E-Commerce Liability – An Enigma with limited answers?

Under the Information Technology (Intermediaries Guidelines) Rules, 2011, “intermediaries” are defined as people or organizations that receive, store, transmit, or provide any service related to maintaining records on behalf of another person or persons, this group includes telecom service provider, network service providers, internet service providers, web hosting providers, search engines, online payment sites, online […]

Under the Information Technology (Intermediaries Guidelines) Rules, 2011, “intermediaries” are defined as people or organizations that receive, store, transmit, or provide any service related to maintaining records on behalf of another person or persons, this group includes telecom service provider, network service providers, internet service providers, web hosting providers, search engines, online payment sites, online auction sites, online marketplaces, and cyber cafes. It is trite law that intermediaries in the e-commerce landscape are not liable for the actions of the sellers or the merchants who use their platforms for selling various products and services. However, various conflicting decisions have come into the picture which have discussed the liabilities of e-commerce websites in cases where the payment of the product or the service purchased has been transmitted into the account of the e-commerce portal and where the products’ quality and delivery have been held to be the joint liability of the intermediary as well as the seller.
As per the RBI guidelines bearing No. RBI/2009-10/231 dated 24.11.2009, intermediaries that receive money from clients and remit it to merchants via electronic or online payment methods. It functions via nodal accounts created in compliance with the regulations. The nodal accounts are kept apart from the internal accounts of the seller or merchant and are maintained and audited by banks approved by the RBI for this purpose. These accounts are meant to make it easier for payments to be collected and then transferred to merchants as payment for completed customer obligations. In order to prevent intermediaries from operating these accounts, the RBI requires banks to maintain them as internal accounts. Hence the nodal account is maintained by a bank recognized by the RBI and not by the intermediary. This means that an intermediary is not an account holder of the nodal account and cannot transact at will.
However, in an interesting development, the District Consumer Disputes Redressal Commission, Gurdaspur, in the matter, titled, Armaan Bakshi v. Flipkart Internet Pvt. Ltd., held that a payment received by the e-commerce platform or the intermediary in its bank account after the perusal of documents and e-mails makes the intermediary liable under the Consumer Protection Act as the same amounts to deficiency of service on its part. It will be apposite to briefly narrate the facts of the matter, which led to such reasoning of the commission. The complainant claimed that he ordered a backpack via the Flipkart mobile application, but when the same was delivered, the packaging was found to be empty, which prompted the complainant to file a complaint against Flipkart Internet Pvt. Ltd. under Section 35 of the Consumer Protection Act, 2019. The e-commerce platform turned down the request for a refund three times in spite of repeated requests for reimbursement and the submission of all required documents. The complainant experienced monetary loss, psychological distress, and inconvenience as a result of Flipkart’s purported poor service and unfair business practices. After considering the matter at length, the Consumer Dispute Redressal Commission rejected Flipkart’s argument that it is only an intermediary and found that the company’s refusal to provide a refund amounted to a deficiency in service. Reliance was placed on the order of the State Consumer Disputed Redressal Commission Pb. Chandigarh First Appeal No.321 of 2019 decided on 22.02.2022 case titled Flipkart Internet Private Limited. v Arish Juneja, which held that Flipkart’s designation under Section 2(i)(w) of the Information Technology Act, 2000 as an “intermediary” does not release it from accountability. As the provider of an online marketplace, Flipkart is accountable for the products listed on its platform and the subsequent delivery and rejected Flipkart’s claim that there is no privity of contract between Flipkart and the complainant. The Commission made it clear that Flipkart and the third-party sellers share joint liability for the products’ quality and delivery after it receives payment.
In Supriyo Ranjan Mahapatra v. Amazon Development Centre India Pvt. Ltd., First Appeal No. 492 of 2018, the State Consumer Dispute Resolution Commission, Odisha at Cuttack, held Amazon liable for unfair trade practice for retracting an offer for the sale of a laptop which was placed at a discounted price of Rs. 190 after issuing the confirmation of the receipt. The State Commission observed that when an advertisement is made for an offer by an e-commerce platform and when the buyer places the order as per the advertisement, the same after being confirmed makes the agreement between the parties complete. If there had been a cancellation before the receipt of confirmation, the matter would have been different but Amazon floated an offer that was accepted by the buyer, then Amazon had no option to go away from the promise made. Therefore, the Commission held the cancellation of the confirmed order to be an unfair trade practice after finding that Amazon had been negligent in providing its services and was therefore directed to provide compensation to the complainant.
On the other hand, in the matter titled Kunal Bahl, Chief Executive Officer and Director of Jasper Infotech Private Limited, v. the State of Karnataka 2021 SCC OnLine Kar 15706, the Hon’ble Karnataka High Court held that an online marketplace, being an intermediary, cannot be held responsible for the conduct of independent third-party sellers on its platform. This ruling, drew reliance from the Supreme Court decisions in Bharat Bribe Digumarti v. State, (2017) 2 SCC 18 and Shreya Singhal v. Union of India, (2015) 5 SCC 1., which laid stressed upon the fact that an intermediary should be aware of every product listed, its duty is to put in place a strong system that notifies every seller on its platform of their legal obligations. The court made it clear that legal action against a seller who breaches these duties may be taken against the seller directly, rather than the middleman.
Furthermore, the Hon’ble Allahabad High Court in the case of Flipkart Internet Private Limited v. State of U.P. and Others, 2022 SCC OnLine All 706, held that, under the definition of “intermediary,” a business that acts as one is covered by Section 2(1)(w) of the Information Technology Act, 2000, as amended by the Information Technology (Amendment) Act, 2008. As a result, when the necessary conditions are satisfied, the business is qualified for exemption from liability under Section 79 of the IT Act, 2000. The company in this instance does not act as a product seller; rather, it serves as a platform through which transactions are carried out by registered sellers. The only people accountable for the goods and services that sellers provide to buyers or clients are the sellers themselves. It was underlined that it is unreasonable to expect the provider of the online marketplace to be aware of every product that is offered on its platform. As an alternative, the provider must set up a strong system that notifies each and every seller on its platform of their legal obligations. The intermediary’s responsibility is fulfilled when it guarantees that sellers understand and follow the law. Legal action may be taken against a seller who breaches these duties, but not against the intermediary.
There is a pressing need for a comprehensive national e-commerce policy, given the rapidly expanding e-commerce market, which is expected to reach an astounding US$ 200 billion by 2026. The nation’s e-commerce regulations are currently divided between different government departments such as the RBI, industrial policy, revenue, and IT Departments having varying degrees of oversight over the sector. Because there are so many different regulators, there aren’t enough unified standards to govern every aspect of online retail, so a single policy needs to be developed. Furthermore, the increasing number of online fraud incidents highlights the need for a national e-commerce policy. To protect consumers in this digital age and give them a strong framework that protects their interests, the regulatory framework must be strengthened. In addition to streamlining regulations, a unified policy would improve enforcement tools, allowing for more successful fraud prevention and redress. Essentially, a national e-commerce policy would act as a proactive step to guarantee a safe and reliable online marketplace for companies and customers alike, rather than merely a reaction to the sector’s explosive growth.
The conspectus of the above judgments throws the question of the liability of an intermediary wide open. The law is not clear in its crystal form as various commissions of the country have passed conflicting and contradictory judgments in regard to the liability of an e-commerce platform. The law with regard to the liability of an online marketplace is still being developed and there are sudden disputes arising in regard to negligence and unfair trade practices being followed by the e-commerce platforms. Time will tell as to how this conundrum will be resolved by the judiciary or the legislature.