It is not surprising that e-commerce has significantly impacted consumers worldwide in such a short amount of time. It was essential to introduce codified legislation to serve the interests of consumers in the e-commerce area. The current Consumer Protection Act has undergone such drastic changes for both enterprises and consumers, posing new issues.
As part of its authority under the Consumer Protection Act 2019 (the “Act”), the Ministry of Consumer Affairs, Food and Public Distribution of the Government of India notified and made the provisions of the Consumer Protection Act (E-Commerce) Rules, 2020 (the “E-Commerce Rules” or the “Rules”) effective as of July 24, 2020 (Source). They prioritize and protect the interests of consumers against potential exploitation by e-commerce entities. The “e-commerce entity” that is the subject of these rules is defined generally as anyone who owns, maintains, or operates a digital or electronic facility or platform for e-commerce. These Rules define an “inventory-based e-commerce firm” as an organization that maintains an inventory of goods or services for direct customer sales.
Additionally, the Government of India suggested several changes to the E-commerce Rules on June 21, 2021, and invited feedback or suggestions from the industry’s stakeholders. When the proposed changes are made known, they will affect all parties involved in fulfilling orders placed by customers on mobile applications and electronic portals, including sellers, distributors, logistics partners, and e-commerce operators (including marketplace and inventory-based model entities).
The proposed changes aim to control and prevent exploitative and unethical e-commerce practices, such as deceptive flash sales and misrepresenting or misselling goods and services.
Another significant change is the appointment of grievance resolution procedures and raising e-commerce businesses’ liability.
All online businesses dealing with products or services must abide by the E-Commerce Rules. This includes online businesses not based in India but routinely selling goods or services to Indian customers. The E-Commerce Rules further include obligations for sellers on marketplace platforms and obligations for inventory e-commerce firms. It includes single-brand and multi-channel single-brand retailers, and liabilities for those entities.
The Fallback Liability Clause
The inclusion of the “fallback liability” clause is the problem that demands our attention. It is not just because of the huge impact that the rules may have on marketplace firms.
The Ministry of Consumer Affairs, Food, and Public Distribution has notified the Consumer Protection Act (E-Commerce) Rules, 2020. It protects consumers’ interests against potential exploitation by e-commerce firms.
Fallback Liability on E-Commerce Entities
According to the E-commerce Rules under the Consumer Protection Act, fallback liability is “the liability of the marketplace e-commerce entity where a registered seller fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission, or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity, which results in loss to the consumer.” (Source)
In other words, the clause creates a paradigm shift in the liability of online retailers, who, before implementing these rules, mostly served as middlemen but will now be held directly and indirectly liable for any harm the vendor causes to the customer. This suggests that the e-commerce company will be responsible for any losses end users suffer, even when the vendor is careless. This clause also holds the e-commerce company accountable for any failure on the part of the logistics service provider. Thus, if there is a failure in the delivery of products and services, the e-commerce platform will be held responsible.
Reformation in Current Laws
The claim made by e-commerce players that they have no control over the goods offered on their platform has been rejected by the Parliamentary Standing Committee on Commerce, placing the onus on them to serve as a middleman in resolving complaints about fake goods being sold on their platform.
These rules apply to all online businesses that deal in products or services, including those businesses that are not based in India but routinely sell goods or services to Indian customers.
The standing committee stated in its report that: Online retail companies must serve as an intermediary between buyers and suppliers;
Clarity is required regarding the extent and implementation of the prohibition on flash sales. The large players should set up a grievance redressal mechanism. E-retailers should also be restricted from selling private-label products through third parties.
Judicial position in India
In the past, several consumer complaints have been brought before consumer forums alleging liabilities against e-commerce businesses. Recently, the Chhattisgarh State Consumer Redressal Commission issued one of these orders in which Amazon Seller Services Private Limited was released from its obligations concerning the other respondents.
Amazon India claimed that it is only a facilitator and that the complainant accepted the “Conditions of Use” at the time of registration on the website. It expressly stated that the contract of sale and purchase of items was strictly a bipartite contract, i.e., between a registered seller and customer. The complaint was filed regarding a deficiency in services and a breach of warranty conditions. It was further asserted that because Amazon India and the buyer do not have a contract, as stated in the terms of sale, Amazon India cannot be held liable for the actions of third parties.
The Commission cleared Amazon India, but it was noted that Amazon India was only operating as a shopping platform. It had no involvement in the product’s manufacturing, repair, or other services.1 It was additionally noted that the transaction could only occur if the website visitor accepted the terms and conditions of the website.
Liability of Facilitator
The subsequent decision of the National Consumer Dispute Redressal Commission, in the case of Hello Travels v. Harish Jain2, upholding its earlier position in the case of Amazon Seller Services Pvt. Ltd. v. Gopal Krishan, has settled the matter, despite the strength of Amazon India’s arguments.3
In the instance mentioned above, Sh. On May 11, 2016, Gopal Krishan acquired a mobile phone, a Xiaomi Redmi Note 3, through an online platform owned, operated, and controlled by Amazon India. Online payment was performed, and a problem with the phone was discovered. In this instance, as mentioned earlier, it was found that the facilitator’s responsibility was to ensure that any goods supplied by an individual were produced per the required standards. The online store from which the items were acquired cannot escape responsibility if the goods are subpar.
The rulings mentioned above make it evident that regardless of the type of service offered. The consumer’s welfare has always taken precedence in Indian courts. As a result, the judicial view or trend seems to support the fallback liability clause’s justification.
The operator of the platform, who is just serving as a technology platform for facilitating and completing the orders of the clients, is essentially burdened and held accountable by the fallback liability clause. Despite the fact that the E-Commerce Rules under the Consumer Protection Act were written with the interests of consumers as their primary consideration. This legal obligation expects an e-commerce firm to maintain order in its operations. The costs for such businesses would ultimately rise due to excessive monitoring and compliance. It would impact relatively few actors. Additionally, to avoid any future liability, the organizations and brand owners would constantly monitor the market to identify and purchase items. The big brands will be able to afford to buy costly market analysis tools and hire professionals. This will further prevent small merchants from having their goods listed.
Even though the Consumer Protection Act E-Commerce Rules have received positive feedback from most people, organizations like NASSCOM and FHRAI. The Federation of Hotel and Restaurant Associations of India contends that certain relaxations should be provided to online shops to foster trade in the nation. It is not entirely justified to put too strict limitations on online retailers.
In this situation, a “fallback responsibility” clause will likely do more harm than good by giving e-retailers an unfair advantage. Currently, the provision needs further clarification, rules, and exceptions within the same clause. If the e-retailer can show that they took adequate care and precautions and a problem arose due to the seller’s fault, no liability will be placed on the market. Although a feasible substitute would have been a clause that ensured prompt returns to the offended customer, the fallback liability clause might encourage pointless legal action.
- Krent, Mollie. “Remediating Racism for Rent: A Landlord’s Obligation Under the FHA.” Michigan Law Review, vol. 119, no. 8, Michigan Law Review Association, June 2021, p. 1757.
- 2020 SCC OnLine NCDRC 615
- First Appeal No. 27 of 2017 decided on 17.02.2017
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