- A.S.Vamsi Krishna (Fourth Year Law Student, Rajiv Gandhi National University of Law)
Introduction
The expansion of digital e-commerce platforms in India like Amazon, Flipkart, Uber, Zomato, and UrbanCompany among others have transformed the contractual relationships between buyers and sellers, facilitating quicker sales of goods and services with enhanced transparency and accessibility. This sector plays a crucial role in the Indian economy, currently valued at INR 4,416 billion and expected to INR 7,591 billion by 2029. However, the increase in buyer-seller contracts on these digital platforms inevitably leads to disputes related to the delivery, quality, quantity and consumer experience amongst other variables of digital purchasing. The question then arises as to whether digital platforms can be held liable for any breach of contract by the seller. The answer has been inconsistent, stemming from an ambiguous regulatory framework and judicial indecision. In this article, the authors examine the framework for assigning liability to digital e-commerce platforms in casu breach of contract on part of the seller. Additionally, the authors propose that the regulatory framework incorporate the contributory negligence test used by US courts. This would provide clearer guidance on the due diligence requirements for e-commerce platforms to prevent liability, thereby ensuring greater legal certainty.
Contemporary Framework Governing Liability of Digital E-Commerce Platforms
Under Section 79(1) of the Information Technology Act, 2000 (“IT Act”), digital platforms are treated as intermediaries which facilitate the interaction between the buyer and seller and consequently are exempt from any liability stemming from any resultant dispute. However, this provision is not an unconditional exemption. The exemption would be revoked if the digital platform is responsible for any interference/alteration in the buyer-seller communication, fails to observe due diligence, or abets or conspires with the liable party in the disputed action. In the situation that the exemption is revoked, the digital platform would be liable under the Consumer Protection (E-Commerce) Rules, 2020 (“E-Commerce Rules”) which provides that in casu breach of contract by seller, the digital platforms will also be liable for the damage caused. The exemption under the IT Act was envisioned after the prominent Avnish Bajaj v State or the “Baazi.com” case where the CEO of an E-Commerce platform was arrested for the sale of defective goods by a seller registered under the platform. The exemption ensures that digital platforms can enjoy a certain latitude of freedom in operations without excessive legal costs owing to constant buyer-seller disputes. However, the provision has not been successful in curtailing the practice of impleading digital platforms along with the impugned seller by the affected consumer. This is since the question of whether the digital platform has followed “due diligence” or abetted the commission of the disputed act has not been defined properly in the provisions, thus warranting judicial intervention on a case to case basis.
The problem is further aggravated by judicial indecision with respect to the liability of digital platforms in casu seller’s breach of contract. In Amazon India v State of Maharashtra, the Bombay High Court addressed the question of whether an e-commerce platform could be held liable for non-delivery of an ordered product by the seller. The Court held that the e-commerce platform cannot be impleaded in the dispute since the platform was only an intermediary which facilitated the transaction and cannot be found liable. However, in stark contrast to this ruling, in Hello Travels v Harish C. Jain, the National Consumer Dispute Redressal Commission (“NCDRC”) treated the e-commerce platform as an agent for the seller and accordingly found that the platform may be vicariously held liable for the seller’s fault with respect to the product, the responsibility falls onto the digital platform which facilitated the transaction. Exemption under the IT Act was refused by the NCDRC citing the platform’s failure to provide the buyer-seller communication. Further, in Abhi Traders vs Fashnear Technologies Private Limited, the Delhi HC found that even failure to provide the buyer-seller communication details may be sufficient to revoke the exemption under the IT Act.
The judicial indecision largely stems from the failure of the E-Commerce Rules to clearly define the scope of due diligence requirements that platforms must fulfil to avoid sharing liability with sellers. Consequently, courts must evaluate the due diligence requirements applicable to digital platforms on an ex-post basis, considering the specific facts of each case. This legal uncertainty poses significant problems, as it forces e-commerce platforms to preemptively anticipate these requirements. Recent evidence indicates that this uncertainty has negatively impacted the Micro, Small, and Medium Enterprises (“MSME”) sector. Digital platforms, fearing legal complications from potential mistakes by small-scale sellers, are increasingly hesitant to allow these sellers to list their products. Moreover, this legal ambiguity is detrimental to consumers, as it creates confusion regarding the appropriate parties to seek remedies from, often resulting in the inclusion of e-commerce platforms in lawsuits and thereby increasing legal costs.
Proposed Remedies
In India, e-commerce platforms exhibit significant diversity, differing in the nature of goods and services offered, the medium of provision, and the consumer base they serve. For instance, a platform like Amazon, which offers an extensive catalogue of goods from various sellers, can feasibly implement a robust monitoring system to ensure the delivery and quality of products with minimal errors. Conversely, a platform such as UrbanCompany, which relies on providing services, faces challenges in maintaining consistency and establishing a formula for ensuring satisfactory consumer experiences. Given this diversity, a one-size-fits-all approach would be imprudent. Instead, the authors propose the establishment of clear guidelines in the E-Commerce Rules that provide actionable steps to ensure due diligence and compliance with the conditions set forth in Section 79 of the IT Act.
Next, to ensure that knowledge of seller misconduct is up to date and to enable the platform to make contextualised decisions, it is advised that regulations require the establishment of an effective grievance redressal mechanism. This mechanism should be headed by a senior managerial person appointed as the chief compliance officer. This officer would be responsible for ensuring adherence to the Act and its associated rules. Additionally, the chief compliance officer would be liable in any proceedings related to third-party information, data, or communication links hosted by the platform if they fail to ensure that the platform exercises due diligence in fulfilling its duties. This approach serves two purposes: it ensures that any faults in the process are quickly addressed, and it removes legal uncertainty by establishing clear accountability.
Finally, concerning supervision, the stringency of due diligence requirements imposed on the platform should correlate with its ability to monitor and supervise the seller. For instance, in the case of a platform like Amazon, the ability to supervise sellers is apparent. The delivery of products can be easily tracked, and the quality of goods sold can be verified through consumer reports of fraud. In contrast, for an e-commerce platform that provides services, the due diligence standard should be lower, as the platform cannot fully monitor and ensure consistent quality where the variable is human performance.
Conclusion
The liability of digital e-commerce platforms for seller misconduct remains a contentious and legally ambiguous issue in India. The current regulatory framework under the IT Act and the E-Commerce Rules fails to provide clear guidelines on due diligence requirements, leading to inconsistent judicial decisions. To address this, the authors propose a more nuanced approach, tailored to the diverse nature of e-commerce platforms. Establishing clear due diligence guidelines, appointing designated officers for law enforcement communication and compliance, and aligning supervision requirements with the platform's ability to monitor sellers can enhance legal certainty. This will not only protect consumers and reduce legal costs but also encourage the growth of small-scale sellers by alleviating platform hesitancy. Implementing these measures can help balance the interests of all stakeholders in the digital e-commerce ecosystem.
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