In June, India’s Ministry of Consumer Affairs proposed new e-commerce rules that are expected to have an impact on online marketplace operators such as Amazon and Flipkart. These rules include limiting flash sales, reining in a private label push, compelling e-commerce companies to appoint compliance officers, and impose a fallback liability.

 

WHAT ARE SOME OF THE STICKING POINTS FOR E-COMMERCE COMPANIES?

Jeevith Belliappa, partner at Krishnamurthy & Co (K Law), feels that some of these rules pose challenges to e-commerce platforms through their ambiguous nature, while others might be troublesome to execute.

“Inherent ambiguities in the rules are the big sticking points,” Belliappa says. For example, “the rules create a ban on flash sales. A flash sale has been defined as ‘a sale organized by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw large number of consumer.’ Here, terms such as ‘significantly’ are very subjective. Would a 20 percent discount be seen as significant or not?”

Belliappa believes that there are other rules that might be difficult to adopt. One such “trouble-some concept” is the fallback liability, which makes a marketplace liable if a seller registered with the entity fails to deliver goods or services exactly in the way described on the platform, as a result of negligent conduct, omission or the seller’s fault. Additionally, requirements such as appointing a compliance officer will add to the operator’s burden.

WHAT KIND OF IMPACT WILL THESE HAVE ON PLATFORMS AND SELLERS?

For retailers like Amazon and Flipkart, the rules are a potential cause for serious disruption, as they contain clauses that say e-commerce firms must ensure none of their related enterprises are listed as sellers on their shopping websites, and that no affiliate entity should sell goods to an online seller operating on its platform. According to Reuters, Amazon holds an indirect stake in two of its top sellers.

Belliappa also singles out the fallback liability as something that could online marketplaces to creating entry barriers for sellers. “[The requirement] would compel a marketplace entity to incorporate fulfilment process that does not result in, or rather minimise, losses to the consumers, being on the hook for negligence of the sellers appears to be an onerous task,” he notes.

He believes that this is likely going to result in platforms only allowing entry sellers with the financial ability to undertake indemnity obligations towards the marketplace. “It is fairly conceivable that marketplace entities may resort to strict measures like bank-guarantees for protecting themselves – impacting both the retailers and sellers,” says Belliappa.

WHAT DOES THIS MEAN FOR INDIA’S E-COMMERCE LANDSCAPE GOING FORWARD?

K Law’s Belliappa says that purely from the consumers’ perspective, the new rules would appear to be a welcome change. The presumption is that these rules would create a better online shopping experience for the buyers.

However, he says that these rules may cause hurdles to smaller sellers like sellers of handicraft goods, artisans and others. “From a larger macro-economic perspective, the larger purpose of the marketplace business was to bring on board small sellers and give them access to the large customer base of the marketplace entities. But these rules may end up weeding out smaller sellers along with the deviant sellers that rules intend to target,” says Belliappa.

 

To contact the editorial team, please email ALBEditor@thomsonreuters.com.