Liability Of Online Marketplaces In India: A Consumer Perspective
The Lok Sabha has recently passed the landmark Consumer Protection Bill, 2018 which seeks to replace the archaic Consumer Protection Act, 1986. The Bill provides for the establishment of a Central Consumer Protection Authority, which will function as a national level regulator for the purpose of dealing with consumer complaints effectively. This bill also contains certain key provisions pertaining to class actions, product liability, misleading advertisements, liability for celebrity endorsements etc.
Though the object of the bill and the changes introduced are laudable, it still misses providing clarity regarding certain key aspects related to consumer protection, one and perhaps the most significant amongst them in today’s time being the regulation of E-Commerce marketplaces.
Current Law Regulating E-Commerce Marketplaces
The Indian Law nowhere provides a definition of an online marketplace. Though the Information Technology Act, 2000 categorizes these marketplaces as intermediaries, its scope is limited to the extent of transfer, storage, and possession of data on their servers i.e. only cases such as one pertaining to copyright infringement and does not extend to sale and purchase that occur through their medium. Moreover, no clear classification is provided under the IT Act as well resulting in uniform liability being imposed upon intermediaries regardless of their functions. Many well-known online marketplaces have been taking the advantage of this lacuna by conveniently categorizing themselves as ‘mere channel of communication’ thereby, availing the safe harbor/ immunity provisions under section 79 of the Act and the corresponding Information Technology (Intermediary Guidelines) Rules, 2011.
Further, the Payments and Settlements Act, 2007 exempts an agent from the requirement of registration. The fact that these marketplaces act on behalf of the seller and can be categorized as their agents help them in availing this exemption as well, so it misses to provide clarity regarding certain key aspects pertaining to consumer protection. In addition to this, the Payments and Settlement Regulation, 2018 imposes entire responsibility solely on bank for the collection and transfer of money though it actually gets routed through the online marketplaces.
The Indian Contracts Act, 1872 and Consumer Protection Act, 1986 also does not provide for protection against online marketplaces in cases of negligence, fraud etc. which might arise during the transaction.
The Consumer Protection Bill, 2018
The current bill has for the very first time defined E-Commerce activity as:
“buying or selling of goods or services including digital products over digital or electronic network”.
Further, the ambit of Electronic service providers is also laid down under the bill as:
“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”.
The ambit of a person under Section 2(31) has been provided to include individuals, firms, Hindu Undivided Family, associations and companies etc. Despite giving a clear definition, it has nowhere mentioned any definite framework regarding the duties to be imposed upon the online marketplaces and their liabilities in case of a breach. Section 94 of the bill merely states that for the purposes of preventing unfair trade practices in e-commerce and also to protect the interest and rights of consumers, the Central Government may take appropriate measures as required, thereby delegating the duty on the government for future. Moreover, these marketplaces are also excluded from the ambit of product seller, thus exempting them from any liability imposed on a product seller other than a product manufacturer under Section 86.
Online Marketplaces: Are they just a medium of communication?
Online marketplaces, also known as e-retailers come in different sizes ranging from giants such as Amazon to small online stores operating through their own websites. These marketplaces are mainly a mixture of B2C - business to consumer and C2C - consumer to consumer type of business model and connect businesses or individual sellers to various buyers through their platforms. Some of these platforms have their physical subsidiaries along with online platform whereas others operate only in the virtual world. By enabling these businesses and third-party vendors to sell through the online platforms, they create significant value for the parties involved i.e. the consumers, sellers, and the marketplaces themselves.
Before delving into the question of e-commerce liability, it becomes apposite to discuss the categorization of online intermediaries on the basis of their working model. On the basis of control over the data processed, online intermediaries can be categorized into:
- Passive Intermediaries and
- Active Intermediaries.
As per the European Court of Justice, Passive intermediaries has been defined as “those service providers who plays a neutral role and their conduct is merely technical, automatic and passive, pointing to a lack of knowledge or control of the data which it stores”. To put it simply, these intermediaries provide mere technological infrastructure for the storing and transmission of the data which a user of the platform intends to upload. They have no mechanism which provides them with the power to review, approve, reject, edit or modify any user content.
Active intermediaries also perform a similar role as passive intermediaries to the extent of storing and transmission of the data uploaded by the user from one end to another end. The real difference lies in their modus operandi i.e. active intermediaries possess full control over the content which is being uploaded by the user on their platform unlike passive intermediaries, i.e., they have a kind of paternal control over the content uploaded by the user so that edit or delete it if they find it in any sense violative of law or otherwise according to their discretion.
It is pertinent to note that these online platforms form the center of the entire transaction and regulates everything through their platforms. They control the pre-purchase, purchase and post-purchase stage during the entire transaction which includes the manner in which products are displayed, the collection and further transfer of payments, as well as the delivery of goods which is further carried out, own their own or through a third-party merchant. These marketplaces provide various recommendations, offers, promotional sales, discounts and advertisements on various products, thereby influencing the choice of the buyers by selective targeting through data available about consumers previous orders, search history, wishlist etc. They also often employ Artificial Intelligence and differential algorithms to provide the buyer with the targeted advertisement, predictive search and remembering implicit preferences. Moreover, any query regarding the goods bought is directly redressed through the respective online marketplace with no involvement of the seller or the third-party payment and delivery merchant.
Thus, the germane question that arises here is, while these online marketplaces are performing such fundamental duties on the behalf of buyer and seller, is it judicious to call them “mere channel of communication”’?
In our opinion, categorizing them as a mere channel of communication unjustly undermines their role in the entire transaction. As discussed above, they do much more than ‘just’ providing information about a third-party seller and in fact, are actively involved in the entire transaction which can be deduced from the above discussion. Their working model nowhere possesses the characteristics of a ‘passive intermediary’ and a liability should be imposed upon them in case loss is caused to the consumers due to their involvement.
The Consumer Protection Bill, 2018 fails to provide any framework for the liability of e-commerce companies as an intermediary seller. The recent cases viz. Kent RO Systems Limited v Amit Kotak Kent RO and Fermat Education v. Sorting Hat Technologies P. Ltd. have implicitly recognized these online marketplaces as active intermediaries on the basis of the role played by them and have imposed corresponding liabilities, but these cases have been limited to the issue of corresponding liability under the Information Technology Act, 2000.
The E-commerce industry in India has been growing exponentially and is expected to reach US$ 200 billion by 2026 from US$ 38.5 billion as of 2017. India is further expected to surpass the US to become the second largest e-commerce market in the world by 2034. Thus, in the midst of changing market trend, there is a need to rethink the role played by these marketplace intermediaries and their corresponding liabilities in order to build an effective consumer protection regime.
Karan Trehan is a student at NALSAR University of Law, Hyderabad and Vasudev Singh is a student at RML National Law University, Lucknow
[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]