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The Liability of Online Marketplaces under the Consumer Protection Bill, 2018

Globalisation, increase in trade, emergence of new ways of transactions and e-commerce have created new and convenient options for consumers. The growth of internet has led to a drastic shift in the definition of consumer and has heralded an era of fast consumer-shipa. This, however, has made consumers vulnerable to new forms of unfair trade and unethical business practices. Thus, a need was felt to amend the existing framework for the protection of rights and interests of consumers. The Consumer Protection Bill 2018 has been passed in the Lok Sabha on 20 December, 2018 and aims to replace the archaic Consumer Protection Act 1986 owing to its many pitfalls.

The 2018 Bill will enlarge the ambit of the existing Act to cover and regulate goods and services, including online market places for consideration in view of the changing dynamics of consumer protection.

Defining E-commerce and Electronic Service Provider:
Currently, there is no definition of an online marketplace in any of the existing Indian laws. Though the Information Technology Act, 2000 categorises these marketplaces as intermediaries, its scope is limited and does not extend to sale and purchase that occur through their medium. The Consumer Protection Act, 1986 also does not provide for protection against online marketplaces.

For the very first time, the Bill has defined e-commerce activity as buying or selling of goods or services including digital products over digital or electronic network. The Bill also lays down the meaning of an electronic service provider: A person who provides technologies or processes to enable a product seller to engage in advertising or selling goods or services to a consumer and includes any online marketplace or online auction sites”.

Inclusion of these new definitions will broaden the scope of the Act to include the e-commerce sector, which the existing Act does not cover. This way, if the rights of an“e-consumer”will be protected and in case of any violation, the consumer will be able to proceed against the e-commerce website.

Interestingly, the explanation attached to the definition of “consumer" has been worded in a way to include consumers who buys goods or avails services through online platforms and once enacted, will make online retailers and marketplaces liable for fraudulent sales and defective products sold on their platforms.

Product Liability:
The introduction of ‘product liability' provision is one of the most important features of the Bill, which is not provided for in the current Act. Product liability, as defined under the Bill, means the responsibility of the manufacturer or seller of any product or service to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services relating thereto. As per the new Bill, the product manufacturer can be held liable even if he proves that he was not negligent or fraudulent in making the express warranty of a product.

Additionally, the Bill also provides for the liability of a product seller, who is not a product manufacturer, in circumstances where:
i. The seller exercised substantial control over the designing, testing, manufacturing, packaging or labelling of a product that caused harm.
ii. The seller altered or modified the product and such alteration or modification was a substantial factor in causing the harm.
iii. The seller made an express warranty of a product independent of any express warranty made by the manufacturer and such product failed to conform to the express warranty made by the seller which caused the harm.
iv. The product is sold by him and the identity of manufacturer of the product is not known, or if known, the service of notice or process or warrant cannot be effected on him or he is not subject to the law which is in force in India or the order, if any, passed or to be passed cannot be enforced against him.
v. The seller failed to exercise reasonable care in assembling, inspecting or maintaining such product or he did not pass on the warnings or instructions of the manufacturer regarding the dangers involved or proper usage of the product while selling such product and such failure was the proximate cause of the harm.
This has been done in an endeavour to make the e-commerce companies accountable in case any defective product or deficient service is made available through their websites.

Misleading Advertisements and Endorsements:
The Bill provides for imposing penalty on the product manufacturer or service provider who causes a false or misleading advertisement to be made, which is detrimental to the interests of the consumers. The Act does not provide a definition of misleading advertisement but as per the definition under the Bill, it will include an advertisement which:
i. Falsely describes a product or service.
ii. Gives false guarantees that mislead consumers about a product or service.
iii. Convey representations, which if made by the manufacturer, seller or a service provider would constitute unfair trade practice.
iv. Deliberately conceals important information.

Further, in case of any false or misleading advertisement being released, the manufacturers or service providers will be punishable with imprisonment up to two years and/or fine up to Rs.10 Lakhs, or both. The introduction of criminal liability for misleading advertisements will positively compel the product manufacturer, product seller or the service provider to release advertisements with caution and within the contours of the prescribed legal framework. The Bill also makes the endorser or brand ambassador of such misleading advertisements liable and provides a penalty of up to Rs.50 Lakhs and ban up to 3 years on a subsequent offence.
Thus the product manufacturers, product sellers, the service providers, e-commerce companies and even the celebrity endorsers will be made answerable for the false and misleading advertisements of the products being sold or services being offered/ endorsed by them.

Through this Bill, the Government is trying to establish a watchdog to bust unfair trade practices, to regulate online marketplaces, to protect the interest of the consumers and to keep the legislative framework of consumer protection laws in pace with the changing dynamics of the consumer market and emerging market trends. If passed, the Bill will aid the rapidly increasing e-consumers in protecting their consumer rights.

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