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The Snapdeal Cases: Does Safe Harbour Protect “Unlicenced” Third-Party Sales of Sex Drugs?

This is the second safe harbour case for Snapdeal where the protections given to it as an intermediary were upheld

We missed this earlier: E-commerce major Snapdeal has been involved in not one, but two safe harbour cases down south. In both cases, the platform was accused of selling the sexual stimulant drug ‘Suhagra-100’ without the required licence. The Karnataka High Court quashed the criminal proceedings against the platform twice—holding that intermediaries like Snapdeal couldn’t be liable for the drugs that third-party sellers sold using its platform.

Why it matters: The High Court’s ruling probably came as a sigh of relief to e-commerce majors whose platforms are used to sell protected goods like drugs. But, there are diverse takes on platforms offering medicines—often described as “online pharmacies”.

As we’ve previously reported, “chemist associations and other trade bodies have called for a clampdown on online pharmacies stating that they don’t fall under or adhere to existing drug laws in India”. Last year, the Indian government also sent notices to “over 20 online pharmacies (e-pharmacies) asking why action should not be taken against them for the online sale of drugs without a license”. Reports suggested that the likes of Amazon, Flipkart Health+, Tata 1mg, Netmeds, Apollo, Zeelabs, PhamEasy, and Healthcare were served.

There’s a lack of regulatory clarity on where a platform’s safe harbour ends here. A draft policy to regulate online pharmacies has been in the works since 2018 and could address these regulatory issues. But, according to the government last year, “it may not be possible to say any timelines at this stage for finalization of the draft rules”. In this regulatory vacuum, it’s unclear whether a marketplace like Snapdeal could hypothetically be considered an online pharmacy for hosting a Suhagra-100 seller.

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The important deets

How did Snapdeal end up in this mess?: This story begins with criminal proceedings filed against the e-commerce platform by the Drugs Inspector (Intelligence) Mysore Regional office. Snapdeal’s alleged crime: violating Section 18(c) of the Drugs & Cosmetics Act (DC Act). A Mysore magistrate issued summons in 2020—after which Snapdeal went to the Karnataka High Court challenging the petitions. 

And what’s Section 18 of the DC Act?: It prohibits manufacturing or selling specific drugs. 18(c) specifies that drugs and cosmetics can’t be manufactured, sold, or distributed without a licence issued for that purpose. 

Okay, but what did Snapdeal do wrong?: One Snapdeal seller’s product listing was for a sexual stimulant—Suhagra-100. A “Mr. Manjunath” placed an order for the tablet in 2014. According to the Mysore drug office, Snapdeal listed these for sale, and also offered a platform to facilitate the sale. The office argued that drugs like Suhagra-100 can’t be sold “over the counter” without a doctor’s prescription. Neither Snapdeal nor the seller had the licence to do so. 

In 2020, Criminal proceedings and summons were initiated against Snapdeal’s top executives—CEO Kunal Bahl and COO Rohit Kumar Bansal. The 2020 order issued by the Mysore magistrate doing so was brief, simply stating: 

“Persued entire records. 

Pursuant to which Cognisance is taken as against accused for the offence p/u/s 27(b)(ii) of Drugs & Cosmetics Act. 

Office is hereby directed to register same as C.C. in register No.III. 

Issuance summons to accused through R.P.A.D, if P/S, P/c along with other particular d/furn. 

Await & call on by 01/09/2020.”

How did Snapdeal’s honchos respond? 

In a complaint filed by Bahl and Bansal against the orders in 2020, they wanted the Court to quash the petitions filed by the Mysore drug office on various grounds.

The basics: Snapdeal is an intermediary under section 2(1)(w) of the Information Technology Act, 2000 (IT Act). What that means: it simply hosts or transmits third-party information and content. Intermediaries are protected from being held liable for hosting that information—in this case the drug listing—provided they follow certain rules listed out by the government. In policy circles, this protection is called ‘safe harbour’, and it’s specified in Section 79 of the IT Act. Snapdeal argued that it was an intermediary here, making it exempt from liability for the third-party seller’s listing.

So, how was Snapdeal being a responsible platform?: It laid out terms and conditions that sellers had to agree to before creating an account offering products for sale on it. Snapdeal also published a “prohibited seller activities and consequences policy” document. As the executives argued, “ Snapdeal has put in place a robust system to inform all sellers on its platform of their responsibilities and obligations under applicable laws and therefore discharged its role and obligation as an intermediary”.

Snapdeal takes down content in specific cases: As per Section 79(3)(b) of the IT Act, the e-commerce platform only takes down third-party content if it’s received a notice from “the appropriate Government or its agency” to do so. 

Snapdeal’s executives can’t be held responsible: For starters, they’re not involved in the company’s minute day-to-day affairs. Also, they didn’t have any personal knowledge of the legal status of the third-party seller’s products. 

Long delay: The transaction in question took place in 2014, while the complaint was filed in 2020. There was a six-year delay between the two. “No explanation or justification has been afforded for the unreasonable delay caused by the Respondent, and as such the same is fatal,” they argued. 

Magistrate’s decision shows inapplication of mind: The executives also challenged the Mysore magistrate’s decision-making in summoning them at all. “A mere statement that the Court has gone through the Complaint, documents and heard the complainant is not sufficient. What weighed in the mind of the Magistrate while passing such an order must be reflected in his order.” 

Snapdeal’s executives aren’t Karnataka residents: Under Section 202 of the Code of Criminal Procedure, if a complaint is made against a person who resides beyond the magistrate’s jurisdiction, the magistrate has to postpone “issuance of process” against the accused. Instead, they have to hold an inquiry into the case to decide if there are sufficient grounds to proceed. Snapdeal alleged that the magistrate didn’t follow this process. “All of the Accused, including the Petitioners, reside beyond the jurisdiction of the Learned Trial Court. Therefore, the Impugned Order is ex facie illegal and is liable to be set aside since the same has been passed without conducting the mandatory enquiry as per Section 202 of the Cr.P.C,” it argued.

What did the state government say?

It moved to dismiss Snapdeal’s complaint on various grounds. 

Executives and Snapdeal responsible: Snapdeal provided a platform to sell and advertise Suhagra-100. Snapdeal and its directors “are liable to be prosecuted”. 

Drugs and Cosmetics Act trumps safe harbour: Regardless of Snapdeal’s intermediary status, “there could be no product which could have been advertised for sale contrary to the prohibitions under the Drugs and Cosmetics Act”.

Magistrate followed procedure: The state government argued that Section 202 inquiries when the accused are non-residents are limited to determining the truth of the complaint. In any case, the summons order was passed with “complete application of mind” by the magistrate. “The Magistrate cannot be expected to write a detailed order. His prima facie satisfaction is sufficient for the purpose of taking cognizance, as also for issuance of summons,” the state government said. The residency of the accused is immaterial as the transaction happened within the Mysore magistrate’s jurisdiction.

No delays: There were no delays while filing the complaint. “The government entities have processed the matter, have taken necessary approval which took some time, therefore even if there is any delay, the said delay would not materially or adversely affect the prosecution of the accused,” argued the state government. 

How did the Karnataka High Court rule? 

The 2021 order issued by Justice Suraj Govindaraj of the Bengaluru Bench wasn’t particularly sympathetic to the Mysore drug office’s cause, noting that Snapdeal had systems in place that informed sellers of their legal responsibilities. Simply put: Snapdeal did what it was supposed to as an intermediary. Allowing Snapdeal’s petitions, and quashing the criminal proceedings against Snapdeal, here’s what it said.

Intermediaries can’t be held liable: Intermediaries or their directors can’t be liable for action or inaction against a seller using their platform, whether a website or a marketplace. In this case, Snapdeal had abided by its safe harbour responsibilities too, the Court observed.

Snapdeal is not the Seller, it is the Vendors registered with Snapdeal who are the Sellers of products and services on its platform, it is the Vendors who are solely responsible to the purchaser/customer. For its part Snapdeal has entered into seller agreements with various sellers, the seller agreements are accompanied by a Schedule of banned products, which categorically includes “21. Prescription Medicines and Drugs”….In my considered opinion Snapdeal has exercised ‘due diligence’ under Section 79(2)(c) of the Information Technology Act, 2000, read in conjunction with the Information Technology (Intermediaries Guidelines) Rules, 2011.

Magistrate’s order indicates “no application of mind”: “When the accused has no presence within the Jurisdiction of the Magistrate where the offence has been committed, then it would be mandatory for an enquiry under Section 202 of the Cr.P.C to be held,” the Court noted. The order went on to criticise the merits of the Mysore magistrate’s decision to summon Snapdeal’s executives:

This order, in my considered opinion would not establish any application of mind on the part of the Magistrate inasmuch as there is no appreciation of the offence, the role of each of the accused and how they are alleged to have committed the offence as regards which Cognisance is said to have been taken…The same in my considered opinion would not satisfy the requirement of law…I am of the considered opinion that the order dated 08.06.2020 taking Cognisance is not in compliance with applicable law and therefore is set aside. 

Delays in filing complaint ‘fatal’: The Court wasn’t convinced by the state government’s argument that the delays didn’t materially impact the proceedings. 

“The only excuse for the delay provided is that the complainant being a government employee the process of obtaining permission to file the complaint took some time. In my considered opinion a period of 6 years cannot be said to be some time. It is required for the state to act with alacrity, the fact that there was a delay of 6 years in filing would itself indicate and/or establish that even the authorities might have probably considered that there is no offence as such made out….I’am [sic] of the considered opinion that there being no acceptable explanation for the highly belated lodging of the Complaint, the delay is fatal to these proceedings”.

Was that the end of Snapdeal’s tryst with safe harbour laws?

No. Snapdeal ended up challenging a similar criminal case the very next year.

What happened?: Snapdeal was once again accused of selling Suhagra-100 tablets without a licence, violating the Drugs and Cosmetics Act. Those sales happened between 2014 and 2015. Acting on a complaint filed in 2021 by the “Drugs Inspector, Dharwad Circle”, the Hubbali trial court took cognisance of the case the same year. Criminal proceedings were initiated, while the accused—Snapdeal and its executives Bahl and Bansal—were summoned. Snapdeal sought the quashing of the complaint and the trial court’s order.

What did Snapdeal argue?: The allegations were familiar. An inquiry to ascertain the truth of the complaints wasn’t conducted even though the accused didn’t live in the magistrate’s jurisdiction. Snapdeal referred to Justice Govindaraj’s 2021 order while defending this stance and others that followed. Snapdeal also wasn’t liable for action or inaction against sellers making use of its marketplace. Neither Snapdeal nor its directors could be liable for selling Suhagra-100.

And how did the government respond?: The magistrate’s order hadn’t been passed blindly—and indicated an application of mind. Snapdeal and its directors dealt with its day-to-day operations, “and they were dealing with drugs in question without there being any license and thereby contravened the provisions of the Act”. The trial court “rightly” took cognisance—and Snapdeal’s challenge should be dismissed.

What did the High Court say?: In her 2022 verdict, Justice M.G. Uma of the Dharwad Bench of the Karnataka High Court first tackled the six-year delay in filing the complaint. Remember: complaints in cases like these should be filed within three years. “Unfortunately, the learned Magistrate has also lost sight of this aspect of the matter and proceeded to take cognizance of the offence mechanically,” the Court observed while noting the magistrate’s non-application of mind in its 2021 order.

Justice Uma saw no need to interfere with the 2021 verdict on Snapdeal’s intermediary status either. “It is not in dispute that accused No.1 is an intermediary as defined under Section 2(w) of IT Act.  Under such circumstances, I do not find any reason to form a different opinion”. The order and proceedings were quashed last March.

This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.

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I'm interested in stories that explore how countries use the law to govern technology—and what this tells us about how they perceive tech and its impacts on society. To chat, for feedback, or to leave a tip: aarathi@medianama.com

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