13/10/2015 3:26 PM IST | Updated 15/07/2016 8:25 AM IST

What A New Consumer Protection Law Will Mean For E-Commerce Companies, Online Shoppers

The Consumer Protection Act, 1986 may be replaced by the new Consumer Protection Bill 2015 that will also incorporate e-commerce. This proposed bill could replace the 29-year-old law and recognise the growing complexity of the business landscape with the expansion of e-business across India. The bill sets up a new regulatory authority that will have powers to recall goods and services and also initiate class action lawsuits against companies that are defaulting against the statutes of the law and these will now, explicitly, include Indian e-commerce companies.

Some also argue that a separate Consumer Protection Act for e-commerce is needed. This is driven by the belief that many e-commerce companies in India may be engaging in business malpractices and possibly evading taxes, thus leading to the loss of revenues for the government, and also exposing consumers to unscrupulous anonymous business people who are operating in a kind of Wild Wild West of business.

India is experiencing a robust growth in its e-commerce sector which is expected to be worth more than $16 billion by the end of this year. Many consumer advocacy groups want a separate law that is targeted at the e-commerce sector in order to protect the rights of internet consumers in India. They point to the fact that the US and EU already have separate protections for online consumers. For example, in the EU, the Directive on the Protection of Consumers has been approved by the member countries. The UK has the Consumer Contracts Regulations 2013, which also applies to distance selling.

Advocacy groups argue that Indian consumers face a variety of threats when shopping online due to the shortcomings in the Consumer Protection Act, 1986. For example, buyers from e-commerce stores do not have the ability to sample and test the products and services that they are purchasing. Buyers generally purchase through credit and debit cards and thus a greater potential for card fraud.

In addition, it must be kept in mind that e-commerce and mobile commerce are now inextricably linked thanks to the growth in the smart phone adoption. Any changes wrought by the revised Consumer Protection Act will also affect m-commerce.

Implications for e-commerce and m-commerce businesses

Ordinarily, any regulation is likely to introduce lots of complexity to e-commerce businesses. Interventions and class actions by the regulatory authority for consumers with grievances will increase the cost of doing business for some companies.

E-commerce businesses must also take note of the "product liability" section of the bill. If the amendments are passed, action will be taken against manufacturers that sell products and services which cause death, damage or injury to the consumers. The bill provides for a mediation option that can be used by both parties as an alternative dispute resolution mechanism. This mediation will be carried out by the consumer courts.

The bill will target certain aspects of e-commerce business which are considered as unethical such as misleading advertisements to consumers, online multi-level marketing, direct selling practices and many other potentially unethical business practices which might mislead or exploit consumers.

The bill also includes some stringent penalties for some offenses committed by e-retailers that include life sentences in certain cases. If successful, the Consumer Protection Act for e-commerce will be the fourth amendment of the Consumer Protection Act 1986. The last amendment to the law was made in 2002.

The Consumer Protection Act for e-commerce has already been given a clean bill of health by the cabinet and will soon be introduced into the parliamentary sessions. Chances are that it is going to pass and become law so e-commerce businesses in India need to understand the provisions and penalties of this bill in order to prepare well for a new era of consumer protection for the internet age in India.