By Rupal Jaiswal
[Rupal Jaiswal is a fifth year student of B.A. LL.B. (Hons.) at Symbiosis Law School, Pune.]
The Consumer Protection Act 2019 (“2019 Act”) notified on August 09, 2019 replaced the Consumer Protection Act 1986 (“1986 Act”) to further safeguard consumer interests in India. [i] This renovation was long-pending, especially since 1995, the year when online markets started mushrooming in India. [ii] The new class of consumers who engaged in e-commerce were not protected under the 1986 Act. In 2014, the Ministry of State for Consumer Affairs, Food and Public Distribution notified that the 1986 Act was equally applicable for protection of e-consumers. [iii] However, the problems faced by e-consumers were specific to e-commerce, such as delayed or no delivery, unprocessed refunds, delivery of defective or wrong products, unresponsive customer care services etc. which were not included within the conventional definitions of ‘defect in goods’ or ‘defective services’ under the 1986 Act. This necessitated the enactment of the 2019 Act.
Critical Analysis of the 2019 Act:
The 2019 Act is a landmark legislation on e-consumer rights as it aims to empower the Central government to frame rules to prevent unfair trade practices prevalent in e-commerce. [iv] In exercise of these powers, the Central government drafted the Consumer Protection (E-commerce) Rules 2019 (“the Draft Rules”) on which public comments have been sought. [v] However, the novel provisions for protection of e-consumers lead to a few grey areas and problematic implications for e-commerce entities: –
A. Overarching and Ambiguous Definitions:
i. E-commerce- The definition of e-commerce spans wide in both the 2019 Act and the Draft Rules; it covers not just online commerce but all transactions over the digital network. Explanation (b) under Section 2(7)(ii) of the 2019 Act defines e-commerce as “buying or selling of goods or services including digital products over digital or electronic network”. Further, electronic service providers have been described as “those who provide technologies or processes to enable a product seller to engage in advertising or selling including online market place or online auction sites”. Companies providing online delivery of goods like Amazon, Flipkart, service aggregators like Zomato and online auction sites such as OLX and eBay fall squarely under the 2019 Act. This exhaustive coverage of the 2019 Act is laudable; however, these online platforms will now face huge compliance obligations. Conventionally, e-commerce is only a subset of activities that take place over a digital network, which also facilitates online payment services, remote health-care services, online education platforms, e-journalism etc. [vi] All these activities are unreasonably included under ‘e-commerce’. This will hinder their growth which is counterproductive for the government’s flagship ‘Digital India’ campaign. Additionally, this expansive definition is contrary to the judgment of the Hon’ble Delhi High Court in Christian Louboutin v. Nakul Bajaj & Ors. (“Christian Louboutin Case”) whereby the court interpreted e-commerce as “simply commerce, the purchase-sale of goods/ services which takes place online, and not from physical brick and mortar shops, malls or kirana stores”. [vii] Thus, inclusion of online activities not involving buyer-seller relationship within ‘e-commerce’ is uncalled for. Secondly, it is unclear if e-commerce includes products sold on social media websites such as Facebook and Instagram. Further, extra-territorial application of the Act to off-shore e-commerce companies providing services to consumers within India is another grey area.
ii. Product Liability– ‘Product liability’ refers to liability of a person involved in the manufacturing or supply chain of a product in case any injury is caused due to defects in their product. [viii] It was defined for the first time in India by the 2019 Act. It grants the consumers the legal right to claim damages for any harm, injury or death resulting from a defective products / deficient services, from manufacturers or sellers. [ix] Notably, the definition of ‘harm’ now includes ‘mental agony and emotional distress’ [x] which raises interpretational issues regarding the degree of distress or the proximity of harm caused due to the defective goods / deficient services before damages can be awarded. Product liability spells trouble for e-commerce giants which can no longer escape responsibility by tagging themselves as mere ‘intermediaries’. The ‘intermediaries’ defense (also called ‘safe harbour’ provision) was derived out of the Information Technology Act 2000 (“IT Act”) according to which intermediaries cannot be held liable for any third-party information made available or hosted by them. [xi] Remarkably, the Hon’ble Delhi High Court in the Christian Louboutin Case, interpreted ‘intermediaries’ under the IT Act to exclude those e-commerce entities which are actively involved inter alia, in selling and marketing of products, claim to have exclusive contracts with their distributors, or undertake guarantee of authenticity of products sold on their platform. [xii] The 2019 Act statutorily restricts the scope of ‘safe harbour’ under the IT Act by defining manufacturers to include even those which ‘assemble goods manufactured by others’, thus, making it possible for an e-consumer to hold e-commerce entities liable for compensation. [xiii] It is expected that these entities will become more alert and enter into indemnity arrangements with manufacturers / sellers before listing their products for sale. This will act as a cushion in case of liability claims by consumers.
iii. Liability of Endorsers for Misleading Advertisements- Apart from manufacturers or marketers, the Act imposes a penalty of Rs. 10 lakhs on persons endorsing a product by false and misleading statements. [xiv] The scope of ‘endorser’ is quite wide. All persons in the chain of manufacturing, such as the traders, the advertisers, and the endorsers may be held liable under the Act. Further, clarification is required on whether unpaid endorsement by people, such as through their social media handles, would be construed as ‘endorsement’ under the Act. It appears that even e-commerce platforms which advertise certain products as ‘bestseller’ or recommend products to the consumers are included within the ambit of ‘endorsers’. [xv] Secondly, the 2019 Act exempts advertising in the ‘ordinary course of business’ from classifying it under ‘endorsement’. [xvi] However, the term ‘ordinary course of business’ has not been defined and it is unclear whether the websites which advertise products in their ordinary course of business are exempted from this liability. Lastly, the definition of ‘misleading advertisement’ includes ‘deliberately concealing important information’ and ‘express or implied misrepresentation’, [xvii] but no standard has been provided to determine whether the information is important and there is no clarity on what constitutes ‘implied misrepresentation’ by non-physical entities. For e-commerce giants, costs of due diligence to verify genuineness of products will be huge. Moreover, celebrities will now be more cautious in signing up for endorsements. It may lead to a chilling effect where even honest reviews might be withdrawn from the public sphere.
Many provisions under the 2019 Act seem to overlap with pre-existing legislations. For instance: –
i. Data Protection – The Act classifies disclosure of confidential personal information of consumers as ‘unfair trade practice’. [xviii] However, the same is also penalized under Section 43A of the IT Act. Since the IT Act also provides compensation for failure to protect data, there is a possibility that the provisions of the two Acts (2019 Act and IT Act) might clash with each other. Moreover, the pending Personal Data Protection Bill 2018 also harnesses the indiscretion of e-commerce businesses dealing with personal data of individuals, which makes the data protection provisions under the 2019 Act redundant. [xix]
ii. Sale of Drugs -The sale or distribution of spurious drugs is already an offence under the Drugs and Cosmetics Act 1940 and hence overlaps with the provisions of the 2019 Act.
iii. Banking –With the inclusion of online banking services under the Act’s ambit, a consumer would be confused whether to approach Banking Ombudsman for deficient services or to invoke the 2019 Act.
Only judicial interpretation in the course of time will clarify how these overlapping provisions can be reconciled with each other.
Legislation may be out of scope of the powers of the Government:
Concerns have been raised about over-delegation under the 2019 Act. The Central government is empowered to make rules inter alia on ‘any matter which is to be, or may be, prescribed’. [xx] Use of the term ‘may be’ gives unbridled power to the Central government to prescribe rules for matters which may be remotely connected to consumer protection. For instance, the Draft Rules framed by the government under the 2019 Act are beyond the Act’s scope. [xxi] The 2019 Act is enacted to safeguard consumer interests, and availability of discounted products online is one of the major interests of consumers in India. How can the Rules then prohibit e-commerce entities from discounting product prices in the name of consumer interests? This provision, in fact, protects interests of offline retailers and hence appears to be a colorable exercise of power.
The 2019 Act and the Draft Rules have been welcomed by Confederation of All India Traders (CAIT). However, they may hamper ease of doing business and hence the growth of e-commerce startups in India. Existing e-commerce giants might find themselves in limbo while complying with ambiguous and overlapping provisions under the 2019 Act. Verifying the authenticity of goods will compel coordination/ information-sharing with respective trademark owners, requiring additional investment in capital and human resources. In this light, the 2019 Act seems to be disproportionally harsh on the e-commerce giants and passes the burden of due diligence liability from consumers/ buyers to the sellers. Admittedly, provisions against unfair contracts, on product liability and data protection make the 2019 Act a salutary enactment, and represent empowerment of e-consumers against whimsical policies of the e-commerce companies. It is important that the government, in exercise of its rule-making powers, refrains from making rules which impose impractical compliance burden on the e-commerce businesses. Successful implementation of the 2019 Act is the key to effective consumer protection, and the government must lubricate its implementation by notifying the Draft Rules at the earliest.
(The views and opinions expressed in this article are author’s own and do not necessarily reflect the official policy or position of the Legal Aid Society, Campus Law Centre, University of Delhi.)
[i] Government of India, Ministry of Consumer Affairs, Food & Public Distribution, “Landmark Consumer Protection Bill, 2019 gets Parliamentary approval”, Press Information Bureau, Aug. 6, 2019, available at: https://pib.gov.in/newsite/PrintRelease.aspx?relid=192499 (last visited on Jan. 29, 2020).
[ii] M.M.K. Sardana, “Evolution Of E‐Commerce In India: Challenges Ahead (Part 1)”, ISID Discussion Notes, 2014, available at: http://isid.org.in/pdf/DN1407.pdf (last visited on Jan. 29, 2020).
[iii] Press Trust of India ,“E-commerce to be covered under Consumer Protection Act”, The Business Standard, Dec. 2, 2014, available at: https://www.business-standard.com/article/pti-stories/e-commerce-covered-under-consumer-protection-act-114120200686_1.html (last modified on Dec. 2, 2014).
[iv] Consumer Protection Act, 2019 (Act 35 of 2019), s. 94 read with s. 101(2) (zg).
[v] Government of India, Ministry of Consumer Affairs, Food & Public Distribution, F. No J-10/1/2019-CPU, Nov. 11, 2019, available at: https://consumeraffairs.nic.in/draft-rule (last visited on Feb.3, 2020).
[vi] Organization of Economic Cooperation and Development, “Addressing the Tax Challenges of the Digital Economy”, 2014 , available at: https://www.oecd-ilibrary.org/docserver/9789264218789-7-en.pdf?expires=1582453049&id=id&accname=guest&checksum=6EAAA6A22811922843280D2F7412BA17 (last visited on Feb. 23, 2020)
[vii] CS (COMM) 344/2018.
[viii] Greenman, v. Yuba Power Products, 59 Cal.2d 57 (1963).
[ix] Supra note 4, s. 2(34).
[x] Supra note 4, s. 2(22).
[xi] The Information Technology Act, 2000 (Act 21 of 2000), s. 79.
[xii] Supra note 7 at 56, 62, 63.
[xiii] Supra note 4, s. 2(24)(ii).
[xiv] Supra note 4, s. 21(2).
[xv] Sarthak Sarin, “The new consumer protection act decoded: What will be its impact on the e-commerce sector?”, CNBC TV 18, Nov. 6, 2019, available at: https://www.cnbctv18.com/views/the-new-consumer-protection-act-decoded-what-will-be-its-impact-on-the-e-commerce-sector-4646791.htm (last modified on Nov. 6, 2019).
[xvi] Supra note 4, s. 21(6).
[xvii] Supra note 4, s. 2(28).
[xviii] Supra note 4, s. 2(47)(ix).
[xix] “The Consumer Protection Act, 2019”, Ikigai Law, Sep. 9, 2019, available at: https://www.ikigailaw.com/the-consumer-protection-act-2019/#acceptLicense (last visited on Feb. 23, 2020).
[xx] Supra note 4, s. 101(2) (zj).
[xxi] Ashwin Mathew and Nayanika Majumdar, “Not discounting consumer protection”, The Financial Express, Dec. 27, 2019, available at: https://www.financialexpress.com/opinion/not-discounting-consumer-protection/1805001/ (last visited on Feb. 5, 2020).