing 1.5.
  • All endnotes should be in Garamond 10, single-spaced.
  • Margins: Left 1.5 Inch, Right 1 Inch, Top 1 Inch and Bottom 1 Inch.
  • Word Limit for each post is a maximum of 1500 words (exclusive of endnotes).
  • Please ensure inclusion of endnotes instead of footnotes. A uniform style of citation is necessary for acceptance.
  • The manuscript should be accompanied by a cover letter specifying the author’s name, designation, institute, contact number, and e-mail for future reference. [Participants are requested to not put their name anywhere in the main manuscript]
  • All entries should be submitted in .doc or .docx format.
  • The manuscripts must be e-mailed to submissionsrslr@rgnul.ac.in
  • The subject should be titled “Submission for RSRR Blog Series Issue”.
  • All selected entries shall be published on the RSRR Blog Series.
  • E-certificates will be awarded to the authors of each published blog.
  • Co-authorship of maximum of 2 is permitted.
  • The author(s) bear sole responsibility for the accuracy of facts, opinions or views stated in the submitted Manuscript.
  • In the case of gross plagiarism found in the contents of submitted manuscript, the manuscript shall be subject to rejection.
  • Copyright of all blog posts shall remain with RSRR. All Moral Rights shall vest with the author.
Deadline

The last date of submission is March 15, 2019.

Contact

In the case of any query, contact at submissionsrslr@rgnul.ac.in.

Furthermore, the following people can be contacted:

Managing Editor- Yavanika Shah (9872466478)

Executive Editors- Aryan Babele (9926041054)

Shrey Nautiyal (7988767598)

Business NewsNews

In order to ensure due compliance of the FDI policy on e-Commerce, Press Note 2 (2018) has been issued. It puts in place certain conditions. These conditions include:

  1. An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.
  1. e-Commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.

This Press Note is effective from February 01, 2019.

Representations have been received to defer the implementation of Press Note 2. The FDI policy on e-Commerce, first pronounced through Press Note 2 of 2000, permitted 100% FDI in B2B e-commerce activities. With a view to provide clarity to the extant policy and after extensive stakeholder consultations, guidelines for FDI on the e-commerce were issued vide Press Note 3 (2016). To provide further clarity to FDI policy on e-commerce, Press Note 2 (2018) was issued.

Stakeholder consultations on creating a framework for National Policy on e-Commerce with representatives from Government Ministries, Departments, Reserve Bank of India, industry bodies, e-commerce companies, telecom companies, IT companies and payment companies have been held. Issues regarding the e-commerce sector are regularly reviewed by the Government.

The e-commerce sector is expected to keep growing in future because of a number of reasons. The FDI policy on e-commerce has remained unchanged. Better enforcement of this policy will contribute significantly to growth of this sector over medium and long term.

Ministry of Commerce & Industry

Case BriefsSupreme Court

Supreme Court: The 2- Judge Bench comprising of A.K. Sikri and Ashok Bhushan, JJ., gave directions to be followed for burning of crackers while refusing the complete ban on the sale of firecrackers as it may lead to “extreme economic hardships” (observing without conclusively holding) and further stating that there have been lots of efforts for production of firecrackers which do not contain harmful chemicals and thereby not causing air pollution, which are even termed as Green Crackers’.

The present petition was filed by next friends of three infants concerning the health of the children as due to the alarming degradation of the air quality, leading to severe air pollution in the city of Delhi, the petitioners may encounter various health hazards. Children are much more vulnerable to air pollutants as exposure thereto may affect them in various ways. Further, they have submitted that air pollution hits its nadir during Diwali time because of indiscriminate use of firecrackers.

In light of the above submissions, the petitioners have prayed for directions to the official respondents to take possible measures for checking the pollution by sticking at the causes of the pollution.

The Supreme Court on duly considering the submissions of the parties and taking note of the reports based on earlier orders of the Supreme Court concerning the same issue, stated that bursting of firecrackers during Diwali is not the only reason for deterioration of air quality, the other reasons which contribute to the issue are unregulated construction activity and crop burning. Further, the Court stated that “our endeavor is to strive at balancing of two rights, namely, right of the petitioners under Article 21 and right of the manufacturers and traders under Article 19(1)(g) of the Constitution of India.

Respondent 1, on the direction of Apex Court’s earlier order, filed an affidavit in consultation with various ministries to deal with the problems and issues as stated above, which have been accepted by the Supreme Court and further direction has been given for the implementation of the same. The directions given by the Court have been stated below in a succinct manner:

  • Complete ban on manufacture and sale of all fireworks which are high emission. Therefore all existing fireworks like sparklers, flower pots, chakras, rockets and crackers stand banned.
  • Only “green” and low emission fireworks which will have to be made in future are permitted, once cleared by PESO.
  • Any of those fireworks which are green or low emission when invented will be permitted to be used only in community areas as demarcated and not in front of everybody’s houses.
  • Any violation of the sale of prohibited fireworks or their use or the bursting of permitted fireworks in non designated areas will be the responsibility of the respective SHO who can be hauled up for contempt of the Supreme Court.
  • No E-Commerce site can sell any of the traditional Fireworks and if they do so they will be guilty of contempt of Supreme Court as well.
  • It will be the responsibility of PESO to ensure that all existing fireworks are disposed of and not permitted to be sold.
  • On Diwali days or on any other festivals like Gurupurab, when fireworks generally take place, it would strictly be from 8:00 p.m. till 10:00 p.m. only. On Christmas and New Year eve, when such fireworks start around midnight, i.e. 12:00 a.m., it would be from 11:55 p.m. till 12:30 a.m. only.
  • Union of India, Government of NCT of Delhi and the State Governments of the NCR would permit community fire cracking only (for Diwali and other festivals etc.)

Therefore, the Court having regard to the overall circumstances, decided to have a balanced approach to tackle the stated issue which may take care of the concerns of both the parties and provide a reasonable and adequate solution. [Arjun Gopal v. Union of India,2018 SCC OnLine SC 2118, decided on 23-10-2018]

Tribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): CCI has rejected allegations of unfair business practices against five e-commerce sites on the ground that prima facie, no case of contravention of the provisions of either Section 3 or Section 4 of the Competition Act, 2002 was made out against them. CCI was hearing an information filed against Flipkart India Pvt. Ltd., Jasper Infotech Pvt. Ltd., Xerion Retail Pvt. Ltd., Amazon Seller Services Pvt. Ltd. and Vector E-commerce Pvt. Ltd. alleging that the said e-portals/e-commerce websites and product sellers enter into ‘exclusive agreements’ to sell the selected product exclusively on the selected portal to the exclusion of other e-portals or physical channels or through any other physical channel. It was also alleged that each e-portal has 100% market share for the product in which it is exclusively dealing and therefore, leads to dominance. A complaint was also filed by All Delhi Computer Traders’ Association (ADCTA) leveling the same charges against the five e-commerce sites. These five e-commerce sites are Flipkart.com, Amazon.com, Snapdeal.com, Jabong.com and Myntra.com. Jasper Infotech Pvt. Ltd. is the owner of Snapdeal.com, Xerion Retail Pvt. Ltd. owns Jabong.com, while Vector E-commerce Pvt. Ltd. is the company behind Myntra.com. After hearing the parties and perusal of relevant records, CCI noted that online distribution channel by the sites provide an opportunity to the consumers to compare the prices as well as the pros and cons of the product and does not violate competition norms. With regard to exclusive agreements, the Commission observed that such pacts need not result in appreciable adverse effect on competition. “It does not seem that such arrangements create any entry barrier for new entrants. It seems very unlikely that an exclusive arrangement between a manufacturer and an e-portal will create any entry barrier as most of the products which are illustrated in the information to be sold through exclusive e-partners (OPs) face competitive constraints,” CCI noted. While observing that there was no prima facie evidence of violations by the e-commerce companies, Commission closed the information. CCI also abstained from going into the question of abuse of dominance. Mohit Manglani v. Flipkart India Pvt. Ltd., 2015 CCI 7, decided on 23.04.2015