In this article, T.H.Vishnu discusses marketplace contracts with vendors and customers.

An aggregator platform or marketplace is an online platform where a number of different vendors gather under one roof to market their products or services to their customers. It essentially facilitates the interaction of buyer and seller over a digital platform.  Amazon, Flipkart, Snap deal, and Uber are some of the examples of leading aggregator platforms and marketplaces.  Long gone are the days when one had to leave the house and go to different shops or markets to buy the products necessary for their day to day life.  With the use of aggregator platforms and online market places, any product or service, from an apple to the Apple iPhone, is just a click away from your doorstep.

Considering a lot of start-ups have invested in building aggregator platforms and marketplaces, it is important to understand the legal aspects of building these platforms such as the requisite legal agreements to be entered into with vendors and customers. While there is a small difference between the functioning of an aggregator platform and a marketplace, the contracts to be entered into by both are largely the same.  This article intends to discuss the kinds of contracts entered into by an aggregator platform or marketplace (hereinafter referred to as “online platform(s)” for the sake of brevity and convenience) with its customers and vendors as well as some important clauses of such contracts.

CONTRACTS WITH VENDORS

According to section 2(h) of the Indian Contract Act, 1872 – ‘an agreement enforceable by law is a contract’. Contracts entered into by an online platform with its vendors are very important in inasmuch as they define the commercial understanding and relationship between the parties. These contracts are usually ‘non-negotiable’ or ‘take it or leave it’ contracts from the vendors’ point of view, meaning that the vendors typically have little or no bargaining power with respect to the terms of the contract, and their only option is to choose not to enter into such contract. However, at the same time, the online platforms need to ensure that the terms of such contracts are attractive enough for vendors to want to do business with them instead of choosing other online platforms.

Most of the online market platforms have a standard contract with the vendors with slight variations depending on the kind of business they are involved in. An online marketplace may choose to execute a single contract with a vendor that contains all the necessary terms and conditions required for doing business or it may choose to execute a number of different contracts discussing various terms and conditions like Amazon.

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A contract defines the legal relationship of two parties. It exhaustively details all the aspects regarding the birth, life and death of such relationship between the parties. A well drafted contract is a boon to both parties in the sense that it avoids confusion and gives clarity to the relationship between the parties. Some key points to be considered by the online platform while executing contracts with vendors are –

Who can sell?

This clause basically lays down the requirements that need to be fulfilled by the vendor to start selling on the online marketplace. For example, Flipkart stipulates a condition that vendors should hold a valid GSTIN number, PAN card, and a bank account supported with other KYC documents such as passport, voter’s identity card, aadhar card, and driving license, as also a ‘seller account’ in order to do business with them. Apart from individuals, a partnership firm, a LLP or a company may also be eligible to register themselves as vendors with such online marketplaces.

What products can be sold?

Another important clause to be included in such contracts pertains to the kinds of products which are permitted and restricted to be sold on the online platform. Products are differentiated into the permissible and restricted categories depending upon the domestic laws of the country in which the online marketplace intends to do business. For example, in some countries it is legal to sell tobacco and alcohol online while in others it is forbidden.  Therefore, it is crucial to list out the categories of products and services which are restricted to sold or provided by vendors.

Listing of products

Regulating the listing of products by vendors on the online platform is very important from the perspective of customer experience. High-quality listings help improve customer experience by making it easier for customers to find, evaluate, and purchase a vendor’s products. The setting of certain guidelines for listing vendors’ products, both basic as well as detailed information, such as images, brands, quality etc. are very important for the purpose of enhancing the customer’s experience while using the online platform.

Pricing and payments

Providing a structured mechanism for pricing and payment is another key aspect which is an unavoidable part of the contract between the online platform and the vendor. Vendors are usually given the liberty of deciding the price of the product they intend to sell. With respect to the payment mechanism, online platforms usually charge certain fees for their services. For example, Flipkart charges commission fees, collection fees, shipping fees etc. for the service provided by them depending upon the product and its price. After the deduction of such fees, payments are usually made to the vendor within 7-14 working days from the date on which the order is dispatched.

Shipping and Delivery

Another significant aspect that needs to be covered by the contract between a vendor and an online platform is the method of shipping and delivery. The clause must be precise and unambiguous as to which party has the liability to ship and deliver the product to the customers. For instance, the shipment policy of Flipkart says – ‘Our logistics partner will pick up the product from you and deliver it to the customer. All you need to do is keep it packed and ready for dispatch.’  Whereas in the case of Amazon, the vendor itself must ship and choose a carrier of its own choice to deliver the product to the buyer.

Returns, refund and cancellation

It is very important to discuss in the agreement, the scenarios in which the vendor has to refund, accept returns, offer refunds and cancel the orders placed the buyers. For example, Amazon requires a vendor to accept returns, offer refunds or cancel orders when the vendor cannot fulfil the order, the buyer doesn’t receive the order, or the buyer files an ‘A-z guarantee claim’ etc. A clear-cut mechanism for the same helps online platforms maintain their reputation in the market as well as regain the confidence of buyers.

Seller protection

Considering there are hundreds of online platform start-ups, in order to create a stable and profitable presence in the market, it is important to protect the interests of vendors just as well as customers. Therefore in order to attract vendors, the agreement must include clauses as to ‘seller protection’. For example, Flipkart has a ‘seller protection program’ wherein a ‘seller protection fund’ is created out of which adequate compensation is paid to the vendors in case of fraudulent customer claims, returning of damaged products, loss of goods in transit etc.

CONTRACT WITH CUSTOMERS

Customers are the life source of any successful business. The growth of a business is directly proportionate to the growth and satisfaction of the customer base coupled with other relevant factors. A well-defined contract detailing the legal relationship between customers and the online platform unambiguously and with the utmost clarity is essential to avoid unnecessary confusion, animosity and disputes in the commercial relationship, which may also lead to delayed reliefs. The contracts with customers are usually incorporated as ‘terms of use’ or ‘terms and conditions’ on the website of an online platform. Some of the important clauses in such contracts are discussed below –

• Who can buy?

Under the Indian Contract Act, 1872, a contract can be entered into only by persons competent to contract, i.e. a persons of sound mind above the age of 18 years. A customer, while creating an account and using the online platform, automatically becomes a party to the contract. For example, Flipkart’s terms of use say – ACCESSING, BROWSING OR OTHERWISE USING THE SITE INDICATES YOUR AGREEMENT TO ALL THE TERMS AND CONDITIONS UNDER THESE TERMS OF USE’. Therefore, it is very important to specify in the contract that use of the Website is available only to persons who can form legally binding contracts under Indian Contract Act, 1872. Otherwise, the contract is void-ab-initio, i.e. it is void and unenforceable from the time of its inception.

Platform for communication

Specifying that the online platform is just a platform for communication and interaction between vendors and customers and that the contract of sale is strictly a bipartite contract between vendors and customers is one of the most important clauses to be included in the terms of use of the online platform. Inclusion of such a clause in the contract helps to evade a lot of legal liabilities that the online platform would otherwise have incurred. For example, Amazon in its terms of use specifies that ‘You further agree and acknowledge that Amazon is only a facilitator and is not and cannot be a party to or control in any manner any transactions on the website. Accordingly, the contract of sale of products on the website shall be a strictly bipartite contract between you and the sellers on Amazon.in.’

• Privacy clause

Respecting the privacy of the customer is a fundamental factor for successfully running any business. Since customers provide their personal information including but not limited to their email addresses, phone numbers, and passwords, it is very important to provide assurances in the contract that such personal information will be protected. It must also exhaustively list the scenarios in which the online platform may use and share the personal information of the customers with other entities so as to avoid unwanted future liabilities.

• Representations and warranties

An online platform exists only to facilitate business between vendors and customers. Therefore, it is very important to comprehensively state the scenarios in which the online platform makes no representations and warranties. For example, Flipkart, in one of its ‘representations and warranties’ clauses, specifically states that – ‘Flipkart does not make any representation or Warranty as to specifics (such as quality, value, saleability, etc.) of the products or services proposed to be sold or offered to be sold or purchased on the Website. Flipkart does not implicitly or explicitly support or endorse the sale or purchase of any products or services on the Website. Flipkart accepts no liability for any errors or omissions, whether on behalf of itself or third parties.’ Inclusion of such clauses helps in excluding a lot of liabilities and consequent litigations against the online platform.

• Liability clause

Since an online platform deals with thousands of customers every day, it is pertinent to point out the circumstances in which they are and are not liable to any persons or entities for acts and omissions arising out of the conduct of the business. As an online platform only facilitates transactions between customers and vendors, it is of utmost importance for them to exclude themselves from any liability arising out of any actions or inactions of sellers, any breach of conditions, representations or warranties by sellers or manufacturers of the products and any and all special, incidental, consequential damages of any kind caused to them as a result of such transactions.

• Payment

As mentioned above, an online platform’s role is merely to facilitate transactions between customers and vendors for which they charge a fee as commission or otherwise from the seller.  Excluding themselves from any liability arising out of such transactions, including liabilities related to the consideration (payment) under the transactions is of utmost importance so as to avoid unwanted disruptions to the functioning of the business.  For example, Flipkart excludes themselves from any liability arising out of lack of authorization for any transactions, payment issues arising out of the transaction, decline of transaction for any other reasons etc.

• Buyer protection

Happy customers are at the heart of any successful business. The primary endeavour of any online platform for growing their business should be protecting customers from vendors who are incapable of delivering quality products and resolving disputes raised by customers. Therefore it is essential to include a ‘buyer protection program’ or a ‘buyer protection scheme’ as part of the dispute resolution policy of the online platform in its terms of use. In particular, such a program or scheme should detail the circumstances in which a buyer can avail of such a protection program or scheme, when his order is guaranteed for replacement and refund and the procedure for doing so. For example Flipkart has a ‘Buyer Protection Program’ whereas Amazon has its ‘A-z guarantee claim’ wherein buyers are protected from undelivered orders, and delivery of damaged and defective products.

• Governing law and jurisdiction

This clause is more or less the same in contracts with vendors as well as customers. Defining the governing law as well as the jurisdiction to adjudicate any dispute arising of a contract is one of the most integral parts of any contract. Before adjudicating any dispute between two parties, the first question that arises is which law will apply to such dispute. In order to avoid uncertainty and wastage of time, it is expedient for the parties of a contract to come into an agreement as to which law is to apply in case of any dispute. The jurisdictional clause essentially is an agreement between parties as to where exactly the dispute should be adjudicated. By the inclusion of this clause, the parties agree to adjudicate the dispute in a particular court in a particular area. The parties may also decide to subject the dispute to arbitration by incorporating an ‘arbitration clause’.

CONCLUSION

The world of aggregator platforms or marketplaces seems very plain and simple to an outsider. You open the website and any product is just a few clicks away. Hardly anyone takes the trouble to read the terms and conditions of the website before making a purchase. But once you delve into the technicalities and the legalities of such a platform, you begin to realize that building such a platform can be as complex as building any other business. As mentioned a number of times above, the contracts entered into by an online platform with its vendors and the customers must be of utmost clarity and unambiguity. These contracts must also define exhaustively the legal relationship between the parties and contemplate all future circumstances, both favourable and unfavourable, and consider how the unfavourable can be made favourable. At the end of the day, a good contract means good business and good business means happiness, and therefore, a good contract is vital to happiness.