LegaLogic-Legasee Newsletter: E-Commerce Business and Consumer Protection-August 2020

The Central Government1 introduced the Consumer Protection (E-commerce) Rules, 2020 (“Rules”) simultaneously with the notification effectuating the Consumer Protection Act, 2019 (“Act”) effective from July 23, 2020. Rules defines E-commerce entity to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce and which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers is an marketplace ecommerce entity. The Rules are applicable to all models of e-commerce entities including e-commerce entities not established in India but systematically offering goods or services to consumers in India. Activities carried out in personal capacity and not forming part of any professional or commercial activity undertaken on a regular or systemic basis are excluded from the applicability of the Rules. The key highlights of the Rules are as follows:

(a) No e-commerce entity or seller shall adopt unfair trade practices.

(b) E-commerce entities and sellers shall establish a grievance redressal mechanism and appoint an officer for acknowledgement of consumer complaints within 48 hours and redressal within 1 month from the date of the receipt of complaint.

(c) E-commerce entities shall appoint a nodal officer, who is an Indian resident, to comply with the provisions of the Act and corresponding rules.

(d) Manipulation of price by e-commerce entities with a view to gain unreasonable profits by imposing unjustified price on the consumers owing to prevailing market conditions is categorically prohibited.

(e) An inventory e-commerce entity2 that, directly or indirectly, vouches for the authenticity of goods and services shall bear appropriate liability in any action related to authenticity.

(f) A marketplace entity, in order to seek exemption under Section 79(1) of the Information Technology Act, 2000 (“IT Act”) from liabilities for third part information, data, or communication link made available or hosted, shall ensure compliance with Sections 79(2) and 79(3) of the IT Act along with rules.

(g) Marketplace e-commerce entities shall ensure that the representation of goods and services on their platform is accurate and directly corresponds to the nature, quality, purpose, and features. Sellers shall ensure that the advertisements for marketing goods and services conform with the actual characteristics, access, and usage conditions.

(h) Seller offering goods/services through a marketplace e-commerce entity shall provide all relevant information regarding the goods and services including the place of origin to be displayed on the platform of the e-commerce entity.

(i) A marketplace e-commerce entity or an inventory e-commerce entity shall not refuse to accept return of goods or withdraw/discontinue services if such goods or services are defective, deficient, spurious, or deviate from the advertised characteristics or features or on account of late delivery (except due to force majeure event). With the massive shift to online marketplace that has surfaced in this decade, it is prominent that the market participants are attributed with appropriate rights and liabilities. The Rules seem to address various aspects in that regard. The Rules have adequately laid down distinct responsibilities and liabilities of the e-commerce entities and the sellers. The resultant clarity is likely to complement the functioning of the participants in the e-commerce space. For more details, please refer to the notification.

Amendments in Indian Stamp Act, 1899- Impact on private companies

A variety of amendments have been introduced in the Indian Stamp Act, 1899 (“Stamp Act”) with an intent to harmonise payment of stamp duty on financial securities transactions. These amendments in the Stamp Act have been notified to be effective from July 1, 2020. Amendments to the Stamp Act inter alia consist of:

(a) Levy of stamp duty on transfer of shares in demat mode at the rate of 0.005% of the consideration.

(b) Decrease in the rate of stamp duty payable on transfer of shares in physical mode from 0.25% of consideration to 0.015% of consideration.

(c) Decrease in rate of stamp duty payable on issuance of shares in physical mode from 0.1% of issue price to 0.005% of issue price. With the introduction of stamp duty on transactions relating to shares held in demat, the benefit of exemption from stamp duty to holders of shares in demat mode is no longer available. Private limited companies intending to get their shares converted to demat mode will now be required to consider the additional costs involved in appointment and fees of registrar and share transfer agents, maintenance of ISIN and payment of annual fees for these activities. With the benefit of stamp duty exemption gone, stamp duty at same rate i.e. 0.015% of the consideration is payable in case of transfer of shares in physical mode and transfer of shares in demat mode..

However, having shares in demat mode has numerous benefits as all records are maintained in electronic mode, the risks associated with physical share certificates like theft, loss, mutilation or unauthorised possession are eliminated. Having shares in demat mode also ensures transparency in record maintenance and hence, shares in demat mode may continue to remain as a preferred option from good corporate governance perspective.