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Relief for e-Commerce Business Owners!

With the expansion of the virtual economy, new regulations have been enacted to address illegal actions such as online fraud and misrepresentation. Let's have a look at how this benefits all e-commerce platforms.

India’s e-commerce market is growing at an annual rate of 51% every year and is expected to reach US$ 200 billion by the end of the year 2026. This makes India’s growth in e-commerce one of the highest in the world. The growth in the virtual marketplace has caused the enactment of new laws to combat fraudulent online activities. In this post, we examine a new ruling on “intermediary liability” in a Snapdeal case. We further emphasise how this is a tremendous relief for all e-commerce platforms.

Facts of the Snapdeal Case 

  1. A person ordered a certain prescription tablet from a seller listed on the platform provided by Snapdeal
  2. It was later found out that the dealer selling it on Snapdeal did not possess a drug license to sell the tablets
  3. Moreover, a case was filed against Snapdeal for allowing an unauthorised seller to exhibit for sale goods that required regulatory approval.

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Key Questions Involved

  • Can Snapdeal, as a middleman, be liable for the actions of sellers on its platform?
  • Can the directors, shareholders or key managerial personnel be individually prosecuted under criminal laws for their own negligence? 

Arguments of the Respondent

  • The drug controller argued that Snapdeal owns the marketplace, and this in itself is sufficient to hold it liable for acts of the sellers over which it exercises control. 
  • Additionally, no product can be advertised for sale on any platform, contravening the Drugs & Cosmetics Act, 1940.
  • Moreover, Snapdeal is an “intermediary” under the Information Technology Act, 2000. This means that as a portal liaising between buyers and sellers, Snapdeal must put in place mechanisms to control the abuse of its platform.

The Ruling of the Karnataka High Court – No Portal Can Be Expected to Control All Its Sellers

In a major relief to directors and employees associated with the e-commerce platform, the following were the observations of the court:

  1. It is unfair to expect an online marketplace to be aware of all the products sold by all the sellers on its platform 
  2. What the website needs to do is establish a solid structure of responsibilities, due diligence, and compliance with applicable laws
  3. The only liability as an intermediary under the Information Technology Act would be to take down such content, either voluntarily or on receipt of court/government order
  4. Thus, it is unfair to hold Snapdeal or its directors liable for offences punishable either under the Drugs and Cosmetics Act or the Information Technology Act. 

Data, Deception, and Developers – Where Is the Line Drawn?

  • The world’s boundaries are becoming blurred virtually, with consumers, businesses, and governments increasingly becoming interconnected. Additionally, this has been fostered through technology, making data a valuable asset
  • Electronic commerce is driven by technology and data. Private companies are developing new business models to benefit from the evolving technology and capitalising on the volumes of data generated. In case this data is misleading, the courts can still trace it back to developers and website owners
  • A landmark example is Amazon, which had to pay a penalty for incorrectly displaying a ridiculously low price of a laptop. Further, Amazon refused to accept an order placed for the lowered price, citing technical errors. The consumer court stepped in to guard the interests of the buyer. 

Consumer Protection Act – Uniform Applicability Across All Business Models

Regardless of the type of business model, the Consumer Protection Act will still apply to retailers and sellers.  This means that the individual seller found to be selling an unauthorised product without a license can be prosecuted.

Why Consumers Prefer e-commerce – a Recent Study on Why Your Business Needs to Go Online

There’s no denying that every company in today’s age is shifting to online selling. A recent study conducted by the competition commission of India highlights the ‘psychological and behavioural aspects of the e-commerce sector. This includes its focus on non-price factors that lead a consumer to an online sales platform such as:

  • Better presentation of the product online –  a written record of its features that may not always be available offline
  • Ability to view variants – which may not always be in stock in the offline stores 
  • User ratings and reviews, leading to better sales for good products 
  • Transparency in payments and payment options – a wide variety of wallets, net banking and payment method linked discount
  • Moderated search results – the availability of past orders and wishlists enable a platform to tailor its product visibility. Additionally, this way, it can target consumers based on age, gender, search history, and past orders. 

Vakilsearch’s experts can help make the transition to an online platform easier for your business. Vakilsearch has a rich body of experience handling several big-ticket e-commerce businesses. Hence, we leverage this to provide the richest advice on licenses, approvals, and compliances needed for your e-commerce business.

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