Why Legal Metrology Act is relevant for marketplace e-commerce entities

To simply say that the novel coronavirus has changed our lives will just be an understatement in the present scenario. The first known case of Covid-19 was detected in China’s Wuhan in November 2019, and since then, the way we carry out regular activities such as shopping, buying groceries, etc has changed.

The pandemic hit countries across the world and lockdowns were imposed to contain the spread of the virus. The lockdown triggered a rise in online shopping. As a result, the laws intended for e-commerce and consumer protection and interpretation of the rules gained much prominence among the public.

On 23 June 2017, the central government in exercise of its powers provided under the Legal Metrology Act, 2009 (Act) and the Legal Metrology (Packaged Commodities) Rules, 2011 introduced important amendments to Legal Metrology (Packaged Commodities) Rules, especially in relation to e-commerce entities and The Legal Metrology (Packaged Commodities) Amendment Rules, 2017 issued on 23 June 2017 came into force on 1 January 2018.

Some of the important amendments in relation to e-commerce entities
introduced vide the Amendment Rules are as follows:

Definitions

The following definitions have been introduced:

E-commerce means buying and selling of goods and services including digital products over digital and electronic network.

E-commerce entity means a company incorporated under the Companies Act, 1956 or the companies Act, 2013 or a foreign company covered under clause (42) of Section 2 of the Companies Act, 2013, or an office, branch or agency in India covered under sub-clause (ii) of clause (v) of Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999) owned or controlled by a person resident outside India and conducting e-commerce business.

Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

There are two models of e-commerce entities under applicable Indian laws. These are:

Marketplace model: A pure e-commerce marketplace follows a zero inventory model. Amazon is an example of e-commerce players that follow the marketplace model. The company acts as a meeting ground for buyers and sellers without storing goods. But they do offer shipping and payment assistance directly or by tying up with selected logistics players and financial partners.

Inventory-led model: It’s when company sources products directly from brands & sellers and keep their stock. There are no multiple sellers selling one product, unlike marketplaces where buyers get to choose from several merchants. The seller is the e-commerce company and invoice is issued to the customers on the company’s name. One such example is Jabong.

The marketplace model function is limited to providing access to a communication system for the buyers and sellers, and does not – initiate the transmission of information; select the receiver of the information; select or modify the information contained in the transmission.

Declaration required on every web portal

According to Rule 10 of the Amended Rules, e-commerce companies are required to mention certain declarations (similar to packaged commodities) on the digital or electronic platform mainly used for e-commerce platforms. However, the amendments do not clarify how these declarations are to be made. All products sold on a digital network are packed without the purchaser being present at the time of packing. Similarly, products sold by e-commerce entities would fall under the category of pre-packaged commodities and would be included under the Act and the Rules.

The following products are exempt from the provisions of the amendment rules:

a. Packages containing food articles, which are governed by similar provisions that are present in the Food Safety and Standards Act, 2006 and the rules made there under
b. Packages of commodities containing quantity of more than 25 kilogram or 25 litre
c. Cement, fertiliser and agricultural farm produce sold in bags above 50 kilograms
d. Packaged commodities meant for industrial consumers or institutional consumers.

Correctness of the declarations

The responsibility of the correctness of the declarations made on e-commerce portals lie with the manufacturer/seller/dealer/importer as applicable and not the e-commerce entity, provided:

a. The e-commerce entity’s function is limited to providing access to a communication system over which information made available by the manufacturer or seller or dealer or importer is transmitted or temporarily stored or hosted;

b. The e-commerce entity does not initiate the transmission, select the receiver of the transmission and select or modify the information contained in the transmission; and

c. The e-commerce entity observes due diligence while discharging its duty as an intermediary under the Information Technology Act, 2000 and observes guidelines issued by the central government.

Applicability of intermediary regulations under the IT Act

The Amendment also draws reference to the intermediary regulations under the IT Act applicable to a market place model of e-commerce. Such entities merely act as a facilitator/market place and do not play any part in creation or modification of the content or information.  The e-commerce entity does not directly control the third party data but only provides access to a communication system over which information made available by third parties is transmitted.

The e-commerce entity has to observe due diligence while discharging its duty as an intermediary under the IT Act. This means that the e-commerce entity has to publish the rules and regulations, privacy policy and user agreement for access or usage of the intermediary’s computer resource by any person. Such rules and regulations have to list the categories of information, which if posted online could be considered as illegal such as information that infringes any patent, trademark, copyright or other proprietary rights, is blasphemous, obscene, pornographic, paedophilic, libellous, invasive of another’s privacy, hateful, or racial etc.

Recently the declarations required under the web portal, the correctness of the declaration, applicability of intermediary regulations under the IT Act, responsibility of the marketplace e-commerce entities to comply with these have come under the scanner and various views have been put forth by different experts regarding the same.

However, there have been numerous judgments by various courts in India which have clearly held that the responsibility of the correctness of the declarations made on e-commerce marketplace model lie with the manufacturer/seller/dealer/importer as applicable and not on the e-commerce entity itself.

Case laws:

1) Amazon Case:
The Division Bench of the Delhi High Court in Amazon Seller Services Pvt. Ltd. v. Amway India Enterprises Pvt. Ltd. (2020) 267 DLT 228 (DB) has interpreted the requirements of marketplace e-commerce entities like Amazon as follows-

139. The exemption under Section 79 (1) of the IT Act from liability applies when the intermediaries fulfil the criteria laid down in either Section 79 (2) (a) or Section 79 (2) (b), and Section 79 (2) (c) of the IT Act. Where the intermediary merely provides access, it has to comply with Section 79 (2) (a), whereas in instances where it provides services in addition to access, it has to comply with Section 79 (2) (b) of the IT Act.

140. In Amazon‘s case, as indeed in Cloudtail‘s and Snapdeal‘s, since they provide services in addition to access, they have to show compliance with Section 79 (2) (b) of the IT Act. In other words, they have to show that they (i) do not initiate the transmission (ii) do not select the receiver of the transmission and (iii) do not select or modify the information contained in the transmission. The case of these Defendants is as follows. Where there is a potential customer who is accessing the site, so long as it is he who clicks the button, it is the customer who is initiating the transmission. Amazon, Snapdeal or Cloudtail do not ̳select‘ the receiver of the transmission, which is the buyer. They do not modify the information contained in the transmission, such as the choice of the product, the number of units, and so forth. For example, if a potential buyer goes to Amazon‘s website and selects a book sold by a seller whose name is indicated on the site, as long as this entire transaction is not controlled by Amazon and the choices, of which the transaction consists, are made solely by the customer, such as, say, the decision to purchase three copies of the book, and these choices are not altered by Amazon, the requirements of Section 79 (2) (b) of the IT Act would stand fulfilled.

2) Snapdeal case:

The Karnataka High Court recently quashed a criminal complaint filed against Snapdeal and its executives Kunal Bahl and Rohit Bansal. The criminal complaint alleged that Snapdeal and its executives violated the Drugs and Cosmetics Act by allowing the sale of Suhagra 100, a prescription medicine used for erectile dysfunction.

The court said that an intermediary and its executives cannot be held liable for the actions of the sellers, who make use of its marketplace to buy or sell items.

Snapdeal in its defence contended that it is an intermediary with safe harbour protections under Section 79 of the Information Technology Act, and had no role in the transaction. Under the IT Act, all internet intermediaries get safe harbour, since they merely provide a platform for communications or sales and purchases without a direct role in what users or sellers and buyers do on the platform. Snapdeal contended that it was Adept Biocare which exhibited and offered Suhagra for sale via its platform. Being an intermediary, Snapdeal and its directors could not be made liable for offences under the Drugs and Cosmetics Act.

Snapdeal argued that it has a system in place to inform all sellers about legal obligations and therefore it has exercised due diligence under Section 79 of the IT Act and Intermediaries Guidelines Rules 2011. The seller agreements were accompanied by a schedule of banned products that categorically included prescription medicines and drugs.

Further, under the IT Act, Snapdeal is only required to remove third party content only upon actual knowledge in the form of a court order or government notice.

The High Court accepting the contentions of the Snapdeal has quashed the criminal proceedings against Snapdeal and Bahl and Bansal.

It is clear that intermediary e-commerce entities like Amazon or Snapdeal or its executives cannot be held liable for the actions of the sellers, who make use of its marketplace to buy or sell items.

Further, under the IT Act, they are required to remove third-party content only upon actual knowledge in the form of a court order or government notice.

Narasimhan K. is senior advocate at the Madras High Court