Draft E-commerce (Amendment) Rules: Unsettling CCI’s Regulatory Mandate

[By Sanchit Khandelwal & Amritesh Anand

The authors are students at the NALSAR University of Law, Hyderabad. 

E-commerce platforms and offline retailers and sellers on the e-commerce platforms have been at loggerheads for quite some time now. Various trade unions and industry groups have not shied away from utilising all available platforms, be it through legal battles or through electoral lobbying, to further their demand of tightening the strings on the market operation of ever bourgeoning e-commerce platforms. In response, the Government of India has recently been widening its regulatory oversight on the market practices of these platforms. The proposed amendments to the Consumer Protection (E-commerce) Rules, 2020 (hereinafter referred as “Draft Amendments”) by the Department of Consumer Affairs hints towards the State’s next attempt at tightening the noose on e-commerce platforms and absorb demands of groups voicing the interests of offline retailers and sellers on these platforms.

The Draft Amendments, through the introduction of newer concepts and a stricter framework, seek to usher in transparency in the e-commerce platforms and further bolster the regulatory regime to curb the perceived unfair trade practices by ensuring that domestic manufacturers and suppliers get fair and equal treatment on e-commerce platforms. However, several provisions under the Rules proposed have a noticeable overlap with the settled domain of the Competition Commission of India (hereinafter referred to as “CCI”). This overreach is mirrored both in the form of explicit reiterations of sufficiently established antitrust concepts and imposition of restrictions that exclusively fall within the Competition law realm and are pending investigation before the CCI.

The authors in this article argue that this attempt to over-reach the precincts of COPRA through over-lapping provisions of law would result in legislative ambiguity, which would then lead to unintended consequences in the form of forum shopping, enforcement failures, administrative inefficiency, enforcement overlaps and regulatory arbitrage.

Rules sliding in the regulatory mandate of the CCI

Abuse of dominance

Rule 5(17) of the Draft Amendments proscribes an e-commerce entity from abusing its dominant position. For such assessment, the factors already laid down under the Competition Act are to be considered. This proposition is at best, redundant, and at worst, counterproductive. The Competition paradigm already provides a comprehensive framework to tackle issues stemming from abuse of dominance (u/s 4), which have been enshrined keeping in mind the CCI’s expertise in investigating complex market structures and unique challenges posed by violating entities. Although currently, the exact scope and intent behind the inclusion of this proposition remain unclear, the Draft Amendments do aim to lay down a complete code for regulating the e-commerce industry, thus engendering the possibility of misuse at the hands of the very entities that the amendments seemingly intend to target.

Authorities under COPRA are ill-equipped to tackle instances of abuse of dominance since they lack sufficient know-how. These authorities have been designed keeping in mind the ultimate objective of COPRA i.e. protection of consumer interests, and not to get muddled with regulating anti-competitive behaviour. Moreover, since the Rule is a verbatim repetition of the concept as it exists under the Competition law framework and does not add the law to any extent, it serves no value addition to the current jurisprudence but only causes legislative ambiguity.

However, the apparent jurisdictional overlap does provide e-commerce giants with the opportunity to engage in forum shopping and regulatory arbitrage in order to either circumvent or deliberately protract investigations and defeat the purpose of such proceedings. Businesses with deep pockets would have the capacity to leverage such intersections by filing multiple legal proceedings and delaying enforcement of orders, while newer and upcoming entities would be the ones to bear the brunt of such practices, as any delay in enforcement would be tantamount to extended persistence of the alleged anti-competitive behaviour. In light of the dynamic nature of markets and the need for swift correction, the ill-effects of such practices become even more pronounced.

Even though Section 19(2) of the COPRA provides for referring a matter to another regulator after a preliminary inquiry is conducted, the concomitant extension of the investigation timeframe might diminish the efficacy of the ultimate order with regards to remedying the anticompetitive conduct. Since the Competition Act is sector agnostic, the law dealing with abuse of dominance is constant for all sectors. Ergo, no valid rationale exists for the inclusion of this proposition in the draft amendments.

Ex-ante vs. Ex-post facto

“The ultimate goal of competition policy is to enhance consumer well-being. Competition policy towards the supply side of the market aims to ensure that consumers have adequate and affordable choices.”

 Pursuant to this objective, the Competition framework in India employs a ‘rule of reason’ approach while examining alleged anti-competitive practices, wherein the assessment is undertaken on a case by case basis. This assessment takes into account anti-competitive effects emanating from the conduct under scrutiny on the one hand, and pro-competitive justifications of the restraints which enhance consumer welfare under Section 19(3)(d) of the Competition Act, on the other. The ensuing assessment aims to do a balancing act between the anti-competitive and pro-competitive effects, and the entity under scrutiny can be exonerated if the latter outweighs the former. This assessment mechanism is widely regarded as furthering the consumer’s best interest and has become a fundamental cornerstone of modern antitrust jurisprudence.

In contradistinction, some of the proposed restrictions on the activities of e-commerce entities in the draft amendments have the effect of imposing ex-ante prohibitions, premised on the unfounded assumption that such activities result in consumer harm. Furthermore, no scope for rebuttal of such prohibitions has been provided.

Rule 5(16) prohibits e-commerce entities from organizing ‘flash sales’. Flash sales for such purposes have been defined under Section 3(1)(e) of the COPRA as offering products at “significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time with an intent to draw large numbers to consumers”. The accompanying proviso restricts the application to instances of selling which involve “fraudulently intercepting the ordinary course of business using technological means” and “with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform”. Here, the proscription seemingly enters the contentious territory of ‘price control’ since it essentially prohibits e-commerce entities from offering discounts. The supposed target of this provision i.e. ‘deep discounting’ is an antitrust concept that has been brought to the CCI’s attention and is currently pending investigation. Thus, attempts to regulate this phenomenon are incongruous to the rationale of COPRA, especially since lower prices do generally result in enhancing consumer welfare. Only when it can be shown that such discounts are being offered with a predatory intent and consumers stand to the detriment, in the long run, should ramifications follow, something which again is an ex-post-facto balancing act falling within the CCI’s domain. Ergo, a blanket prohibition on this activity does not seem to align with consumer interests. The lack of clarity with regards to the ambit of this provision’s application, by virtue of the presence of ambiguous terms like “ordinary course of business” further raises doubts regarding the efficacy of the proviso.

Rule 6(6)(b) prohibits e-commerce entities from enlisting related parties and associated enterprises as sellers on their platform. For these purposes, the term ‘associated enterprises’ has received an inordinately broad definition, wherein any enterprise sharing common links (directly or indirectly) with the e-commerce entity would be subject to the prohibition under the above stated Rule. This common link can include even remote aspects like mutual shareholding, common directors etc. The objective of this prohibition seems to be ensuring ‘platform neutrality’ by eliminating ‘related sellers’. Again, the issue of platform neutrality of e-commerce platforms falls within the antitrust realm and is currently pending investigation before the CCI. Furthermore, this blanket prohibition disregards efficiency-enhancing effects for consumers who end up benefiting from having a larger array of options to choose from and the introduction of new products.

CCI, as part of its market study on e-commerce, has explicitly recognized the capacity of practices like deep discounting, cross-selling and promotion of private labels to engender pro-competitive effects for consumers and thus espoused a case by case analysis of such practices. Additionally, external intervention is warranted only when as a result of such practices, consumers stand to lose out, either through higher prices or limited options. In contrast, the ex-ante regulation mechanism being proposed under the draft amendments reflects an inherent distrust for e-commerce platforms by presuming certain arrangements as anti-competitive. The unintended but deleterious consequences of such distrust would ultimately be felt by the consumers, the very segment that COPRA ideally intends to protect.

Concluding Remarks

These proposed Amendment Rules are an instance of regulatory overhang with an attempt to discipline the e-commerce sector which barely has 5% market share in retail in India. Protecting and safeguarding the interests of consumers not by protecting the competitive process itself but by overreaching the mandate of COPRA through the above discussed proposed Rules is problematic. The issue with resorting to such a route is that a non-related authority is being bestowed with a regulatory function in which another sectoral regulator has been legislatively mandated and holds expertise.

Such a move may not only distort the competitive fabric in the market but may also be taken with the purpose to gain political popularity. Though the proposed amendments may create a more robust compliance mechanism and thereby protecting the interests of negatively affected retail market stakeholders, some of the provisions, like those discussed above, are cumbersome as well as impractical as the cost of enforcing them dwarfs the benefits and create overlapping jurisdictions as such concerns are already covered under another law. It is therefore advocated that any attempt to regulate e-commerce platforms should not result in legislative ambiguity and undermining the authority and already established well thought out procedures of the prevailing sectoral regulators.

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