Amid criticism, Government relook at draft rules for e-commerce

Facing a pushback from not only the industry but also some sections of the government, the Department of Consumer Affairs is learnt to be revisiting some provisions pertaining to definitions such as ‘related party’ and ‘e-commerce entity’ proposed in the draft e-commerce rules it published in June, multiple sources involved in the exercise have told The Indian Express.

The most significant criticism from within the government is related to the perception of “overreach” by the Consumer Affairs Department — venturing into areas where other departments such as the Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Electronics & Information Technology (MeitY) are already working.

Several contradictions in the draft rules that have triggered confusion among sectoral players have also been flagged, including some provisions that run contrary to the rules governing the sector issued earlier by the DPIIT, officials said.

Among the concerns raised by the industry, the “broad definition” of ‘related party’ has been flagged — as one “that can potentially include all entities such as those involved in logistics, any joint ventures, etc.”, thereby vastly expanding the remit of the new rules.

“The definition of related party certainly needs some more clarity, otherwise it will be difficult not only for foreign players like Amazon and Flipkart, but even homegrown companies like Tata and Reliance to have their various brands such as 1mg, Netmeds, Urban Ladder, Milkbasket, etc. sell on their super-apps,” a Delhi-based retail executive said on condition of anonymity. There was broad consensus in the industry over this issue, the executive said.

The executive gave the example of the joint venture between the Tata Group and Starbucks, which would be considered a related party under the proposed provisions, and would not be able to sell products on a Tata super-app.

The draft rules say every e-commerce marketplace must ensure that nothing is done by related parties or associated enterprises that the e-commerce entity itself cannot do. Sources said the provisions might be changed to have certain exclusions in the definition to accommodate these concerns.

Also, it has been highlighted that in some cases, provisions such as fall-back liability is counter-effective to the DPIIT’s policy for foreign funding of e-commerce companies that disallows these firms from having control over their inventory.

Industry players have argued that on the one hand the FDI policy prohibits companies such as Amazon and Flipkart from having control over the inventory sold on their platforms, while on the other, the e-commerce rules of the Consumer Affairs Department holds these platforms liable in case a seller fails to deliver goods or services due to negligent conduct, which causes loss to the customer.

“Provisions like fall-back liability are antithetical to the way e-commerce business models have evolved and they are even in contravention of the existing rules,” a senior industry official said.

An e-mail query sent to the Consumer Affairs Ministry seeking comments on the issue did not elicit a response.

The cross-indexing of rules governing the e-commerce sector among various government departments has also been flagged. The most significant intervention has come from the Niti Aayog, which is learnt to have flagged in an office memorandum that many of the provisions were “beyond the realm” of consumer protection.

Some of the proposed provisions like having a compliance officer, adherence to law enforcement requests, etc., follow in the footsteps of the Information Technology (Intermediary) Rules, 2021 issued by MeitY. These IT rules are facing legal challenges in several courts, including the Delhi High Court, Bombay High Court, and Karnataka High Court.

An official of a Bengaluru-based e-commerce company noted that the noise over the FDI policy of the DPIIT, which was seen in the US as India adding non-tariff trade barriers, could have been a reason why the government decided to route the new e-commerce rules through the Consumer Affairs Department.

The Confederation of All India Traders (CAIT), responding to Niti Aayog’s letter questioning the role of the Consumer Affairs Ministry in the formulation of these rules, wrote to Minister of Commerce & Industry and Consumer Affairs, Food and Public Distribution Piyush Goyal on Monday: “As expected, [a] few organisations in the country are bent upon creating roadblocks to ensure that reforms are derailed…it is highly painful to observe that Niti Aayog without realising as to why the e-commerce rules are necessary joined the chorus criticising the rules.”

Sector experts have raised concerns over some of the provisions being against the interests of consumers. “These rules appear to blatantly limit consumer choices further through provisions such as blanket ban on flash sales, etc. despite the regulations being routed through the Ministry that is mandated to uphold consumer rights,” a Gurgaon-based retail sector analyst said.