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Understanding India’s new e-commerce self-governance guidelines

On  January 16, 2025, the Bureau of Indian Standards (“BIS”) under the Ministry of Food and Consumer Affairs, has proposed a draft guideline titled ‘E-commerce – Principles and Guidelines for Self-Governance’ (“Draft Guidelines”) with an aim to enhance transparency, consumer protection, and fair business practices, marking a significant stride in regulating online marketplaces in a consumer-centric manner. The Draft Guidelines seeks to fortify consumer rights and ensure a level playing field in the e-commerce landscape.

Principles of self–governance

The Draft Guidelines introduces 3 (three) phase principles covering pre-transaction, contract formation and post-transaction stages for e-commerce operations.

Pre-transaction principles

The ‘Pre-Transaction Principles’ outline essential guidelines for e-commerce entities to ensure transparency, authenticity, and consumer protection prior to any transaction:

1. Registration and Know Your Customer (“KYC”): E-commerce platforms are required to ensure that sellers on their platforms verify their identity, provide detailed information about their legal entity, contact details, key managerial personnel, and financial information relevant to their credit eligibility. Additionally, platforms must conduct rigorous KYC checks for all business partners, especially third-party sellers, and maintain a checklist of these procedures for transparency.
2. Listing products: Every product listed must have detailed information such as the product title, seller’s contact details, identification number, and supporting images or videos. This is to ensure that consumers can fully understand the product’s features, utility, and cost. The platform must also review these listings to ensure compliance before they go live.
3. Disclosure of relevant information: E-commerce platforms must make all pertinent information easily accessible and legible to consumers. This includes comprehensive product descriptions, pricing details, privacy policies, terms and conditions, and information on cancellation and refunds, safety warnings, applicable restrictions, policy for wrong delivery and non-delivery etc. This information should be easy to find without needing to navigate through multiple pages.
4. Display of product/service information: Information related to the products’ or services’ functionality, warranty, manufacturer or importer, country of origin, and after-sale support should be prominently displayed on the platform. High-resolution images and videos should also be included to aid consumer decision-making.
5. Placement of disclosures: All necessary disclosures should be provided in a manner that is relevant to the consumer’s decision-making stage and displayed prominently across the platform to ensure they are easily accessible.
6. Identification of e-commerce entity: Platforms are required to clearly display information sufficient for identifying the legal operating entity, ensuring effective communication and grievance redressal as per consumer protection laws, and fulfilling customer service obligations such as returns, refunds, and warranty claims.

Contract formation principles

1. Express informed consent: E-commerce platforms must obtain explicit consumer consent for all transactions, avoiding automatic methods like pre-ticked checkboxes.
2. Transaction review: Consumers should have the ability to review all transaction-related details, including costs and policies, at the confirmation point, with options to edit, modify, or cancel the transaction before final payment. Ordering information should include order summary. E-commerce entities will ensure that the point at which consumers are asked to confirm a transaction (“Confirmation Point”), will be understood as the point at which payment is due from the consumer or where the consumer is contractually bound to proceed with the transaction, is clearly and unambiguously indicated to the consumer.
3. Reversal processes and policy: Platforms must establish clear and accessible policies for cancellations, returns, replacements, and refunds, detailing any associated charges and time limits. Communication during these processes should be transparent, keeping the consumer informed at all stages.
4. Transaction record: Complete and accurate transaction records must be maintained, with consumers having access to their transaction history as required by law.
5. Payment principles: A variety of secure payment methods must be offered, with all associated costs clearly disclosed. Payment transactions should be protected through encryption, two-factor authentication, and compliance with relevant laws.
6. Platform hosted payment instruments: Any payment options hosted by the e-commerce platform must comply with all applicable laws and clearly disclose any terms, including additional charges or conditions.
7. Recurring charges and subscriptions: Full disclosure of terms related to recurring charges or subscriptions is required, including the ability to opt-out or cancel. Any changes to the terms should be communicated in advance and require express consent from the consumer.
8. Refund in case of cash on delivery: For cash on delivery transactions, refunds must be processed in the manner chosen by the consumer, ensuring flexibility and adherence to consumer preferences.

Post-transaction principles

1. Merchantability: E-commerce platforms must facilitate easy returns, exchanges, refunds, or dispute resolutions if products sold do not meet the advertised purposes, are unusable, or are deficient in some way. Clear timelines for refunds, replacements, or exchanges must be prominently disclosed, and special provisions should be made for counterfeit goods, allowing additional time beyond general timelines.
2. Dispute redressal: E-commerce entities are required to ensure that consumer grievances and disputes are resolved in accordance with the procedures laid down in the Consumer Protection Act, 2019, and its associated rules. This ensures that consumer rights are protected and that there is a formal process for addressing complaints.
3. Notification of delivery: The platform must ensure timely notifications of the delivery of goods, whether the delivery is facilitated directly through the platform or by a third-party service provider. Notifications should be clear and provided through multiple channels like SMS or email, including tracking information to enhance the consumer experience.

General principles

1. Sale of banned products: E-commerce platforms must ensure that no banned goods are sold. This includes conducting rigorous KYC checks on sellers, maintaining a list of banned products, and employing technology to monitor listings and perform background checks. Platforms should also provide mechanisms for consumers to report any violations.
2. Data protection: Platforms must comply with all applicable data protection laws, ensuring that personal data collected from consumers is used solely for transaction facilitation and other disclosed purposes for which express consent has been obtained. Data must not be misused for any non-disclosed commercial activities.
3. Unsolicited commercial communication: E-commerce entities must obtain express consent for any communication sent to consumers and provide options for consumers to opt-out of non-transactional communications.
4. Fair business practice principles: E-commerce operations must be neutral and transparent, providing a level playing field for all participants without preferential treatment. This includes restrictions on platforms giving preferential treatment to any sellers, especially those with direct or indirect ties to the platform itself.
5. Anti-counterfeiting measures: Platforms are required to implement policies and processes to prevent the listing of counterfeit products. This includes mechanisms for rights owners and consumers to report violations, and processes for investigating and responding to such reports.
6. Representations on goods: E-commerce entities should avoid making any representations about the quality or fitness of goods unless it is non-deceptive and the relationship with the seller is clearly disclosed.
7. Unfair trade practices and fairness in competition: E-commerce platforms should not adopt practices that coerce consumers into transactions or favor certain sellers. They should ensure that consumers have a free choice in their purchases, including the choice between bundled and singular services.
8. Advertisements: Advertisements and sponsorships on platforms should be clearly identifiable and distinguished from editorial or review content.
9. Correct representations: Platforms require sellers to ensure their product descriptions and images are accurate and correspond to the actual features of the products. Platforms should also undertake periodic reviews of seller content for authenticity.
10. Fairness of consumer reviews and ratings: All consumer reviews and ratings must comply with standards for collection, moderation, and publication to ensure their authenticity and reliability.

Conclusion

The Draft Guidelines set forth by the government marks a significant advancement in crafting a comprehensive regulatory environment for the burgeoning e-commerce industry. These Draft Guidelines address a wide range of operations within the sector, from enforcing rigorous KYC checks and ensuring transparent transactions to implementing strict measures against counterfeit goods and promoting fair business practices. By mandating clear and equitable practices, the Draft Guidelines aim to safeguard both consumers and legitimate businesses, promoting an ethical marketplace where competition is based on quality and service rather than deceptive practices or preferential treatment. The successful implementation of these guidelines is pivotal in sustaining consumer trust and facilitating the healthy growth of the e-commerce landscape.

This Prism has been prepared by:

Bhavya Sriram Partner

Mahemaa Senthilkumar Associate

For more details, please contact [email protected]

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Supreme Court: Investments with returns in the form of interest are “commercial” transactions and outside the purview of the Consumer Protection Laws

In the recent decision of Annapurna B. Uppin & Ors. v. Malsiddappa & Anr.[1] the Supreme Court of India (“Supreme Court”) held that investments such as those by which the complainant derives benefit in the form of interest is outside the summary jurisdiction of the Consumer Protection Act, 1986 (“CP Act”).

Brief Facts

1. This judgement has been delivered in the background of a consumer complaint filed by respondent no.1 (“Complainant”) who had invested INR 5,00,000 (Indian Rupees five lakh) in the partnership firm which was repayable after 120 (one hundred twenty) months with interest @ 18% p.a. The appellants (opposite parties) are the legal heirs of the Managing Partner of the firm.
2. The Complainant stated before the District Forum (DCDRF, Dharwad, Karnataka) (“District Forum”) that he had sought premature release of the invested amount but was asked to wait till maturity. However, even upon maturity, the Complainant did not receive the amount. Aggrieved, he filed a consumer complaint alleging deficiency of service and claiming recovery of the invested amount. The Appellants, inter alia, objected to the Complainant being a “consumer” under the Consumer Protection Act, 1986.
3. The District Forum allowed the complaint directing repayment of the invested amount of INR 5,00,000 (Indian Rupees five lakh), with simple interest of 18% for the 120 (one hundred twenty) months, along with interest till realization, compensation, and costs. Despite 2 (two) rounds of remand from the State Commission, the District Forum allowed the complaint on the same terms.
4. The State Commission finally also dismissed the appeal against the decision of the District Forum. The NCDRC also dismissed the revision petition filed before it. Aggrieved, the appellant (opposite parties) filed the civil appeal before the Supreme Court.

Issue

Whether commercial transactions (investments) are under the purview of the CP Act.

Findings and Rationale

The Supreme Court allowed the civil appeal and set aside the judgements of the District Forum, the State Commission, and the National Commission. The Supreme Court held that the complaint was not maintainable on the basis that:

1. The investment by the Complainant was for deriving benefit by getting an interest on the investment (at the rate of 18 % per annum). Therefore, it would be an investment for profit/gain.
2. It was a commercial transaction and therefore, it was outside the purview of the CP Act. Hence, the complaint was not maintainable.
3. Commercial disputes cannot be decided in a summary proceeding under the CP Act but the appropriate remedy for recovery of the said amount, if any, would be before the Civil Court.

As an aside, the Supreme Court also decided the complainant’s contention regarding the liability of the legal heirs in dealing with assets and liabilities of the partnership firm. The Supreme Court reiterated that the legal heirs of a deceased partner (in a partnership firm) not becoming liable for the liabilities of the partnership upon the partner’s death.

Conclusion

The bar on consideration of commercial transactions under the CP Act is inherent to the legislation. However, Courts have had to work around the nuance of whether a purchase or investment is for one’s own use (or livelihood) or for a commercial purpose attributing profit motive, as only the latter is outside the purview of the CP Act. Even though the Consumer Protection (Amendment) Act 1993 (and now, the Consumer Protection Act, 2019) introduced an explanation for what constitutes “commercial purpose”[2], Courts have held to conclude whether a complainant is a “consumer” there is no strait-jacket formula to decide if the use is commercial in nature. It would depend on the facts and circumstances of each case[3] by an evaluation of the evidence tendered by the parties[4].

This Prism has been prepared by:

Dheeraj Nair Partner

Vishrutyi Sahni Senior Associate

For more details, please contact [email protected]

[1] SLP (C) No.11757 of 2022, Supreme Court

[2] Section 2(7) Explanation (a), CP Act, 2019: The expression “commercial purpose” does not include use by a person of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment.

[3] Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers & Ors., (2020) 2 SCC265

[4] Rohit Chaudhary & Anr. v. M/s Vipul Ltd., (2024) 1 SCC 8

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Supreme Court recognizes company as a person capable of sustaining action under the Consumer Protection Act, 1986

The Hon’ble Supreme Court of India (“Supreme Court”) in M/s Kozyflex Mattresses Private Limited v. SBI General Insurance Company and Anr.[1] has clarified that a company would be considered a ‘person’ under the Consumer Protection Act, 1986 (“1986 Act”) and can file a complaint for deficiency of services under the 1986 Act.

Brief Facts

Kozyflex Mattresses Private Limited (“Kozyflex”) purchased a ‘Standard Fire and Special Perils’ insurance policy from SBI General Insurance Company (“SBI Insurance”). 2 (two) weeks after the purchase of the policy, a massive fire incident took place at Kozyflex’s factory. The next day Kozyflex intimated SBI Insurance of the incident, and eventually submitted an insurance claim of INR 34,000,000 (Indian Rupees three crores forty lakhs) (“Claim”). SBI Insurance appointed investigators to independently assess and verify the claim. Basis the results of these assessments and verification, the investigators prepared a preliminary report and a final report (collectively, “the Reports”). Relying on the Reports, the Claim was repudiated on the ground that it was fraudulent and exaggerated. The Reports were not provided to Kozyflex. Aggrieved by the repudiation of the Claim, Kozyflex filed a complaint before the National Consumer Disputes Redressal Commission (“National Commission”) under the 1986 Act, claiming deficiency in service by SBI Insurance (“Complaint”). On dismissal of the Complaint by the National Commission, Kozyflex approached the Supreme Court in appeal seeking remand of the Complaint to the National Commission for reconsideration on merits after giving Kozyflex an opportunity to rebut the findings in the Reports (“Appeal”).

Submissions before the Supreme Court

Before the Supreme Court, Kozyflex contended inter alia that despite clarifying all the queries by the SBI Insurance appointed investigators, Kozyflex was never provided with the Reports, which were produced directly before the National Commission. Hence, Kozyflex was never given a chance to rebut the findings in the Reports.

On the other hand, SBI Insurance raised preliminary objections to the Appeal inter alia on the ground that the word ‘company’ is not covered by the definition of ‘person’ under the 1986 Act. Therefore, Kozyflex being a company is not entitled to file a complaint under the 1986 Act.

The Supreme Court, after considering the submissions made by the parties, rejected the preliminary objections raised by SBI Insurance.

The Supreme Court held that the definition of ‘person’ provided in the 1986 Act is an inclusive and not an exhaustive definition. The 1986 Act being a beneficial legislation, a liberal interpretation must be given to its provisions to ensure that the legislative intent is not watered down. Further, the Supreme Court stated that the very fact that the definition of ‘person’ under the Consumer Protection Act, 2019 (“2019 Act”) was amended to include a body corporate, is by itself indicative of the legislature realising the incongruity of the definition of ‘person’ under the 1986 Act with the purpose sought to be achieved by the statute.

Ultimately, the Supreme Court remanded the matter back to the National Commission for reconsideration on merits after Kozyflex is given an opportunity to rebut the findings of the Reports.

JSA Analysis

The 1986 Act defines a ‘consumer’ to be any ‘person’ who buys, hires, or avails of any goods or services for a consideration provided that such goods or services are not bought, hired, or availed for any commercial purpose.

The definition of a ‘person’ as provided under the 1986 Act is as follows:

“ ‘person’ includes,–

1. a firm whether registered or not;
2. a Hindu undivided family;
3. a co-operative society;
4. every other association of persons whether registered under the Societies Registration Act, 1860 (21 of 1860) or not;”

The 1986 Act evidently makes no explicit mention of ‘company’ or ‘body corporate’ in its definition of ‘person’ – an exclusion that has now been remedied under the 2019 Act. This difference between the 1986 Act and the 2019 Act has led to a series of decisions by the National Commission, disallowing actions brought by companies before it.[2]

As a result, companies were forced to approach civil courts for redressal of their grievances, despite such grievances being inherently in the nature of consumer disputes arising out of deficiency in services. Companies were thus precluded from enjoying the benefits of the fast-tracked summary procedure provided for the adjudication of such disputes. Parallelly, the civil courts, already under strain from immense pendency, were further burdened with the adjudication of disputes which should have been adjudicated by the consumer dispute redressal forums.

While admittedly a company or a body corporate does not find mention in the definition of person under the 1986 Act, it is a settled law that a company is to be considered a legal person, with an identity separate and distinct from its participants or decisionmakers. Therefore, dismissing actions merely on the basis that companies are not included in the definition of person under the 1986 Act, was a pedantic approach completely at odds with the legislative intent behind the statute.

The Supreme Court’s decision in Kozyflex (supra) has put a decisive quietus to this issue. In Kozyflex (supra), the Supreme Court appears to have adopted a purposive approach in analysing this issue, and correctly identified that the definition of ‘person’ is inclusive and not exhaustive in nature. While doing so, it has delivered a progressive decision which is in sync with the objects sought to be achieved by the 1986 Act. This decision will ensure that a complainant being a ‘company’ will in and of itself, not be a reason to prevent it from initiating an action under the 1986 Act.

This decision is cognizant of the changing nature of business transactions in India and in our opinion, will benefit both companies (who can now bring actions both under the 1986 Act and the 2019 Act), as well as civil courts (who can now devote their attention to cases of inherently commercial nature which have been battling for attention).

This Prism has been prepared by:

Divyam Agarwal Partner

Chirag Basu Associate

Mayank Ratnaparkhe Associate

For more details, please contact [email protected]

[1] Civil Appeal No. 7966 of 2022

[2] See Shika Birla v. DLF Retailers Developers Ltd., National Consumer Disputes Redressal Commission CC/183/2012; Satish Kumar Gajanand Gupta v. M/s Srushti Sangam Enterprises (India) Ltd., National Consumer Disputes Redressal Commission CC/296/2011; and Shivom Projects Private Limited v. Toyota Kirloskar Motor Pvt. Ltd., National Consumer Disputes Redressal Commission CC/229/2014.