‘Fall-back liability’ under the Consumer Protection (e-Commerce) Rules, 2020: Stricter norms in digital diaspora

E-Commerce Rules in India: A Paradigm Shift in Liability
 
In a short time, e-commerce has had a tremendous impact on consumers worldwide. This dramatic change has also brought new challenges for businesses and consumers, making codified legislation essential to safeguard the interests of e-commerce consumers.

To prioritize and protect consumers from potential exploitation by e-commerce entities, the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, introduced the **Consumer Protection (E-Commerce) Rules, 2020** (the "Rules") on July 24, 2020. The Rules regulate any **"e-commerce entity"**, which is broadly defined as any person who owns, operates, or manages a digital or electronic facility or platform for e-commerce. They also define an **"inventory-based e-commerce entity"** as one that owns and sells goods or services directly to customers.

Additionally, on June 21, 2021, the government proposed certain amendments to these Rules, seeking comments and suggestions from industry stakeholders. These proposed amendments, once notified, will affect not only e-commerce operators but also entities such as sellers, distributors, and logistics partners engaged in fulfilling orders. The goal of the amendments is to regulate and deter predatory and unethical e-commerce practices, including fraudulent flash sales and mis-selling. Another key amendment relates to appointing grievance redressal mechanisms and increasing the liability of e-commerce entities.

Applicability of the Rules

The E-Commerce Rules apply to all e-commerce entities involving goods or services, including those not established in India but that systematically offer goods or services to Indian consumers.

The Rules also prescribe:
* Liabilities of marketplace e-commerce entities.
* Duties of sellers on marketplace platforms.
* Duties and liabilities of inventory e-commerce entities (including single-brand and multi-channel single-brand retailers).

The "Fall-Back Liability" Clause and Increasing Responsibility for Marketplace Entities

One of the most significant impacts of the Rules is the inclusion of the **"fall-back liability"** clause. The Rules define this as: "the liability of the marketplace e-commerce entity where a seller registered with such entity fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity which causes loss to the consumer."

This clause represents a paradigm shift in the liability of online retailers. Previously, they functioned primarily as middlemen. Under these Rules, they can now become directly and vicariously responsible for damage caused by a vendor to a customer. This means that if a seller's negligent conduct causes a loss, the e-commerce entity may be held liable. The clause also holds the e-commerce entity liable for defaults by logistics providers, such as a failure to deliver goods. Many stakeholders have criticized this provision as grossly unfair to e-retailers.

Judicial Precedent on Vicarious Liability in India

In the past, various consumer complaints have been filed against e-commerce entities. In one such case, the Chhattisgarh State Consumer Redressal Commission absolved Amazon Seller Services Private Limited from liability. The complaint alleged a deficiency in services and a breach of warranty conditions. Amazon India argued that it was only a facilitator and that the "Conditions of Use" on its website explicitly stated that the sale contract was a bipartite agreement between the seller and the customer. The Commission agreed, observing that Amazon India was merely a shopping platform with no connection to manufacturing or repairing the product. It also noted that a transaction could not proceed unless the user agreed to the website's terms and conditions.

However, the position was later settled by the National Consumer Dispute Redressal Commission in the case of **_Hello Travels v. Harish Jain_** and reaffirmed in **_Amazon Seller Services Pvt. Ltd. v. Gopal Krishan_**. In the latter case, a consumer, Gopal Krishan, purchased a defective mobile phone from a web portal owned and managed by Amazon India. The Commission observed that it was the facilitator's duty to ensure the quality of products sold through its platform.

The court held: "An agent, who sells a product, is duty bound to ensure its quality, and if the product is found defective, agent shall be vicariously liable for the loss caused to the purchaser, alongwith the manufacturer of the product."

Implications of the Rules for Online Retailers

From these judgments, it's clear that Indian courts have consistently prioritized consumer welfare. The judicial trend aligns with the rationale behind the fall-back liability clause.

In essence, this clause places a significant burden and accountability on the platform operator. While the Rules were drafted with a focus on consumer interests, this regulatory requirement forces e-commerce entities to maintain a high level of oversight. Excessive monitoring and compliance will likely increase costs for these entities, especially smaller players. Furthermore, it may cause entities to actively monitor the market and procure products only from legitimate sources to avoid liability, potentially filtering out small vendors and worsening market disparity.

Conclusion
While many have praised the E-Commerce Rules, organizations like **NASSCOM** and the **FHRAI** argue that online retailers need some leniency to promote trade in the country. It may not be justified to pressure them with overly stringent regulations.

The "fall-back liability" clause, in particular, may do more harm than good by putting e-retailers on an unfavorable footing. The clause needs more clarity, specific guidelines, and carve-outs. For instance, if an e-retailer can prove they exercised sufficient diligence and that the issue was due to the seller's negligence, they should not be held liable. A practical alternative could have been a provision guaranteeing timely refunds to aggrieved customers, as the current clause may encourage unnecessary litigation.