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Liability of online marketplaces in India

E-commerce

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This article is written by Minhas Joshi from SVKM’S Kirit P Mehta School of Law, Mumbai and edited by Abanti Bose, from Amity University Kolkata, India. This is an exhaustive article which deals with Liability of online marketplaces in India, securities issues with E-commerce in India and draft of new E-commerce policy.

Introduction

The globalisation of the market has created many new opportunities and possibilities for everyone. There is an introduction of new ways of transactions and also E-commerce has created new ways of opportunities for the consumers. Today e-commerce has become an important and integral part of our lives as internet growth has led to a drastic shift in consumer definition and has marked the beginning of an era of rapid consumer shipment. But this has made consumers vulnerable to new forms of unfair trade and unethical practices. Therefore, a need was felt to modify the existing framework for protecting consumers’ rights and interests. 

For this, there is also a new draft of e-commerce policy is realised and also Consumer Protection Act, 2019 has been enacted to protect the customers in the online marketplace in India and to regulate goods and services in the view of changing dynamics of the online marketplace in India. Further in this article analyses on the topic Liability of online marketplaces in India.

Understanding E-commerce and Online Market place 

There’s currently no concept of an online marketplace in any of India’s laws. The traditional definition of E-commerce is those methods which provide online ‘Click & Purchase’ methods using computers and different mobile devices, appliances or smartphones. The word includes not only the act of purchasing goods but also service via an online platform.

Also, any other activities that are related to any Transactions like:

  1. Delivery,
  2. Facilitation of bill,
  3. Τhe supply chain and the operation of the business. 

E-commerce has challenged the traditional framework of Businesses and the way it trades with consumers. Although the Information Technology Act, 2000 categorizes these marketplaces as intermediaries, their scope is limited and does not extend to the sale and purchase of their goods. Nor does the Consumer Protection Act, 1986, provide for protection against online marketplaces. The 2019 act defined e-commerce activity for the very first time as the purchase or sale of goods or services including digital products over a digital or electronic network. The act also points out the definition of an electronic service provider: an individual who offers technology or processes that allow a commodity seller to advertise or sell products or services to a customer and involves some online marketplace or auction sites.

Including these new definitions will extend the scope of the Act to include the e-commerce sector which is not covered by the 1986 Act. This way, if the interests of an “e-user” are secured and the customer may continue against the e-commerce platform in case of any infringement.

Interestingly, the explanation stated in the definition of “consumer” has been worded in such a way as to include consumers who buy goods or use services through online platforms and, once enacted, will make online retailers and marketplaces liable for fraudulent sales and defective products sold on their platforms.

Securities Issue in E-commerce in India

There are some securities issues related to E-commerce in application to Indian Law: 

1. Authentication and Identification

Though the Internet eliminates the physical need for contact, this does not end the fact that it would have to be a form of contractual or transaction authenticated, and registered in certain cases. Different technologies for authentication were developed to document authentication time-limit and also to guarantee the identity of the parties that enter transactions online. Internet transactions, particularly consumer-related transactions, often take place between parties which have no pre-existing relationship. This is a concern about the identification and validity of the individual regarding the power, authority and legality of the individual to enter into the contract. Electronic signatures may be considered one of the methods used to determine the person’s authority and legitimacy to authenticate an electronic document record. The IT Act states some legal recognition for the authentication of any information by taking legal signature under the act. In addition, the IT Act also provides the regulatory framework for electronic signatures including the issuance of electronic signing certificates.

2. Privacy

It’s almost difficult for an e-commerce platform to complete any online transaction without collecting some form of user personal information such as their identity details, and financial information. In addition to collecting primary user data, e-commerce platforms can also be installed to collect a number of other indirect knowledge, such as specific usage decisions, interests, and search habits. Therefore, a major consideration for every E-commerce platform is designed to preserve privacy And its clients. Two main concerns a user of It would have e-commerce platforms like:

  1. Unauthorized exposure to the confidential details
  2. Such personal information is misused.

3. Security of Systems

Internet security is vitally important for promoting e-commerce. Since e-commerce companies retain confidential details (including sensitive personal data or information) on their servers, e-commerce companies need to ensure they have sufficient protection measures to secure their databases from unwanted interference. A company could face external as well as internal security threats. The company could face problems externally from hackers, viruses, and trojan horses. Internally, the company has to guarantee security against its technical staff.

Product Liability

One of the most important features of the Consumer Protection Act, 2019 is the introduction of ‘product liability’ provision, which is not provided for in the previous Act. Product liability, as specified in the Law, implies the duty of the producer or retailer of any good or service to pay for any damage done to a customer by any faulty product being made or delivered or by defects in the services associated with it. The product manufacturer can be held liable, as per the new Bill, even if it proves that he was not negligent or fraudulent in making a product’s express warranty. 

In addition, in circumstances where: the act also provides for the liability of a product seller, who is not a product manufacturer in cases where:

This was done in an effort to hold e-commerce companies accountable in the event any defective product or service is made available through their websites.

Misleading advertisement 

The act calls for the enforcement of a tax on the supplier or service provider of a product that allows a fraudulent or deceptive commercial to be made that is harmful to the consumer’s interests. The Act does not include a description of deceptive ads but must provide for an advertisement, as described in the Legislation, which:

In addition, in the case of some fraudulent or deceptive advertising being published, producers or service providers may be disciplined with up to two years’ incarceration and/or fined up to Rs. 10 Lakhs or both. The introduction of criminal liability for misleading advertisements will positively compel the manufacturer, product seller or service provider to release advertisements with caution and within the contours of the prescribed legal framework. The Act, therefore, allows these false ads accountable to the endorser or brand representative and includes a fine of up to Rs.50 Lakhs and a prohibition on a future violation for up to 3 years.

Consequently, the product manufacturers, product sellers, service providers, e-commerce companies and even the celebrity endorsers will be held accountable for the false and misleading advertisements of the products being sold or services being offered/endorsed.

Draft of E-commerce policy

Apparently, the Department for Promotion of Industry and Internal Trade (DPIIT’s) recently published draft e-commerce policy stems from laudable objectives of achieving ‘data ownership’ for India and maintaining a reasonable market for customers and domestic sector. Unfortunately, when it comes to the proposed solutions to meet these aims, the strategy proposes proposals that will stifle internet trade, digital security and access to knowledge. This is particularly evident in its sections concerning “e-commerce platforms” and their responsibilities for infringement of trademarks or copyrights. 

                   

Doubling Down on Private Censorship

The first issue is the ‘anti-counterfeiting measure” segment that e-commerce sites need to take. Many of these recommendations are well-balanced and encouraged for an e-commerce website openness against their vendors as well as trademark owners who chose to participate in these marketplaces. Some of these, such as the notice requirement for complaints to be forwarded between a seller and a TM owner, appear to be taken from the judgment of the Delhi High Court on online markets and their responsibilities. There are, though, some other obligations proposed in the mix:

  1. The policy proposes that marketplaces will be required to take the TM owners’ permission for a certain category of goods, including “high-value goods.”
  2. Moreover, the proposal recommends that internet marketplaces, after collecting reports from consumers, be deemed strictly responsible to reimburse buyers and delist counterfeit products.

These incongruous requirements may potentially interfere with the freedom of smaller marketplaces or vendors, as they impose significant monitoring requirements on platforms, particularly in the absence of legal determination to be liable for decoding and refunding counterfeit goods, which could dissuade business models platforming lesser-known vendors. In addition, this policy also fails to address the issue of second-hand product sales or ‘domestic exhaustion’ where TM owners’ permission may not be required when a validly purchased product is re-selling.

Perhaps more troubling are the ‘anti-piracy’ suggestions in the draft policy:

  1. The proposal recommends a return to the notification and removal strategy for licensed content, which is disappointing because there is a significant need for openness and accountability mechanisms for network actions, before a regulatory rule of this type is implemented.
  2. Secondly, and perhaps most dangerous, is the proposal to allow an ‘industry body’ to identify so-called ‘rogue websites’ which host pirated content, and to forward such a list to intermediaries, including ISPs, search engines and payment gateways, which will have a legal obligation to block access to such websites. The creation of such opaque and private mechanisms for controlling online information, without public representation or judicial oversight, is unlikely to benefit consumers or entrepreneurs and is detrimental to the goals of the policy itself. 

When a policy is made for online intermediaries the policymakers should seriously consider legal implications of the policy.

Conclusion 

The e-commerce industry has come a long way from the initial years when the internet was a new phenomenon in recent times when the internet became a basic necessity for every household in most metropolitan cities. The legal system has constantly tried to comply with the online marketplace by bringing new laws and rules. Through the Consumer Protection Act, 2019 and draft policy, the government is trying to place a watchdog on the online sellers who sometimes use unfair trade policy. Both of these policies are brought by the government to regulate the online market for protecting the interest of the customers. As the online market is very dynamic we need a good consumer protection framework for the customer’s protection. So that consumer can buy the products in a safe environment.

References

  1. https://indiankanoon.org/doc/99622088/
  2. https://searchcio.techtarget.com/definition/e-commerce
  3. https://www.mondaq.com/india/dodd-frank-consumer-protection-act/854022/product-liability-vis-a-vis-the-consumer-protection-act-2019

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