By charging ₹240 for a ₹170 Sunflower oil packet, Flipkart has found itself in hot water as the District Consumer Disputes Redressal Commission at Nalgonda in Telangana on July 26 ruled that Flipkart and the third-party seller are jointly liable for selling products over the maximum retail price (MRP). The Commission ordered Flipkart and the seller to pay the complainant ₹50,000 as compensation, ₹3000 to cover legal costs, and also to provide him with replacement products.
The Commission was presided over by President Mamidi Christopher and members Sandhya Rani and K. Venkateshwarlu.
Why does this matter? The ruling is significant because the Commission dismissed Flipkart’s argument that it is just an intermediary and the seller is the one who should be held liable. Both the e-commerce platform and the seller are jointly and severally liable for such “unfair trade practice” because a “tripartite contract” exists between the consumer, the seller and the marketplace, the Commission held. This signals that e-commerce platforms cannot rely on safe harbour provisions provided to intermediaries by the Information Technology Act, 2000, to absolve themselves of all blame.
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Why was a case filed against Flipkart?
Shaik Umar Farooq, a 20-year-old from Telangana, ordered two 1L packets of Freedom Refined Sunflower Oil on Flipkart in April 2021. He paid ₹480 (₹240 for each packet) plus shipping for the order. But upon receiving the order Farooq found that the MRP of the product was ₹170 and, moreover, the MRP label was wiped out. Farooq filed a complaint with the Commission arguing that the overcharging and wiping of MRP amounted to an unethical and unfair trade practice, which also amounted to a deficiency in service under consumer laws. Farooq further submitted that the e-commerce platform was taking advantage of the additional demand created by COVID lockdown by overcharging.
The complainant asked the Commission to direct Flipkart and the seller (Sri Satyanarayana Enterprises, Telangana):
- Check that every product selling on Flipkart is below the MRP
- Pay compensation of ₹80,000 for adopting unfair trade practices
- Deposit a compensation of ₹60,000 in a Legal Aid Account to create more awareness among the consumers from getting deceived
What were Flipkart’s arguments?
Flipkart denied all the averments made by the complainant and sought for the complaint to be dismissed on the following grounds:
- Flipkart merely acts as an intermediary, akin to a shopping mall: Flipkart submitted that it merely plays the role of an intermediary, which is to provide an online platform to facilitate transactions between sellers and buyers. The e-commerce platform compared its services to that of a shopping mall, where various spaces are rented out to different sellers who independently carry out sales with the customers and in case of any deficiency in service, it is the shop owner or seller who is held liable for the consequences and not the owner of the shopping mall. Flipkart further contended that “the function of e-commerce entity is limited to providing access to a communication system, over which information made available by the manufacturer or the seller or dealer or importer is transmitted or temporarily stored or posted. The entity does not i) initiate the transmission, ii) select receiver of the transmission, iii) select or modify the information contained in the transmission.” Flipkart has no role in the listing of the products, specifications, price or discount for the product listed by the seller, the company claimed.
- It was a bipartite contract between seller and consumer: Flipkart further argued that since it was an intermediary that does not directly or indirectly sell products, the concerning contracts of sale and purchase is a bipartite contract between the third-party seller and buyer only. “The contractual/commercial terms include without limitation price, shipping cost, payment method, payment terms, date, period and mode of delivery, warranty related to products and services and after-sale services related to sales and services. Flipkart does not have any control or does not determine or advise or is in any way involved in the offering or acceptance of such contractual, commercial terms between the buyer and seller,” the company claimed.
- Flipkart is not required to check the correctness of information provided by the seller: As per the Legal Metrology (Packed Commodity) Amended Rules, 2017, an e-commerce entity should ensure that all monetary declarations as specified in the said Rules are displayed on the platform. “The responsibility for the correctness of such declaration shall lie with the manufacturer, the seller or the importer. A marketplace model e-commerce entity, such as flipkart.com has been exempted by the Rules from any responsibility for any incorrect information provided by the seller under the digital platform,” Flipkart claimed.
- Seller is responsible for customer satisfaction and post-sales issues: The Department of Industrial Policy and Promotion clarified that in a marketplace model of e-commerce, any warranty or guarantee of goods and services sold is the responsibility of the seller. Furthermore, the seller is responsible for delivering the goods to the customers, customer satisfaction, and post-sales, Flipkart argued.
- No question of tampering since Flipkart did not come into possession of the product: Flipkart argued that there is no question of it tampering with the MRP because it never came into possession of the product purchased by the complainant. Flipkart has not cheated the Complainant in any manner, indulged in any unfair trade practice, or adopted deficiency of service of any sort, the company submitted.
- The concerned seller has been blacklisted: Flipkart submitted that it conducted an internal investigation and found the seller in violation of the policies of the platform and therefore the account of the seller was blacklisted, disallowing the seller from listing or selling products on the platform going forward.
On what grounds did the court hold Flipkart equally liable?
- It is a tripartite contract: The Commission ruled that there is a tripartite contract between the seller, service provider, and consumer i.e., the seller, Flipkart, and consumer and “as such, the seller and service provider are liable for any defect, deficiency of service and unfair trade practice on the services provided or good/product sold by them. Therefore, the Opposite Parties have not performed their duties of sellers on the marketplace as laid down in the Consumer Protection E-Commerce Rules, 2020.”
- Violation of Consumer Protection Act, 2019: After perusing the definitions of “deficiency,” “unfair trade practice,” and “electronic service provider” in the Consumer Protection Act, 2019, the Commission ruled that Flipkart and the seller are within the purview of Act with regard to deficiency in service and unfair trade practice committed by them and also the consequences of the same. Flipkart and the sellers are “in contract and agreement with the manufacturer and are service providers through e-commerce entity and are bound by the contract between the manufacturer product seller, i.e. Opposite Parties No.1 and 2 and the consumer and are bound to provide about the information and details about the product to the sellers offering goods,” the Commission held. The Act defines:
- “deficiency” as “any fault imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service and includes – i) any act of negligence or omission or commission by such person which causes loss or injury to the consumer and ii) deliberate withholding of relevant information by such person to the consumer.”
- “unfair trade practice” as “a trade practice which for the purpose of promoting the sale, use of supply of any goods or for the provision of any service, adopts unfair method or unfair or deceptive practice namely; i) making any statement whether orally or in writing or by visible representation including by means of electronic record which falsely represents that the goods are of a particular standard, quality, quantity, grade,
composition, style or model etc.” - “Electronic Service Provider” as “a person who provides technologies or processes to enable the product seller to engage in advertising or selling goods or services to a consumer and includes any online marketplace or online auction sites.”
- Violation of E-Commerce Rules, 2020: The Commission also found Flipkart and the seller in violation of the E-Commerce Rules, 2020, which state that no e-commerce entity shall “manipulate the price of goods or services offered on its platform in such a manner as to gain unreasonable profit by imposing on consumers any unjustified price” and “no seller offering goods or services through a marketplace e-commerce entity shall adopt any unfair trade practice whether in the course of the offer on the e-commerce entity‟s platform or otherwise.”
- Past cases: The Commission relied on some past cases to arrive at this decision, including 1) State Consumer Disputes Redressal Commission, U.T. Chandigarh ruling between Amazon Sellers Private Limited Vs. Gopal Krishnan, 2) National Consumer Disputes Redressal Commission, New Delhi ruling between Emerging India Real Assets Private Limited and another Vs. Kamer Chand, 3) State Consumer Disputes Redressal Commission, Punjab, Chandigarh, ruling between Amazon Seller Services Private Vs. Vishwajith Tapia, 4) Consumer Disputes Redressal Commission ruling between Sri Animesh Baidya Vs. Amazon Sellers Private Limited, 5) Delhi State Consumer Disputes Redressal Commission ruling between Mc.Donalds India Vs. Anupam Tripati, and 6) Big Cinemas Vs. Manoj Kumar.
Fall-back liability in the proposed amendments to the E-Commerce Rules
Interestingly, the central government in June 2021 proposed amendments to the E-Commerce Rules, 2020, which could make it more clear that platforms are responsible for deficiency of service like in the case above. According to the proposed fall-back liability provision, marketplace e-commerce platforms are liable if a seller on the platform fails to deliver goods or services ordered by a consumer or causes loss to a customer because of negligent conduct.
Tech platforms, through industry bodies like IndiaTech and Internet and Mobile Association of India (IAMAI) have submitted feedback arguing that the fall-back liability provision should be removed. “The concept of ‘Fall Back liability’ dilutes the intermediary safe harbour under the provisions of the IT Act as well as the arm’s length requirements provided under the FDI Policy. It will open floodgates for unscrupulous claims against e-commerce entities,” IAMAI stated. IndiaTech added that this creates a level playing field issue because “in the offline commerce world, a shopping mall cannot be and is not held liable for the delivery of a good or service or even fulfilment of an order by a specific shop located in the mall.”
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