Key provisions of the Central Government’s draft ecommerce rules have been stridently opposed by the Industry department and Corporate Affairs ministry — and the Niti Aayog vice chairman who has warned that they “will severely harm Ease of Doing Business and impact small businesses”, records obtained by The Indian Express under the Right to Information (RTI) Act show.
Records show that the Department for Promotion of Industry and Internal Trade (DPIIT) has flagged several anomalies, questioned some provisions and suggested remedial tweaks in an office memorandum sent to the Department of Consumer Affairs, which had issued the draft rules in June.
These include an examination of proposals such as the fallback liability of sellers, the proposed ban on flash sales, and the need for definitional clarity of terms, such as “cross-selling” and “mis-selling” in the draft rules.
Incidentally, Union Minister Piyush Goyal is in charge of the Ministry of Consumer Affairs, Food & Public Distribution, which issued the draft rules, as well as the Ministry of Commerce and Industry, under which the DPIIT falls.
High StakesCurrently dominated by American players like Amazon and Walmart-owned Flipkart, the fast-growing ecommerce sector has recently witnessed the entry of large domestic players like Reliance Industries and the Tata Group.
Further, in a letter to Goyal on July 6, Niti Aayog vice chairman Rajiv Kumar pointed out that the proposed e-commerce rules go “far beyond consumer protection” and “will severely harm Ease of Doing Business and impact small businesses”.
The Ministry of Corporate Affairs, too, has opposed specific provisions of the draft rules while the Finance Ministry is learnt to have raised red flags.
Apart from “fall back liability”, a key portion of the draft that has come under fire from within the Government are the changes proposed under “duties of sellers on marketplace, inventory e-commerce entities”.
In its office memorandum, dated July 18, the DPIIT said: “The concept of ‘fall back liability’ may be examined in view of Product Liability provision as per Section 2(34) and Chapter VI of the Consumer Protection Act 2019. It may be evaluated if introduction of a new concept of ‘fall back liability’ is necessary in view of existing legal provisions. The definitions of Cross Selling, Miss-selling and Flash Sale may be reexamined. These concepts are addressed under the ethical and responsible e-Commerce. It may be examined whether introduction of these new concepts is required”.
DPIIT and the Department of Consumer Affairs did not respond to follow-up queries emailed separately by The Indian Express.
According to the Consumer Protection Act, 2019, product liability is defined as “the responsibility of a product manufacturer or product seller, of any product or service, to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services”.
This, along with the Chapter VI of the Consumer Protection Act, lays the responsibility of the defective product on the seller or the manufacturer. However, the proposed e-commerce rules, which are being notified as part of the Consumer Protection Act, make online marketplaces responsible for any shortcoming in products delivered through their platforms.
Industry players have also pointed out that while the FDI policy prohibits companies such as Amazon and Flipkart from having control over inventory sold on their platforms, the e-commerce draft rules holds these platforms liable in case a seller fails to deliver goods or services due to negligent conduct, which causes loss to the customer.
The DPIIT has suggested that duties of sellers on marketplace, inventory e-commerce entities may be aligned with the framework in Draft National e-Commerce Policy. “The objective is to prevent sellers from engaging in any type of activities that result into market distortion,” it noted.
The DPIIT has also called into question the outright banning of flash sales. While the department has said that concepts such as cross-selling, mis-selling and flash sales “are addressed under the ethical and responsible e-commerce”, a Gurugram-based retail sector analyst has said that a blanket ban on flash sales appears to “blatantly limit consumer choices”.
In addition, the DPIIT has called for start-ups and MSMEs to be exempted from compliance of the new e-commerce rules.
Last month, The Indian Express had reported that the Department of Consumer Affairs is revisiting some of the provisions proposed in its draft e-commerce rules following a pushback from the industry and sections of the Government.
The Ministry of Corporate Affairs, in an office memorandum dated July 22, pointed out the overlap between some of the proposed provisions and the Competition Act. It has said that as a result of these provisions “consumers may be prompted… to bring cases of abusive conduct against dominant enterprises before consumer fora…”.
“This will create a fertile ground for forum shopping besides regulatory overlaps, thereby resulting into a potential scenario of divergent rulings,” it added.
Centre’s think-tank Niti Aayog has also echoed concerns of overlap with existing laws and regulations. In a July 14 memo, Niti Aayog said: “The proposal restricting the listing of related parties on e-commerce platforms appears to be a case of overreach.”
Separately, Niti Aayog Vice Chairman Rajiv Kumar wrote in his letter to Goyal: “In the post pandemic recovery period, it is necessary to give a major impetus to MSMEs, small businesses through e-commerce utilising the strength of digital India. The draft Rules would adversely impact the recovery rate”.
However, in its letter, the Ministry of Micro, Small and Medium Enterprises said it “supports the proposal contained in the proposed amendments to the Consumer Protection (E-commerce) Rules, 2020”.
The Ministry of Electronics and Information Technology (MEITY) called for alignment between the proposed e-commerce rules and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules notified in February.
“The “e-commerce entity” being an intermediary in nature is expected to observe due diligences as prescribed in the said IT Rules, 2021. E-Commerce entities are intermediaries as defined in the IT Act and they are required to follow IT Rules, 2021. Thus a parity needs to be brought with IT Rules,” it wrote.
Draft rules go far beyond consumer protection: Rajiv Kumar, Niti Aayog. 
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