E-Commerce – Unremarked Problems


E-Commerce as defined in Section 2 (16) of The Consumer Protection Act, 2019 is the buying or selling of goods or services including digital products over a digital or electronic network. Organization for Economic Cooperation and Development (OECD) defines e-commerce as: “All forms of transactions relating to commercial activities, including both organizations and individuals, which are based on the processing and transmission of digitized data including text, sound, and visual images.” E-commerce, thus, as the name suggests is the performance of commercial activities and transactions through the electronic medium. E-Commerce has brought convenience to the customer but along with many challenges to the legal systems all around the globe. The article talks about problems that remain unsolved and require robust solutions.

Caveat Venditor

The concept of globalization brought about a paradigm shift in the relationship between buyers and sellers. The earlier conception of seller beware has long been discarded and the buyer prevails as the higher authority between the two.[1] The causes include multiplicity of buyers and a comparatively smaller customer base. The importance of a buyer has seen a further boost with the rise of technology. With E-Commerce platforms, available at the fingertips of a buyer, granting world class and cutting-edge product quality, the buyer’s position is further strengthened as the center of the market.

While consumer remains the center of all attention in this competing cosmopolitan market, the effect as usual is two-sided. The downside being the increasing frauds and deceptions by online sellers. With little or no verification required for a seller to establish himself as an online retailer, the problems are plenty and predictably new for an outdated legal system. The sluggish nature of law, always falling behind the pace of societal growth makes the issue ever so more threatening, exposing the consumer to numerous potential frauds. The laws, however, have been quick to incorporate all sorts of precautionary measures and remedies in order to shield the interests of a buyer.

The Problem – The ‘One Size Fits All Approach’

This buyer-oriented approach is absolutely befitting for a globalized market with huge E-Commerce entities but, with the onset of digitalization, cheaper data rates, smartphone availability and many other contributive factors, there has been a surge in small scale sellers. Selling home-made products like, furniture, decors, consumables and providing online skill-based services like tutoring, counselling, etc. saw a rise alongside the rise of digital markets in India. The smaller sellers are often overlooked and are not only prone to customers defrauding them but have little remedies unlike the buyers.

They face various problems like whimsical returns, dishonest refunds, payment troubles, fraudulent Cash-on-deliveries, cyber-threats etc. All these make up for myriads of problems for a seller. The return and refund policies of most of the e-commerce portals are lenient and more likely to favor the buyers. This is due to the excessive burden placed by the law upon the sellers regarding the transactions completely neglecting the equal footing a seller and a buyer are on. Other problems include fake reviews and consequent loss of profits because of the same.

Amazon, the most recognizable face of the e-commerce industry, has faced legal scrutiny for its practices. In 2018, the U.S. Court of Appeals for the 3rd Circuit ruled that Amazon was liable for a dog collar it sold from a third-party vendor that caused permanent vision loss to a Pennsylvania woman.[2] The ruling suggests how the E-Commerce websites and entities can be held liable for products they didn’t even manufacture. Even though the seller may be seen as the one more responsible in a transaction, the comparative lack of legal remedies for a seller is unjustifiable.

A similar concern was expressed by some states upon the new consumer protection amendment draft released on 6 July, 2021, fearing negative impact on jobs and MSME’s.[3] In a letter to Anupam Mishra — Joint Secretary of Consumer Affairs ministry, CAIT said the draft rules will shatter the dreams of few companies to become a new version of East India Company and will bring an end to crony capitalism that exists in the current e-commerce landscape of India.[4] The amendments come at a time where businesses have been hit because of the Covid outbreak. The worst-hit being the small-scale sellers. The proposed amendments to the Consumer Protection (E-Commerce) rules, 2020 have imposed certain responsibilities on the E-Commerce entities. These include mandatory registration for all companies, the mandatory appointment of a Chief Compliance Officer, Nodal Contact Person, and Resident Grievance Office.[5] These mandatory regulatory steps increase the compliance burden, costs and red tape for setting up new e-commerce ventures. Also, the making of the Chief Compliance Officer personally liable and introducing fall-back liability of the platform where a seller fails to deliver the goods or services, has made it extremely onerous to run utilize e-commerce as a mode of business.[6] While the larger companies may fulfil the requirements, this may drive away the small start-ups. This ironically beats the purpose of ‘free and fair trade’ the laws actually strive to achieve.

 While the horizontal B2C marketplaces have attempted to enable some of the small sellers, the way the B2C is designed to function, doesn’t allow the smaller guy to participate. Here are some other reasons why B2C doesn’t work for small retailers:

  • Incorporation problems (paperwork, excel sheets, effort)
  • Catalogue quality is expected to be top-notch
  • No brand for sellers, treatment is that of a “supplier”
  • High commission rates[7]

These and the excessive protection to customers in B2C transactions make it impossible for casual sellers, home sellers/homepreneurs, individual retailers, etc to get themselves online and sell.

THE SOLUTION

While the foremost issue regarding the E-commerce rules remains to be applicability, the ‘one size fits all approach’, the solution lies in global treatment of the problem. The Digital services Act and the Digital Markets Act, proposed by the EU intended to protect consumers and their fundamental rights on the internet, have made a distinction between the large and small platforms. The companies with an annual turnover in the European Economic Area of at least €6.5 billion and meeting certain other requirements could be classified as gatekeepers and provisions for specified requirements and prohibitions for the gatekeepers have been made in the new laws. Lena Lasseur, competition law expert at Pinsent Masons, the law firm behind Out-Law, said: “The new rules will be important for small and big businesses alike. Small companies might see it as a chance to challenge the position of big players or finally enter the market, while bigger players might see it as a risk for further scrutiny by the competition authority.”[8]  Similarly, the US antitrust regulator, the Federal Trade Commission, has proposed regulations in order to crack the dominance of big tech firms and fostering competition across a number of sectors.[9] The additional due diligence to be observed by ‘significant social nedia intermediary’ as per the new Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 also serves as an exemplary case of differential treatment on the basis of size of functioning.[10]

A similar approach towards the current state of E-Commerce platforms can be seen as a solution and will protect emerging competitors from severe compliance and liability regimes at a budding stage.

C2C – An Alternative To B2C

Another aspect of the e-commerce markets which has been overlooked for long is the C2C form of e-commerce.

A C2C transaction is just a transaction between two consumers. These transactions do not involve producers or manufacturers and are usually transactions of re-sale. These sites include, E-bay, Quikr, OLX, Paypal etc. While most of the Indian e-commerce trade comes from the B2C (Business to Consumer), C2C has been on the rise ever since the expansion of the digital market. These platforms come to the aid of small sellers, where they are seen on equal footing with the consumer.

The Problem

The C2C platforms, however, are highly overlooked and are vulnerable to various forms of frauds. There have been numerous cases of identity frauds and even other felonious crimes being committed with the aid of such platforms.

These loosely regulated platforms are usually mediators between prospective buyers and sellers. Many frauds and misappropriations go unchecked and the websites and portals escape all the liabilities by claiming to be mere mediators in the transactions. A major proportion of these transactions take place through online social media platforms and involve informal conversations. These factors make it hard to establish legal validity and the transactions remain out of the reach of most the relevant acts. The lack of regulation has also led to the rise of various illegal markets, one such would be the illegal pet markets, violating government issued orders.[11]  Some other problems include no quality regulations, no refunds etc. “Of the total listings OLX receives each day, nearly 25% of ads are rejected and over 100,000 suspicious accounts are banned every month,” said Lavanya Chandan, General Counsel, OLX India.

While the Consumer Protection Act does come to aid, the uncertainty of social platforms and the usually small value of transactions make it problematic for the buyer to seek legal redressal. There is also a high probability of minors forming contracts through these platforms

Although the C2C has not yet been established as a huge market in India, it has long been a major market shareholder in some of the western countries, where eBay and PayPal have been the pioneers of E-Commerce. Thus, India remains a huge potential market for C2C. This brings out the need for better regulatory laws.

The Solution

The Case Of P2P (Peer-to-Peer) Lending Platforms

P2P has been defined as “any transaction arranged using the Internet in which one or more individuals lend money to one or more other individuals.”[12] This slowly but recently emerging form of e-commerce is a type of crowdfunding. Crowdfunding is the use of a small amount of capital, obtained from numerous individuals to raise funds for a personal loan.[13]

The P2P lending platforms shared similar risks but with the advent of the market, RBI has brought forward certain regulations and rules regarding these platforms solving most of the prevailing problems.

P2P lending is regulated by the Master Directions for NBFC Peer to Peer Lending Platform issued by the RBI in 2017. Only an NBFC can register as a P2P lender with the permission of RBI. Every P2P lender should obtain a certificate of registration from the RBI. Every existing and non-banking NBFC-P2P should register with the Department of Non-Banking Regulation, Mumbai. Further, the P2P should have a net-owned fund of at least 20 million and meet other conditions laid down by RBI.[14] These along with numerous other regulations have made P2P widely acceptable and safe. P2P lending, grew more than 10 times in the year 2019-20 on a year-on-year basis. The growth has been propelled by recognition from the Reserve Bank of India (RBI), which now regulates the sector under a separate category called P2P NBFC (non-banking finance company).[15]

Similarly, government regulation at the national level can be used in order to regulate other C2C platforms. These can be broad of three types; pre-contractual regulations i.e., relating to licensing, information duties, misleading advertising, duties of platform operators, contractual (conclusion of contract, form, contract terms, burden of proof), and post-contractual (remedies, the right to withdrawal, data protection).[16]

The platforms offering C2C services need to be regulated and prior licenses and verification of both buyers and sellers should be made necessary. Section 10A of the Information Technology Act, 2000 (“IT Act”) provides the validity of the e-contracts. Thus, ensuring proper online contracts can help in establishing liability when issues arise.

CONCLUSION

The preferential legal treatment of buyers in B2C transactions and the unregulated C2C platforms are just one of the many problems which our legal system has not yet adapted to. The problems are bound to rise with the inception of digitalization and the lawmakers need to ensure the wellbeing of both sellers and buyers, however large or small they may be. Lawmakers have and are expected to come up with solutions to such problems. The laws need to be made in accordance with the very purpose of them and ensuring free and fair trade, free of dominance of large players should be ensured through appropriate provisions The exemplary case of P2P lending systems gives an insight into the potential of E-Commerce markets once properly regulated and can act as a model for regulating the C2C markets in a similar fashion.

[1] Mandava Krishna Chaitanya v UCO Bank, Asset Management, 2018 (2) ALT 640

[2] Oberdorf v. Amazon.com Inc. – 930 F.3d 136 (3d Cir. 2019)

[3] Our Bureau, India SME Forum says draft e-commerce rules will cause disruption @businessline (2021), (last visited Jul 21, 2021)

https://www.thehindubusinessline.com/news/india-sme-forum-says-draft-e-commerce-rules-will-cause-disruption/article35424382.ece.

[4] FE Online, Draft e-commerce Rules: TRADERS’ BODY CAIT suggests changes to make proposed Amendments ‘MORE impactful’ The Financial Express (2021), (last visited Jul 27, 2021)

https://www.financialexpress.com/industry/sme/msme-eodb-draft-e-commerce-rules-traders-body-cait-suggests-changes-to-make-proposed-amendments-more-impactful/2297345/

[5] Explained: Will proposed E-COMMERCE rules do away with flash sales, boost make in india?, Firstpost (2021), (last visited Jul 27, 2021)

https://www.firstpost.com/india/explained-will-proposed-e-commerce-rules-do-away-with-flash-sales-boost-make-in-india-9746831.html.

[6] Vedika Mittal, Draft e-commerce rules: One size cannot fit all Deccan Herald (2021), (last visited Jul 27, 2021)  https://www.deccanherald.com/opinion/panorama/draft-e-commerce-rules-one-size-cannot-fit-all-1003020.html 

[7] Saahil Goel, What does C2C commerce really mean for India? Medium (2016), (last visited Jul 20, 2021)

https://medium.com/@saahilbigfoot/what-does-c2c-commerce-really-mean-for-india-f9a71a14804d

[8] Lena Lasseur, Gatekeepers face EU Digital markets Act regulation Pinsent Masons (2020), (last visited Jul 27, 2021)

https://www.pinsentmasons.com/out-law/news/gatekeepers-face-eu-digital-markets-act-regulation.

[9] Pranav Mukul, Explained: How US anti-trust order could impact big tech elsewhere The Indian Express (2021), (last visited Jul 27, 2021)

https://indianexpress.com/article/explained/us-anti-trust-order-impact-big-tech-explained-7398484/

[10] Bhumika Indulia, Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 SCC Online (2021), (last visited May 26, 2021). https://www.scconline.com/blog/post/2021/05/26/information-technology-intermediary-guidelines-and-digital-media-ethics-code-rules-2021-2/ 

[11] Omkar Khandekar, Why India’s illegal online pet market thrives despite government guidelines Mint (2020), (last visited Jul 21, 2021)

https://www.livemint.com/mint-lounge/features/why-the-illegal-online-pet-market-thrives-despite-government-guidelines-11596075732517.html

[12] Eric C. Chaffee & Geoffrey C. Rapp, Regulating Online Peer-to-Peer Lending in the Aftermath of Dodd-Frank: In Search of an Evolving Regulatory Regime for an Evolving Industry, 69 Wash. & Lee L. Rev. 485, 491, (2012).

[13] Lakshmi Dwivedi and Pranav Awasthi, P2P Lending: Regulating the New Kid on the Block

[14]  Master Directions – Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017, RBI/DNBR/2017-18/57, October 4, 2017.

[15] Namrata Acharya, P2P lending ACHIEVES 10-fold growth with returns as high as 25% in 1-year Business Standard (2020), (last visited Jul 27, 2021)

https://www.business-standard.com/article/finance/in-last-1-year-p2p-lending-achieves-ten-fold-growth-with-returns-up-to-25-120021201166_1.html

[16] Bimal N. Patel, Mamta Biswal & Joshua Nathan Aston, Chapter 22, in INTERNATIONAL CONTRACTS: JURISDICTIONAL ISSUES AND GLOBAL COMMERCIAL AND INVESTMENT GOVERNANCE: A COLLECTION OF ESSAYS ON RECENT TRENDS (2016).


Leave a Reply

Your email address will not be published. Required fields are marked *