Key Features of the Rules
Issues and Analysis
The central government has published eight Draft Rules under Consumer Protection Act, 2019. The Draft Rules regulate the composition, selection, qualification, tenure and removal of members of the regulator, the consumer commissions, and advisory bodies as well as consumer practices in e-commerce and direct selling businesses. In addition, Rules framed under the Finance Act, 2017 govern qualifications, terms of service and selection of members of the National Commission.2 We present below a comparison between the rule-making powers specified under the 2019 Act and the specification in the Draft Rules of those provisions.
Authorities established under the Act
The Act establishes various bodies including a regulator, and adjudicatory bodies and advisory councils at the district, state and national level. The central government will determine the qualifications, method of appointment, term, and removal of the President and members of the Commissions. The Draft Rules prescribe the composition, qualifications, method of appointment, term and removal of the members of these bodies.
Table 1: Authorities established under the 2019 Act
(Jurisdiction on disputes up to one crore rupees)
(Original jurisdiction of one to ten crore rupees and appeals from District)
(Original jurisdiction above ten crore rupees and appeals from State)
Central Consumer Protection Authority
Central Consumer Protection Council
Sources: The Consumer Protection (Salary, allowances and conditions of service of President and Members of the State Commission and District Commission) Model Rules, 2019; The Consumer Protection (Qualification for appointment, method of recruitment, procedure of appointment, term of office, resignation and removal of the President and members of the State Commission and District Commission) Rules, 2019; The Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2020; The Central Consumer Protection Authority (Selection and Term of Office of Chief Commissioner and other Commissioners) Rules, 2019; The Consumer Protection (Central Consumer Protection Council) Rules,2019; The Consumer Protection Act, 2019; PRS.
Provisions on e-commerce and direct selling
Provisions on mediation
KEY ISSUES AND ANALYSIS
Composition of National Commission and its selection body violate SC judgements
The Act sets up Consumer Disputes Redressal Commissions (consumer courts) at the district, state and national level, as quasi-judicial bodies for adjudication of consumer disputes. It also permits the central government to notify the method of appointment of the members of these consumer courts.
The Draft Rules specify the composition of the District and State Commissions and the method of appointment of the President and Members of these Commissions. The composition and method of selection of members of the National Commission is provided in the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2020 (notified under the Finance Act, 2017). Under the 2020 Rules, the President and Members of the National Commission will be appointed by a selection committee comprising: (i) the Chief Justice of India or any other Supreme Court judge; (ii) the President of the National Commission who must be a sitting or former Supreme Court judge or Chief Justice of the High Court; (iii) Secretary, Ministry of Consumer Affairs, Food and Public Distribution, and (iv) Secretary, Ministry of Commerce.2 The Commission will have a mix of judicial and non-judicial (technical) members, with a term of up to four years.
The 2020 Tribunal Rules replace an earlier set of rules (in 2017) which were struck down by the Supreme Court in 2019. The 2017 Rules changed the qualification, conditions of service and term of members of 26 tribunals, including the National Commission. The Supreme Court had examined various aspects of the Rules and noted that the 2017 Rules did not comply with previous Supreme Court decisions that stressed on securing judicial independence in the composition of the tribunal, in the selection committee appointing the tribunal members and in the security of their tenure. The composition of the National Commission, tenure of its members and the method of their appointments may violate the judgement of the Supreme Court. We discuss these below.
The term of the President and Members of the National Commission may be too short
The 2020 Rules state that the President and Members of the Commission will have a term of four years or till they reach 70 years of age (for the President) and 65 years of age (for other members), whichever is earlier. Under the 2017 Rules, members of the National Commission were to be appointed for three years. The Supreme Court struck this down and noted that a term of three years is too short, and by the time members cultivate adjudicatory knowledge, experience and efficiency, their term may be over. In doing so, it relied on an earlier judgement of the Court given in the context of the National Company Law Tribunal where the Court had recommended a term of five or seven years for the members of the Tribunal. The four-year term specified in the 2020 Rules may contradict the judgement of the Supreme Court.
Inclusion of technical members in the national, state and district commissions
Under the Act, the National Commission is headed by a sitting or retired Supreme Court Judge or Chief Justice of a High Court and consists of a total of four to eleven members, who could be technical or judicial. One of the roles of the Commission is to hear appeals from orders of the State Commission on substantial questions of law. The composition of the Commission may contradict the principles used in a Supreme Court judgment regarding the composition of the National Tax Tribunal. In that case, the Court questioned the competence of technical members, who may not have any knowledge or experience in the practice of law, in dealing with substantial questions of law. This case was re-affirmed by the Supreme Court while striking down the 2017 Tribunal Rules.3
The District and State Commissions also comprise technical members with expertise in certain areas such as economics, business, law, or public administration. It is not clear if the resolution of a consumer dispute requires expertise of such technical members. The Supreme Court has held that technical members could be appointed to tribunals only if technical expertise is essential and not otherwise, to ensure the independence of tribunals.4 For example, the Electricity Appellate Tribunal may require an electrical engineer as a technical member. However, note that similar provisions for technical members in the District and State Commissions existed in the Consumer Protection Act, 1986 (which this Act replaces).
Executive involvement in appointment of Commissions
Under the 2017 Tribunal Rules, members of the National Commission were to be appointed by a selection committee comprising four government nominees and one judicial member. While striking down the 2017 Rules, the Supreme Court had noted that appointments of members of the Tribunals are largely made by the nominees of the central government. The Court referred to its earlier judgements where it had stressed on the primacy of the judiciary in deciding judicial appointments, to secure its independent functioning.4 In one of these judgements, while examining the selection of members to the National Company Law Tribunal, the Court had directed for the constitution of a selection committee comprising two members each from the judiciary and the executive, with a judicial member as a Chairperson with a casting vote (in case of a deadlock).4
In the 2020 Rules, the selection committee for the National Commission comprises two judicial members and two government appointees. However, the Rules do not contain any provision on how a deadlock will be resolved. As it does not specify that the judicial member will have a casting vote in the case of a deadlock, this may violate the judgement of the Supreme Court.
Some issues with provisions of the Draft Rules on e-commerce
The Draft Rules define e-commerce entities and outline the obligations of e-commerce entities and sellers in relation to sale of goods and services through such entities. The Rules raise two issues. We discuss these below.
No distinction made between marketplace-model and inventory-model e-commerce entities
The Draft Rules specify various obligations of e-commerce entities and sellers in relation to goods and services. E-commerce entities are defined to include inventory models (where the entity owns the inventory and sells it to consumer directly through its platform), marketplace models (where they only act as intermediaries for facilitating transactions between buyers and sellers) or a combination of the two. However, while specifying the obligations of e-commerce entities, the Rules do not make a distinction between the two models. As a result, it is unclear which obligations apply to marketplace models and which apply to inventory models.
For example, the Draft Rules state that e-commerce entities have the duty to not influence the prices (directly or indirectly) of products and services and to maintain a level playing field. These provisions prohibiting influencing of prices will not be relevant to an inventory model since in this model the e-commerce entity is also the seller of the product and must have the freedom to take decisions on pricing (for example, setting the price for its products). Again, the provisions on providing a level-playing field to all sellers will not apply to a pure inventory model where the e-commerce entity is the only seller on the platform.
Certain obligations of e-commerce entities may be applicable to sellers of products and not to marketplaces
The Draft Rules specify various obligations of e-commerce entities. These include the duty to not influence the prices (directly or indirectly) of goods and services, to display the terms of contract with a seller or service provider, and to take down listings of counterfeit products.
However, the Draft Rules also require e-commerce entities to ensure that advertisements for marketing of goods and services are consistent with their actual characteristics and usage conditions. It may be argued that these obligations should apply only to the seller of the product and to inventory models since the seller owns the product and is expected to provide details of the product including its characteristics and usage conditions while listing the item for sale on the platform. Pure marketplace models only provide a platform and do not control the quality of the product. Note that the Information Technology Act, 2000 (and its Rules) provide immunity for intermediaries from liability for hosting or transmitting third party information; this would cover e-commerce marketplaces such as an auction website. This principle has been re-iterated by a judgement of the Delhi High Court.
Also, note that under the Draft Rules, consumers have remedies against the e-commerce entity in cases where the delivered product does not conform to its description. If a product does not conform to the advertised product characteristics, the e-commerce entity is liable to accept return of goods and refund money within 14 days. Further, the 2019 Act allows the Central Consumer Protection Authority to impose penalties on the issuance of a false or misleading advertisement.
Disqualification of members of the regulator related to marriage
The Act sets up the Central Consumer Protection Authority to promote, protect, and enforce the rights of consumers. The Authority will be headed by a Chief Commissioner and other Commissioners. The central government will decide the qualifications, method of appointment, term, and removal of the Chief Commissioners and Commissioners of the Authority by rules.
The Draft Rules provide certain grounds for disqualification from being appointed as a Commissioner. These include disqualification if the person has: (i) married a person who has a spouse, or (ii) who having a spouse, married any other person. The Rules further states that the disqualification will not apply if the central government is satisfied that the marriage is permitted under the personal laws of the two parties involved and there are other grounds for doing so. It is unclear why the grounds for disqualification of a Commissioner have been linked to the status of his marriage.
Further, it is also unclear why the central government must be satisfied of the ‘grounds’ for such marriage, even if it is found to be legal under personal laws. Note that similar grounds for disqualification do not apply to members of the Consumer Protection Councils (the advisory bodies) or the Consumer Commissions. For example, disqualification of members of the Consumer Commissions are limited to grounds such as conviction for offences involving moral turpitude or dismissal from government service.
Lack of clarity in definitions in the Draft Rules and drafting issues
The Draft Rules specify various obligations of e-commerce entities and sellers of various goods and services. The Rules link the definition of the term ‘goods’ to the definition provided in the Sale of Goods Act, 1930. The 1930 Act defines ‘goods’ to mean any kind of movable property except actionable claims and money. A ‘seller’ refers to any person who sells such ‘goods’. This definition differs from the definition of the term in the Consumer Protection Act, 2019 which define ‘goods’ to include any kind of movable property. It is not clear why the Draft Rules refer to a different definition of the term. Note that this difference in definition also exists in the direct selling rules.
Further, the Draft Rules on e-commerce and direct selling specify that every e-commerce entity or direct selling business which intends to carry out business in India is required to comply with certain conditions. One of these conditions requires that promoters or key management personnel of a company should not have been convicted of any crime punishable with imprisonment in the last five years. The Rules do not define as to who constitute “key management personnel”. This may result in lack of clarity in the application of the rule. Note that under the Companies Act, 2013, the “key managerial personnel” of the company include its Chief Executive Office, Chief Financial officer and other managing and whole-time directors.
While specifying the grievance redressal mechanism, the Draft Rules on e-commerce also require e-commerce companies to provide a “mechanism/system to converge with NCH in grievance redressal process”. However, the term ‘NCH’ is not defined anywhere in the Rules.
The Draft Rules on the Central Consumer Protection Authority also contain certain drafting errors. For example, Rule 12 of the Draft Rules refer to inquiries for misbehavior or incapacity by a Committee constituted Rule 9(2). However, Rule 9(2) contains provisions on vacancies and does not refer to an inquiry committee. Provisions for constitution of an inquiry committee are contained in Rule 11(2), in the context of removal of the Commissioners. Further, Rule 4(1) of the Draft Rules refer to the appointment of five central and five regional Commissioners to the Authority. However, the Act only refers to appointment of Commissioners of the Central Authority (who may be located in different regions) and does not provide for the appointment of “Regional Commissioners”.
 The eight Draft Rules are: (i) the Consumer Protection (Salary, allowances and conditions of service of President and Members of the State Commission and District Commission) Model Rules, 2019, (ii) the Consumer Protection (Qualification for appointment, method of recruitment, procedure of appointment, term of office, resignation and removal of the President and members of the State Commission and District Commission) Rules, 2019, (iii) the Consumer Protection (Consumer Disputes Redressal Commissions) Rules,2019, (iv) the Central Consumer Protection Authority (Selection and Term of Office of Chief Commissioner and other Commissioners) Rules, 2019, (v) the Consumer Protection (Central Consumer Protection Council) Rules, 2019, (vi) the Consumer Protection (e-Commerce) Rules, 2019, (vii) the Consumer Protection (Direct Selling) Rules, 2019, and (viii) the Consumer Protection (Mediation) Rules, 2019.
 The Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2020, http://highcourt.cg.gov.in/drt/2020/endt_330_04032020.pdf.
 Rojer Mathew vs. South India Bank Ltd (2018)16SCC341.
 R. Gandhi v. Union of India, (2010) 11 SCC 1.
 Madras Bar Association v. Union of India, 2014 (10) SCC 1.
 The Consumer Protection (Qualification for appointment, method of recruitment, procedure of appointment, term of office, resignation and removal of the President and members of the State Commission and District Commission) Rules, 2019.
 The Consumer Protection (e-Commerce) Rules, 2019.
 Section 79 of The Information Technology Act, 2000, https://www.indiacode.nic.in/bitstream/123456789/1999/3/A2000-21.pdf.
 Amazon Seller Services Pvt Ltd and Ors vs. Amway India Enterprises Pvt Ltd and Ors 2020 (81) PTC 399 (Del).
 The Central Consumer Protection Authority (Selection and Term of Office of Chief Commissioner and other Commissioners) Rules, 2019.
 The Companies Act, 2013, https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf.
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