Consumer Protection versus Protection of Intermediaries, what must prevail?

December 14, 2023
Commercial Division

By Arpit Kalra and Pranit Biswas

A listing on an e-commerce portal, an order placed with the seller, a substandard product delivered with a delay and an inconsistent grievance redressal by the seller – this cocktail was brought to court by the consumer at the North Goa District Consumer Forum, questioning the liabilities of the e-commerce website vis-a-vis the seller listed.

(Summary of Facts)

– A consumer learns about a seller for a particular furniture product on an e-commerce portal;
– Upon contacting the seller through the information available on a separate e-commerce website (Amazon), the consumer sought for confirmation about whether the seller was an authorized dealer of a particular brand, and upon such confirmation, the consumer directly books an order with them and pays the seller through a payment doorway facilitated by another e-commerce portal (Indiamart) .
– Despite receiving full payment, the seller delayed delivery of the product, aggrieved by which the consumer had raised a complaint with the customer support team of the e-commerce website (Indiamart);1
– A significant delay and an additional freight charge later, the products were delivered to the consumer, who learnt that the products were of inferior quality and did not belong to the brand she had anticipated and paid for;
– Further aggrieved, the consumer contacted the seller requesting them to take back the products and provide a full refund of the amount paid.
– Despite agreeing to the consumer’s request, the products were never collected back and the monetary refund was never processed.
– A complaint was raised by the consumer with Indiamart (given that the payment was facilitated by them), and the said intermediary took steps to reach out to the seller and disable the seller’s listing on their portal, but to no avail.

Consumer Complaint filed before the District Forum

Upon filing a consumer complaint before the North Goa District Consumer Forum, the seller did not join the proceedings and the case was decided ex-parte with the e-commerce portal present as Respondent 2. The Forum observed –

– That the e-commerce portal has dispensed their duty by attempting to aid the Complainant in reaching out to the seller (though failed). Thus, the Forum did not find any deficiency of service on the e-commerce portal’s part and that no case was made out against them;
– On the other hand, the acceptance of the full payment by the seller, coupled with the false reassurance given to the Complainant’s for the authenticity of the products qualify as cheating and misappropriation;

Based on the rationale mentioned above, the District Consumer Forum passed an Order dated April 11, 2019, discharging the e-commerce portal of any and all liability and further directing the seller to refund the complete amount with interest, along with a compensation for mental agony and additional costs for litigation.

Appeal filed before the State Commission

Dissatisfied with the Order passed by the District Forum (despite the same being in their favour), the Consumer Complainant appealed before the State Consumer Disputes Redressal Commission (Panaji), particularly challenging the discharge of the e-commerce portal of any and all liability towards to the Complainant.

Based on the materials put on record, the State Commission delved deeper into the technicalities pertaining to the nature of services actually being offered by the e-commerce portal.

Submissions by Respondent counsel

– The counsel for the e-commerce portal maintained their stance of them being a B2B/ B2C ‘matchmaking’ portal for buyers and sellers, and that they do not interfere in the commercial transactions between the parties involved.

– That when the Appellant raised a complaint, they took all measures to address the situation including attempting to reach out to the seller, disabling their listing until resolution, and also issuing a legal notice to the seller through their counsel.

Submissions by Appellant counsel

– That the e-commerce portal prominently advocates their buyer protection policy to be a free service on their website, by virtue of which it specifically assures that the payment made by the buyer shall only be transferred by the e-commerce portal to the seller, upon satisfactory delivery of products by the seller to the buyer.

– That despite an unsatisfactory experience faced by the Appellant (though unreported at such time), the e-commerce portal by-passed and violated their own policy and transferred the amount to the seller, without verifying the safe delivery of goods with the buyer.

Observations by the State Commission

– The Appellant pointed out the buyer protection policy2 that is offered by Indiamart before the Commission, and by virtue of the same, the claim of the e-commerce portal being a mere matchmaking portals was held as false and that the terms of the portal were unambiguous.

– That the act of facilitating and accepting the payment made by the Appellant using the e-commerce portal shall fall under the purview of them rendering their services to the Appellant.

– Accordingly, the e-commerce portal failing to withhold the transfer of the entire payment to the seller, without confirming buyer satisfaction amounts to deficiency in service on part of the e-commerce portal as well.

Based on the rationale mentioned above, the State Commission in their Order dated February 05, 2020, directed that the e-commerce portal and the seller shall be held jointly and/or severally liable and the Complainant is to be compensated accordingly, to the tune of the costs imposed by the District Forum, thereby modifying the Order passed by the District Forum.3

THE FINAL SHOWDOWN: Revision Petition Before The National Commission

Aggrieved by the Order passed by the State Commission, the e-commerce portal filed a revision petition before the National Consumer Disputes Redressal Commission praying to the set aside the Orders passed by the District Forum and State Commission.

The main contentions of the counsel on behalf of the e-commerce portal (Petitioner) were that:
– The Complainant Consumer had in fact learned about the seller through Amazon and the seller had provided a payment gateway that is (a) facilitated by a sister concern of the Petitioner; and (b) is not a part of the Buyer Protection Policy offered by the Petitioner.

– That a buyer may avail services under the Buyer Protection Policy, subject to the fulfilment of certain formalities, which were never undertaken by the Complainant Consumer and is wrongfully being confused with their regular payment gateway.

– That the Petitioner has gone beyond their responsibilities and liabilities to resolve the complaint raised by the consumer with them, however the seller has provided incomplete/ inaccurate contact details, which has led to them being untraceable through all these years.

The National Commission found merit in the submissions made by the Petitioner and allowed the Review Petition vide Order dated August 18, 2023, thereby setting aside the Orders issued by the District Forum and State Commission and dismissing the Complaint.

However, the National Commission in their Order, remarked that it is the duty of an e-commerce portal to ensure they do not host any unverified sellers on their platform and directed the Petitioner to employ appropriate due-diligence going forward. Further, the Petitioner was also directed to create sufficient distinction on their main website, between their generic payment gateway and the payments services provided by them under their Payment Protection Policy, in order to avoid confusion in the minds of consumers.

Safe Harbour v. Due Diligence

While the relevant provisions under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022 and the Information Technology Act, 2000 were barely contemplated upon over the course of the instant matter at either of the three redressal Agencies. The final verdict by the National Commission was nevertheless, sound in terms of the said provisions.

The directions issued to the e-commerce portal, particularly with respect to the due-diligence activities to be carried out by them, is in conformance with the infamous Rule 3 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022 under Part II, read with Section 79 of the Information Technology Act, 2000 which provides guidelines regarding due diligence to be followed by intermediaries.

An excerpt containing Section 79 (2) and 79 (3) of the IT Act has been reproduced below, which highlights the ingredients required to be satisfied for an intermediary to be eligible for exemption of liability:

“(2) The provisions of sub-section (1) shall apply if-

(a) the function of the intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted; or

(b) the intermediary does not-
(i) initiate the transmission,
(ii) select the receiver of the transmission, and
(iii) select or modify the information contained in the transmission;

(c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.
(3) The provisions of sub-section (1) shall not apply if-
(a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or authorise in the commission of the unlawful act;
(b) upon receiving actual knowledge, or on being notified by the appropriate Government or its agency that any information, data or communication link residing in or connected to a computer resource, controlled by the intermediary is being used to commit the unlawful act, the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner.”

Application to the instant case

In the instant case, the e-commerce portal qualifies as an intermediary whose function is indeed limited to merely being a platform to connect buyers and sellers, and are not privy to the transactions between (as was also admitted by the District Forum), thus satisfying Section 79 (2)(a) and 79 (2) (b).

However, though they have fulfilled their responsibility as an intermediary under 79 (3) (b) by taking measures to address the situation including attempting to reach out to the seller, disabling their listing until resolution, and also issuing a legal notice to the seller through their counsel; they could not sufficiently satisfy due-diligence on their part to satisfy Section 79 (1) (c) of the IT Act. The accusation of the e-commerce portal aiding the seller by facilitating the payment process was also suitably refuted, thereby affording themselves safeguarded by Section 79 (3) (a).

In sum, the deficiency on part of the e-commerce portal was their failure to conduct appropriate due-diligence i.e. taking up relevant responsibilities (as enshrined under Rule 3 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022) which includes the verification of the legitimacy of sellers hosted by them on their portal, and was thereby directed to do so in future.

Nevertheless, by following what was laid down in the landmark judgement given by the Apex court in 2015, in the case of Shreya Singhal V. Union of India4, the liability of the e-commerce portal certainly has rightly been relieved. The relevant excerpt from the judgment has been reproduced below:

“Section 79 is valid subject to Section 79(3)(b) being read down to mean that an intermediary upon receiving actual knowledge from a court order or on being notified by the appropriate government or its agency that unlawful acts relatable to Article 19(2) are going to be committed then fails to expeditiously remove or disable access to such material. Similarly, the Information Technology “Intermediary Guidelines” Rules, 2011 are valid subject to Rule 3 sub-rule (4)5 being read down in the same manner as indicated in the judgment.”

Final Thoughts

While restoring balance between the capabilities of intermediaries to carry out due diligence activities vs. affording them the safeguards under Section 79 was latently applied over the course of adjudication of the Review Petition filed before the National Commission, the Consumer still remains aggrieved.

Perhaps exercising discretion with respect to the application of the precedent laid down in the Shreya Singhal case for granting shade under the Safe Harbour may be essential. In other words, after gauging the capacity of intermediaries to carry out due-diligence activities, a provision for holding them accountable for lack of carrying out such protocols, despite them acting in conformance with Section 79 (3) (b) of the IT Act (i.e. by disabling the problematic content), may be needed; especially in the instant case where the consumer still remains aggrieved and uncompensated for, as the fraudulent seller remains untraceable and the e-commerce portal has been relieved of all liability, despite failing to conduct standard due-diligence and hosting a fraud on their portal, listed thereof with incorrect and incomplete details.

1 Note: The consumer had learnt about the seller on Amazon, and had directly contacted them to place an order and not through the said portal. In return, the seller had provided a payment link created by Indiamart (which is generally used by commercial businesses to facilitate independent monetary transactions irrespective of whether the seller is listed on Indiamart); So the transaction did not take place on Indiamart’s portal, but it used a separate offering created by a sister concern of Indiamart, which is merely used for facilitating monetary transactions between buyers and sellers.
2 Note: The Buyer Protection Policy (BPP) is an exclusive service offered by Indiamart which is applicable only to transactions being made through the said portal and the users (buyer and seller) explicitly opt to avail the said service. This service is separate and independent of the generic payment doorway offered by Indiamart to facilitate third-party transactions.
3 Note: The parties involved in the instant case did not fall under the purview of BPP as they had used the generic payment doorway (which has been developed by the sister concern of the portal made party in this case) – however, these technicalities were not brought to the notice of the State Commission by either of the Counsels.
4 AIR 2015 SC 1523
5 “The intermediary is called upon to exercise its own judgment under sub-rule (4) and then disable information that is in contravention of sub-rule (2), when intermediaries by their very definition are only persons who offer a neutral platform through which persons may interact with each other over the internet.” (excerpt from the Shreya Singhal judgment pronounced as per the old Information Technology (Intermediary Guidelines) Rules, 2011)

Girishma Sai Chintalacheruvu, Former Associate at S.S. Rana & Co. has assisted in the research of this Article.

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