Aiming greater transparency on sale of packaged commodity online

The e-commerce sector has witnessed a phenomenal growth in the past few years resulting in the Central Government hightailing numerous legislative actions, initiatives and policies to regulate e-commerce companies. The Government vide these measures seek to ensure transparent and hassle-free operation of the e-commerce industry. Typically, foreign funded e-commerce operators are subject to further scrutiny to monitor their adherence to permissible business models.  Given the remoteness of e-commerce operations, it is even more important to develop a strong regulatory framework to protect consumer interests.

The Legal Metrology Act, 2009 (LM Act) read with the Legal Metrology (Packaged Commodities) Rules, 2011 (PC Rules) prescribe standard measures and quantity for sale, manufacture, packing and import of commodities and labelling and declaration requirements to be fulfilled by the manufacturer/packer. The primary objective of these legislations is to ensure that the consumer of a “pre-packaged commodity” is aware of product and manufacturer’s information and, accordingly, makes an informed purchase. The term "pre-packaged commodity" means a commodity, which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre‐determined quantity.

Until recently neither the LM Act nor the PC Rules recognized or prescribed compliances for “e-commerce” or “e-commerce entities”. However, the PC Rules were amended vide the Legal Metrology (Packaged Commodities) Amendment Rules, 2017 (“Amendment Rules”) introducing substantive changes to bring e-commerce entities under its ambit. The proposed amendment shall come into effect as on January 1, 2018. This Article seeks to capture the impact of these amendments on e-commerce entities.

Applicability

The terms “consumer”, “e-commerce”, “e-commerce entity” and “marketplace based model of e-commerce” have been introduced in the PC Rules, which replicate the definitions used in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (TISPRO Regulations). As a result, entities owned and controlled by non-residents, conducting e-commerce business shall now have to conform to the requirements prescribed in the PC Rules. Both inventory and marketplace models of e-commerce business have been covered by the aforesaid definitions. Therefore, sale and purchase transactions of goods/services over a digital electronic network as well as the provision of such network to facilitate the sale between buyer and seller shall be construed as e-commerce business for the purposes of PC Rules.

The definition of “Institutional Consumer” has been amended to mean the institution, which buys packaged commodities bearing a declaration ‘not for retail sale’, directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purposes.

The medical devices that have been in the past notified [See Endnote.1] as drugs have also been brought within the ambit of the PC Rules and shall have to adhere to the labelling requirements.

The Amendment Rules brought in certain additional exclusions w.r.t. the applicability of the PC Rules, which shall now not apply to (a) packages of commodities containing quantity of more than 25 kilograms or 25 litre; (b) cement, fertilizer and agricultural farm produce sold in bags above 50 kilograms; and (c) packaged commodities meant for industrial consumers or institutional consumers.

Declarations

Rule 6 of the PC rules stipulates that every package or a label securely affixed on the package shall bear such prescribed declarations, which are definite, plain and conspicuous in nature. Rule 6(10) has been inserted vide the Amendment Rules stipulating an e-commerce entity to mandatorily display declarations specified in Rule 6(1) of the PC Rules on the digital and electronic network used by such entity for e-commerce transactions. In this regard, details with respect to the month and year of manufacture or packing can be omitted. Some of the declarations to be mandatorily displayed by e-commerce operators are as stated in the table below: 

Apart from the mandatory declarations, the Amendment Rules provides that the package can also have the following declarations – (a) Barcode or GTIN or QR Code; (b) “e-code” for net quantity assurance of the commodity and other required declarations, after obtaining the same in the manner as specified by the Central Government; (c) logos of Government schemes, such as Swatch Bharat Mission, where such use is authorised by the Central Government.”

The Amendment Rules have also attended to two most crucial issues of – (i) legible declarations and, therefore, it has increased the size of letters & numerals in the declarations; and (ii) dual MRP on the labels, so, it has inserted that unless otherwise specifically provided under any other law, no manufacturer or packer or importer shall declare different MRPs on an identical pre-packaged commodity.

Notwithstanding the display of the aforesaid information by the e-commerce entity on the digital or electronic network, the packaged commodities delivered to the consumer shall mandatorily contain all the declaration(s) prescribed under PC Rules. Compliance with the Amendment Rules, shall undoubtedly add on to the operational costs of the e-commerce entity but shall also result in greater accountability to the consumers. Ideally e-commerce operators should revise their contract with their vendors, suppliers etc. for more stringent representations and warranties specifically related to the accuracy of information displayed on the e-commerce platform. In the event, any claim or action is initiated under the LM Act against the e-commerce operator, indemnity protection should be sought from the seller or vendor of the product in this regard. 

Validity of packaging material

Proviso (B) to Rule 6 of the PC Rules provides for situations wherein the manufacturer/packer/importer is unable to exhaust the packaging material during the relevant month. In such cases, the packaging material can be used for pre-packing the commodity produced or manufactured in the succeeding month and not thereafter. In such cases, the Central Government also has the authority to further extend the period for revising the declarations on the package, based on facts and circumstances of the delay.

Exercising this authority, the Central Government issued a notification [See Endnote.2], allowing industries to use old packaging material till March 31, 2018 or till such date the packing material or wrapper is exhausted to enable the clearance of old stocks. It is to be noted that the benefit of the said relaxation is yet to be extended to e-commerce entities. Given the objective of the Amendment Rules is to ensure that consumers get a true picture of the products purchased through e-commerce platforms, further clarity should be provided on the treatment of such excess packaging material. In the event, information as per the old packaging material is displayed on the digital platform, the information viewed by the consumer shall be inaccurate, whereas in case correct information is displayed on the e-commerce platform, there will be a mismatch between the information displayed on the platform and declarations on the package delivered to the consumer. 

Market place model of e-commerce

The Amendment Rules cull out an exemption for e-commerce entities, which have adopted a market place model of e-commerce. For them, the responsibility for the correctness of declarations shifts on the manufacturer, seller, packer or importer who transacts with the commodities on the digital or electronic network on the fulfillment of the following conditions:

• a.The entity’s role is restricted to providing access to communication system(s) over which information made available by the manufacturer or seller or dealer or importer is temporarily stored or hosted.
• b.The entity does not engage in (a) initiation of transmission; (b) selecting the receiver of transmission or (c) modifying the information contained in the transmission.
• c.The entity adheres to the guidelines prescribed under the Information Technology (Intermediaries guidelines) Rules, 2011 and any other guidelines issued by the Government in this behalf.

Further, the amended PC Rules is also mindful of unlawful activities committed by e-commerce entities and does not accord any protection to them if found to have conspired, abetted, aided or induced the commission of an unlawful act or despite being notified by the appropriate government, has failed to remove such information, data or communication link residing in or connected to a computer resource controlled by the entity which was used to commit the unlawful act.

Going forward, it would be interesting to note whether e-commerce entities operating a market-place model would fit itself within the contours of exemptions stated hereinabove. Considering that such e-commerce platforms do fulfill compliances befitting an Intermediary under the relevant rules and regulations, the role of these entities often stretch beyond providing mere communication access. 

Conclusion

The Amendment Rules do well to protect and enhance consumer interests. The PC Rules accounts for requirements and compliances under other laws and, accordingly, exemptions have been incorporated to exclude commodities governed by the Food Safety and Standards Act, 2006 and the rules made thereunder from displaying any of the declarations stipulated in the PC Rules. Parallelly, the Food Safety and Standards Authority of India have also issued guidelines on February 2, 2017 for the operation of e-commerce “food business operators”. The guideline inter alia also mandates the sellers/brand owners/ manufacturers displaying or offering “pre-packaged food” for sale, to ensure that legible and clear picture of the “principal display panel” is made available for viewing by the customers. Pursuant to these amendments, it is safe to say that a Legal Metrology officer is empowered to act against an e-commerce operator, however only the manner of implementation of these rules in the times to come shall reveal whether the government is considerate towards the practical difficulties faced by e-commerce operators in complying with the declaration requirements under PC Rules.

[The author is Senior Associate in Corporate law Practice, Lakshmikumaran & Sridharan, Bangalore]