By Shodhan Babu, Panag & Babu Law

The ability of stakeholders in E-Commerce Marketplaces to choose the markets that they interact with, and the terms of such interaction, has been completely supplanted by the introduction of the proposed Draft National E-Commerce Policy.

The proposed policy is an all-encompassing regulation that seeks to force misconceived positive obligations upon various stakeholders all at the Alter of vague concepts like “public good”, and “larger public welfare”.

The misconceived positive obligations placed upon Marketplaces to enforce IP laws, Anti-Counterfeiting measures, Anti-Piracy measures, among others without a shred of analysis on the capability of Marketplaces of different sizes to abide by these requirements, or their competence, is a glaring deficiency in the policy.

The policy simply fails to consider that these positive regulatory obligations may itself increase the cost of compliance, or setting up of business in this space, and create a barrier to entry for new entrants.

These positive obligations force marketplaces which may wish to merely be intermediaries to play a more pro-active role in enforcing the above requirements. The policy also has the effect of virtually repealing the exemption from liability granted to intermediaries under the provisions of the Information Technology Act, 2000 by mandating intermediaries to play a prominent role in enforcing laws which is essentially the prerogative of the State.

The Policy seems to make multiple misconceived and misguided assumptions. It erroneously assumes that instances of trademark infringement, copyright infringement, anti-piracy measures, anti-counterfeiting measures are for the most part black and white issues which are simple enough to be adjudicated and resolved by the Marketplaces within a short span of time.

The state has virtually given a go-by to basic notions of due process by burdening ill-equipped e-commerce platforms with enforcement of these myriad laws, and requirements, which involve complicated questions of fact and law. The marketplaces are mandated to remove listings and take down content based, merely, on complaints and upon being informed of the breach of these laws. This has resulted in reversing the onus to demonstrate breach of any applicable law on the party complained against, as opposed to the party claiming the breach or making the complaint.

The policy proposes to prevent access to non-compliant e-commerce app/websites from operating in India. The above positive obligations are therefore being enforced with the threat of preventing marketplaces from access to operate in the Indian market. The policy therefore makes inroads into business models of companies and virtually bans any business model operating as an intermediary.

In addition to the above, the policy proposes barring consumers/businesses from making payments to “unauthorised and unregistered (GST non-compliant) sites/apps”. Therefore, consumers have to now undertake due diligence on platforms prior to transacting on them. The consumer’s choice to transact on marketplaces/platforms that are mere intermediaries is taken away. It is detrimental to small and medium business, which the Policy seeks to promote, that there is no threshold or prescription of a size of a platform before it is bound by these positive obligations and compliances.

The state has virtually delegated enforcement of laws to all stakeholders, and is playing the role of a supervisor of enforcement rather than an enforcer of laws, which is a highly problematic and systemic issue with the approach adopted in framing this proposed policy. While, self-assessment, diligence, certification, and regulation are sometimes employed in the course of regulation, it is problematic when the entity discharging these functions is mandated to do so under the threat of a ban from operations.

The requirement of all e-commerce companies operating in India to have a registered Indian entity through which all sales and transactions are routed combined with the application of the ‘significant economic presence’ principle ensures application of domestic taxation and ensures that e-commerce companies are bound by Indian law. However, the lack of choice and the wide inroads made into prescribing business models (mandating a larger role for intermediaries), by way of the proposed regulations will definitely affect ease of doing business in India significantly, and constitute a significant barrier to entry to new entrants without deep pockets.

The common law system that India follows is no stranger to vague, undefined, and all-encompassing terms like “public good”, “larger public interest”, and “public policy” among others. The consequences of resorting to these different species of “unruly horses” to justify imposition of positive regulatory intervention, in the absence of specific and defined goals, is detrimental to the development of the, admittedly, nascent E-Commerce sector.

The approach adopted in framing this draft policy is opaque, lacks transparency, uncertain, and leaves much to be desired.

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Shodhan Babu is the chair of Panag & Babu’s Litigation & Dispute Resolution Practice, and heads the firm’s Litigation & Dispute Resolution practice in Bengaluru and New Delhi.