1. The present representation of the Confederation of All India Traders (“CAIT”) is filed with the Hon’ble Ministry of Commerce and Industry with the request for identifying and empowering a regulatory authority with the mandate to enforce the provisions and intendments of the Draft National E-Commerce Policy (“Draft Policy”) as well as the extant law on ecommerce being governed through, inter alia, Paragraph 18.104.22.168 of Press Note 2018. Specifically, CAIT wishes to stress upon the dire need for a judicial or quasi-judicial authority having enforcement as well as adjudicatory powers to give effect to the prevailing e-commerce policy in India. CAIT, at the very outset, lauds that the draft e commerce policy identifies all issues that are faced with this sector like immense capital dumping, loss selling etc which needs to be curbed. However, not having a regulator/ judicial/ quasi judicial authority like we have in other jurisdiction, would render this policy framework as a paper / toothless tiger.
2. This representation comes in response to the call for stakeholder comments on the recently published Draft Policy that seeks to enable stakeholders to fully benefit from the opportunities that are borne out of the domestic economy which increasingly being digitized.
3. At the outset, it is submitted that the Draft Policy released by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry are a welcome step in the right direction in order to ensure that regulations made in this sector are not contravened, or otherwise circumvented by the dominant e-commerce players.
4. However, while there is an express recognition for the need of progressive steps that must be taken to ensure that pertinent issues at stake in this sector including competition concerns, consumer interests as well as broader economic and social interests of the nation are addressed through appropriateregulatory response, much more is desired on the actual enforcement aspect of the policy. To that end, CAIT, being a body that advocates for the interests of more than 6 core traders including numerous micro, small and medium enterprises (“MSMEs”) is an essential stakeholder and has a direct interest in effecting positive regulatory changes that can cure the ills that have beset the sector.
5. In this light, CAIT submits the following comments on the Draft Policy and crave leave to make further representations in the future in order to assist the Ministry and request for an effective e-commerce regulator/ judicial / quasi judicial body armed with extensive enforcement powers.
6. The stipulations contained in the Draft Policy are an express recognition of the imbalance in the interaction between the various stakeholders in the online economy, such as MSMEs, start-ups and even consumers, with large entities who have been operating in the sector for sometime, such as Amazon, Flipkart (now with Wal-mart) and Paytm Mall, to name a few. While the Policy recognizes the need for regulatory response and the need for equipping the current enforcement structures to tackle issues emanating from the e-commerce sector, the Policy essentially sets up a tooth-less tiger in making positive regulatory changes without having an enforcement mechanism for the same. The query which needs to be posed is: why hasn’t the objective as evidenced under the letter and spirit under the FDI policy being accomplished. The only response CAIT fears that the outcome of the policy without a regulator would be very much akin to the MRTP Commission which was often dubbed as a toothless tiger since the MRTP Act had no enforcement powers.
7. In this context, it may be noted that regulations have attempted to tackle the problems of circumvention with clarifications, such as in the instance of releasing Press Note 2 which effectively made welcome regulatory changes to the extant FDI Policy in order to tackle some of the concerns that were faced by key stakeholders, including CAIT, in the economy. However, the ‘Achilles Heel’, so to say, for the regulation of the e-commerce sector has never been a lack of legislation, but rather a lack of enforcement of the existing legislation. As such, CAIT has made elaborate submissions earlier to the Ministry to show that the dominant e commerce companies have flouted, rather nonchalantly, FDI policies since a long period of time. This has been the case because of lack of an effective regulator.
8. The CCI has had occasion to deal with some cases in this sector till date. In the recent order under Section 31(1) of the Competition Act, 2002, while approving the acquisition of a majority stake in Flipkart Private Limited by Wal-mart International Holdings Inc., the CCI has taken note of the allegations of predatory pricing and Flipkart’s nexus with some preferential sellers on is platform as recorded in the judgment of the Income Tax Appellate Tribunal in Flipkart India Private Limited v. Assistant Commissioner of Income-Tax [ITA No.693/Bang/2018 (Asst. Year – 2015-16)] but has restrained itself from undertaking an analysis of the anti-competitive effects of such conduct.
9. The CCI, while expressly stating that concerns regarding preferential listing and deep discounting may merit examination from the point of view of Section 3(4) of the Competition Act, 2002, has erroneously observed that these are issues that fall outside the scope of the Act on account of being part of the FDI Policy, the enforcement of which is entrusted with authorities established under the Foreign Exchange Management Act, 1999. Thus, the CCI has refrained from using its suo motupowers to initiate action against potentially anti-competitive conduct and instead acknowledged the need for appropriate regulatory intervention for contraventions of the FDI policy.
10. Despite there being no provision for giving information / filing a private complaint to the Directorate of Enforcement regarding the contravention of the FDI Policy, CAIT has also given information regarding all the contraventions and circumventions of the extant FDI Policy by Flipkart, but the ED has failed to take cognizance of the matter. Without proper redressal mechanism for relevant stakeholders in case of e-commerce specific disputes, the aggrieved party has therefore been left without any remedy, despite clear evidence of FDI violations. In this regard, it may also be noted that show cause notices, with fines of hefty amounts, have been issued against e-commerce entities in the past by the ED. However, not a single matter has been determined to its conclusion where such FDI violations have resulted in adverse orders being passed by the authority against violating parties. The Draft Policy too has observed the lopsided benefits in the market as it observes that it is not the e-commerce entities themselves, but rather a few shareholders that prosper and make huge profits. In essence, entities like Flipkart, touted as the unicorn of Indian start-ups, becomes little more than an engine to generate profit for its shareholders such as TigerCent, Softbank and other large foreign investors. In some sense, therefore, there has been a theft or leak of the benefits that should have emanated from allowing 100% FDI in the B2B e-commerce space that the ED has been wholly inefficient to stop.
11. Under such conditions, it can be seen that either there is reluctance for regulatory intervention by enforcement authorities that are empowered under the respective statutes or such enforcement authorities are not equipped to appreciate and analyse e-commerce transactions that have the ability to prejudicially and adversely affect key stakeholders such as MSMEs and other start-ups, as well as consumers in the long term. The Draft Policy recognizes the regulatory reluctance to act in face of the changing nature of the e-commerce sector as it goes on to state that “authorities are expected to be aware of these changes and it is expected that policy responses are prompt to ensure that the spirit behind policies is not violated.” However, the Policy does not do justice to enforcement of the e-commerce policy. One of the solutions identified by the Draft Policy, for instance, has been the setting of the Standing Group of Secretaries on e-commerce (SGoS) as a body to recommend policy changes. What has completely been overlooked, however, is that while the SGoS can recommend policy changes to meet the transient nature of the e-commerce sector as it stands currently, the SGoS would never be in a position to actually enforce any policy that is either a realization of the policy contained in the Draft Policy or the extant policy contained in Press Note 2, amongst other legislations that can affect or are affected by e-commerce transactions (including but not limited to laws relating to Intellectual Property Rights, Consumer Laws, Information technology laws and competition law). SGoS would not be a regulator / quasi judicial body to enforce the policy. The policy also recognizes that license of the non complaint e commerce player would be taken away, the question is which body / authority would decide that the e commerce players are not adhering to the policy?
12. As pointed out above, the experience with various regulatory authorities under the current regime in India, be it the Enforcement Directorate or the Competition Commission of India has only resulted in inaction. However, similar issues have been dealt with differently in more mature jurisdictions and the current Draft Policy, equipped with the benefit of hindsight obtained from the regulatory experience in these jurisdictions, has the ability to fill in the vacuum that is left in the actual enforcement of an ecommerce policy by making appropriate amendments. Adopting a pragmatic approach in the sphere of policy intervention would therefore entail that, e-commerce policy in its final recommendation, provides the way for a judicial or quasi-judicial body, having the trappings of a court, and mandated to look into infringement actions brought against, as well as by, e-commerce entities.
13. While the Draft Policy addresses many concerns that arise (or are bound to arise) in the sector, much of the Policy reiterates the importance of adhering to the extant FDI Policy and the ideals it was designed to achieve. For instance, the Draft Policy reaffirms the importance of maintaining a level playing field and not indulge in practices that lead to distortions in the market; not indulging in capital dumping and loss selling, mandating marketplaces to display the contact details of sellers to maintain transparency in transactions, etc. It becomes relevant to point out that much of these policy intendments were abundantly clear in the Consolidated FDI Policy of 2017, i.e., even before Press Note 2 was released. In this regard, the deficiencies were never felt so much in the enactment of new policies or rules as they were apparent in the enforcement mechanism. A law is only as good as the enforcement structure that supports it, and in the absence of any judicial response from regulators that are awake to the continuous contravention or circumvention that is being affected perpetually, the Consolidated FDI Policy, the subsequent Press Note 2 and all policies that follow suit, including the current Draft Policy, would meet the same fate of having a “policy without a police”.
14. CAIT, on behalf of the millions of traders that it represents, has made multiple representations in the past and has been a concerned and active stakeholder participating in the discourse that has helped shape the regulatory regime in this sector and has been at the forefront at facing adverse implications that have stemmed from non-adherence to the extant FDI policy. In this regard, the tangible contributions of CAIT in shaping the current discourse has been illustrated by way of the following table. It may be noted that CAIT has strived to bring the following concerns to the notice of the Hon’ble Ministry in the past, which have also been duly considered.