Contemporary Issues

Conundrum of Intermediary Liability in Light of Consumer Protection (E-Commerce) Rules

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[By Megha Shaw and Mrunal Mhetras] The authors are students at the WB National University of Juridical Sciences (NUJS), Kolkata. The government of India has recently replaced the old Consumer Protection Act, 1986 with the new Consumer Protection Act, 2019 ( “CPA” ) that came into effect from 20th July 2020. Accordingly, the Ministry of Consumer Affairs, Food and Public Distribution introduced the  Consumer Protection (E-commerce) Rules, 2020 ( “Rules” ) on 23rd July 2020. These legal developments took place during a period of increasing reliance on E-commerce entities caused by the pandemic. The new Rules aim to protect the rights and interests of consumers in the digital age in order to curb unfair trade practices of the e-commerce entities. This post seeks to, firstly, shed light on the significant changes brought upon by these Rules; secondly, discuss the dilemma of exemption of liability of marketplace E-commerce entities under the Information Technology Act, 2000 ( “IT Act” ) , and lastly, the impact of these Rules on the prior settled position of law. Highlights of Consumer Protection (E-Commerce) Rules Scope and Applicability  The CPA 2019 extends the scope of consumer protection to e-commerce businesses and online services as such changes were necessary to expand the realm of consumer protection to digital consumers. The new E-commerce Rules apply to all goods and services bought or sold digitally, all models of E-commerce, all forms of E-commerce retail, and all foreign entities selling to Indian consumers.[1] These rules are expressly made applicable to online service providers as well. Hence it is clear that it also includes service providers such as cab-hailing or sharing companies, event management or ticket vending platforms, food delivery companies, content streaming platforms, etc. Thus, it thoroughly encompasses goods as well as services available online. Obligations of Platforms The Rules have imposed certain duties and liabilities on the marketplace E-commerce entities and some of such key duties and liabilities are discussed below- Consumer Grievances- The Rules introduce a time-bound grievance redressal mechanism and impose a duty on E-commerce entities to appoint a grievance redressal officer to ensure that complaints are acknowledged within forty-eight hours and redressal is provided within one month of the date of receipt of the complaint. Information Disclosure- The Rules make it mandatory for E-commerce companies to provide details of the sellers and any other information required by the consumers to make informed choices. They need to take an undertaking from their sellers, ensuring that they display accurate information about their goods and services. They are also required to reveal the country of origin for the goods sold on their platform. However, the rules lack clarity on how the country of origin of a good is to be determined, especially for goods assembled from different countries, repackaged goods, or goods manufactured in one country, under license, by another company in a different country. Ranking and Differential Treatment Disclosure- The Rules make it incumbent on marketplace e-commerce entities to explain the main parameters used to decide the ranking of goods or sellers. The relative significance of such parameters should also be made available to the public. They are further required to disclose any differential treatment given to any of their sellers. This compliance requirement is aimed at those E-commerce entities which directly indulge in product targeting by providing differential treatment to certain companies by displaying them in top search results. This disclosure requirement aims to bring about greater transparency.  Pricing, Consent, and Cancellations- The Rules specify that the platforms are prohibited from engaging in any unfair trade practices and from manipulating the price of goods or services sold on these E-commerce entities. The Rules also mandate that E-commerce entities can record consent for purchase by a consumer only when it is expressed explicitly through affirmative action. Thus, the practice of automatic deduction of charges from the consumers without their affirmative consent has to be done away with. E-commerce entities are also restricted from imposing cancellation charges on consumers unless they are willing to bear similar charges on unilateral cancellations made by them. However, it is pertinent to note that the Rules are applicable from the date of their notification, so there is no window for compliance to these Rules given to E-commerce entities. And, in case of any violation of these Rules, penal provisions of the CPA are applicable.[2] The Conundrum of Exemption of Liability of Marketplace E-commerce Entities While these rules impose substantial obligations on E-commerce entities, the liability on non-compliance of these obligations by E-commerce entities remains a grey area. Even though liabilities are created by the E-commerce rules under the CPA, there remains uncertainty due to the exemption of liability provided to the intermediaries under section 79 of the IT Act.  Applicability of IT Act on Marketplace E-Commerce Entities Section 79 (1) of the IT Act provides an exemption from liability to intermediaries for any third party information posted by them. This provision is applicable notwithstanding any other law except for Sections 79 (2) and 79 (3) of the IT Act. As per section 2 (w) of the IT Act, an online marketplace is included in the definition of an intermediary. Under the Rules, a marketplace E-commerce entity is defined as “an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers”. So it is clear that the definition of a marketplace E-commerce entity fits into the ambit of the ‘online marketplace’ which is defined as an intermediary under the IT Act. The Conundrum of Intermediary Liability  In addition to this, Rule 5 of the E-commerce Rules allows the marketplace E-commerce entity to avail the exemption from liability under section 79 of the IT Act, if they comply with sections 79 (2) and 79 (3) of the IT Act.[3] However, in contrast, Rule 8 states that in case of any violation of the e-commerce Rules, provisions of the CPA will apply. Therefore, there is some uncertainty as to whether the marketplace e-commerce entity

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RBI’s New Plan for PSOs: Eliminating Hurdles Through Self-Regulation

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[By Sushmit Mandal and Pratim Majumder] The authors are students at National Law University Odisha, Cuttack. The substantial growth of the digital payment ecosystem in India has enhanced the need for more effective implementation of a framework to govern digital payments. In an attempt to strengthen and ensure better compliance of regulations and to foster the best practices on system security, pricing, customer protection measures and grievance redressal mechanisms, the Reserve Bank of India (‘RBI’) on August 18, 2020, published the Draft Framework for grant of recognition to an industry association as a Self-Regulatory Organisation for Payment System Operators(‘Draft Framework’). The establishment of a Self-Regulatory Organisation (‘SRO’) for the digital payment ecosystem is in line with the RBI’s Payment and Settlement Systems in India Vision 2019-21. Further, the establishment of an SRO for Payment System Operators (‘PSOs’) was also one of the major recommendations set out in the Report of the High Level Committee on Deepening of Digital Payments published on May 17, 2019. Based on such recommendation, the RBI expressed its intention to draft a framework for establishing an SRO for the digital payment system in the Statement on Developmental and Regulatory Policies published on February 6, 2020. It is expected that the SRO by virtue of being developed by the industry itself, would lead to more practicable standards and encourage better compliance. The article traces the application of SROs in an Indian context with a look at their success in some other jurisdictions. Second, the terminology and context of the Draft Framework are scrutinised to recognise potential benefits and lacunae with a final take on the way ahead to the final framework as an anticipated new development in our PSO regulatory space. Background and Rationale With the introduction of the new Framework, the RBI has decided to recognise and constitute an SRO that would be responsible for making and enforcing rules for PSOs, subject to their membership. The proposed SRO, as seen in clause 1.4 and 3.1, shall be a non-governmental and not-for-profit company, which would collaborate with interested stakeholders to protect customers and encourage ethics, equality and professionalism in the market. Further, the single-most crucial function of the SRO would be to act as a link between the RBI and its members. The RBI believes that the establishment of the SRO would allow the implementation of self-regulatory processes through an impartial mechanism which would, in turn, enable the members to operate in a disciplined environment without undue pressure from the regulator. The SRO model is not unconventional and has been earlier witnessed in India. The RBI has earlier issued a framework for establishing SROs for NBFC-Microfinance Institutions. Similarly, the Securities Exchange Board of India (‘SEBI’) has issued specific regulations, namely the SEBI (Self-Regulatory Organizations) Regulations, 2004 (‘SEBI SRO Regulations’) for SROs requiring recognition from SEBI. The concept of industry associations in the digital payment sector is a recognised phenomenon globally as well. In Australia, the Australian Payments Network (‘AusPayNet’) acts as an SRO and is responsible for developing practices governing the payments, clearing and settlement where the Reserve Bank of Australia only intervenes when the SRO fails to address the public interest. The AusPayNet played a pivotal role in the formation of the New Payments Platform. Further, in Singapore, the Singapore Payments Council (‘SPC’) formed by the Monetary Authority of Singapore (‘MAS’), consists of banks, payment service providers, businesses and trade associations. The SPC inter alia seeks to promote cooperation amongst the e-payment entities and adoption of e-payments. Expected Benefits and Potential Pitfalls The formation of the SRO can be a positive step towards a more grassroot level approach to govern market players. It can show the willingness of the regulator to work along with the industry towards developing a robust digital payment ecosystem. Further, SROs due to their technical expertise and more in-depth understanding of the market can supplement the work of the regulator and help in framing practical standards for the industry, unshackled from weighty regulations. However, legitimate concerns of transparency and accountability cannot be denied and must be properly laid down in the final framework. One of the potential pitfalls is the existence of undue influence in an SRO where the constituting members are the PSOs themselves; therefore, the final framework must lay down the provision to exercise checks and balances over any potential conflict, which may arise between their business and regulatory duties. However, the Draft Framework relays that the SRO will have the legal authority to enable it to set and enforce policies/standards for members with the caveat that any such mandates may not replace applicable laws or regulations. Further, the Draft Framework fails to flesh out the ownership and governance structure of the proposed SRO. Therefore, the final framework must introduce a relevant provision for maintaining the balance between the SRO’s independence in exercising its authority in tandem with the regulatory oversight of the RBI. A balancing act needs to be undertaken to introduce an adequate amount of accountability without undermining the SRO’s authority. An important component of any regulatory body’s arsenal for enforcing discipline is adequate penalties, which are presently left to formulation and enforcement to the SRO itself. It is perhaps more prudent for the RBI to provide basic structural pointers in terms of minimum quantifiable penalties and a non-exhaustive list of trigger events which might cause the levy of such penalties. The SRO thus shall retain the power to frame penalties for its members with its keener insights into the members whereas remaining bound towards implementing the broader dictum of the RBI. A case in point is Regulation 15(3) of the SEBI SRO Regulations which provides a general framework of penalties for SRO members such as expulsion from membership or suspension from membership for a specified time, but noteworthy is the explicit specification of non-monetary penalties which might not be the best deterrent even in the case of PSOs. The Draft Framework falls a tad bit short of defining specific word usages, which can negatively impact interpretation

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The Fall of Wirecard: Lessons For India’s Fintechs

Leave a Comment / Banking Law, Contemporary Issues /

[By Manvi Khanna] The author is a student at National Law University Odisha, Cuttack. Introduction Technological innovation in the financial sector is transforming the way financial services are provided across the globe. The Indian financial sector is similarly on the cusp of change, as evidenced by the runaway success of the National Payments Corporation of India’s United Payments Interface (UPI) which recently crossed the hundred million user threshold to become the fastest adopted payments system in the world. It is important that this change, which comes with attendant risks, is accompanied by meaningful regulatory intervention, particularly for financial technology companies (fintechs) operating in the payments sphere. Against this backdrop, the recent fall of the once-successful payment processing German fintech, Wirecard AG (Wirecard), has some important lessons for India’s payments regulation. Fall of Wirecard: Factual Background Precipitated by an accounting report, Wirecard’s meteoric collapse saw the firm acknowledge balance sheet fiction and file for insolvency within a short span of two weeks. The multilayered scandal has sent shockwaves through the industry, with implications for all stakeholders. In particular, the German financial regulator, the BaFin, has faced heavy criticism in the aftermath of the scandal for failing to perform its supervisory duties, by ignoring multiple red flags raised against the company. The first raised in 2016 by short-sellers and the second  in 2019 through investigative reports by the Financial Times. Wirecard was one of the world’s leading providers of outsourcing solutions in relation to electronic payments and had a customer base of more than 25,000 across various industries. However, as a fintech that owned a bank, it was not always clear which regulator Wirecard fell under and who was responsible for its supervision– for instance, the BaFin insisted that it was responsible for the oversight of Wirecard’s banking arm and not its payment processing business. Illustrative of the harms of failed regulatory oversight and legal uncertainties, this loophole is being used to pass the blame amongst regulators in an effort to avoid accountability. Complexities in the Current Arrangement The scandal has also highlighted the complexities in regulating hybrid business models or “outsourcing arrangements” that are mushrooming at a pace quicker than the law. Outsourcing is an umbrella term that broadly denotes the practice of regulated financial entities outsourcing some of their functions to third parties, which may or may not be regulated. The frailty of these agreements, caused by interdependence and the severity of repercussions that arise from contractual breach, lead to more worrying issues of effective regulatory scrutiny. It is still unclear where these arrangements fit within the regulatory framework. These regulatory blind spots may pose a challenge to a sound fintech ecosystem. For instance, smaller fintechs outsourced functions such as card issuance to Wirecard, as they lacked the capacity to issue these products on their own. However, the negative experience with Wirecard could be the driving force behind business entities – both fintech and banks–becoming critical of outsourcing their core functions to payment processing fintechs due to the accompanying operational risks, causing great inconvenience as well as damage to the reputation of fintechs in general. There is a lesson here for Indian fintechs: interdependency between entities in a payments value chain as well as outsourced information technology functions are potential sources of vulnerability. It is therefore essential that these interlinked entities adopt resilient operational models, with viable business continuity and contingency plans in place. Indian Fintech Regulatory Framework Unlike traditional banks that have a defined set of regulators and are working directly under the supervision of the Reserve Bank of India, Fintechs are still functioning under a fragmented regulatory regime. The Payment System Participants are regulated by the Payment and Settlement Systems Act, 2007 and the Reserve Bank of India’s Prepaid Payment Instruments (PPIs) – Guidelines for Interoperability, 2018; NPCI Guidelines govern UPI Payments; Payment Banks function under RBI’s Guidelines for licensing of Payment Banks, 2014 and Operating Guidelines for Payment Banks, 2016 and Payment Intermediaries are regulated by RBI Guidelines on Regulation of Payment Aggregators and Payment Getaways, 2020. Additionally, the Anti Money Laundering Regulations and Data Privacy Laws are also applicable to them. In cases where a digital lender in India is licensed as an NBFC, key regulations governing NBFCs in turn become applicable to them. A lot of work is required to be done for providing requisite clarity and assistance to the fintechs in relation to regulatory compliance, which is otherwise complex and unclear. With regard to outsourcing, there is a compliance requirement in form of Guidelines on Outsourcing of Financial Services by Banks, 2006 and RBI Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Non-Banking Financial Companies, 2017 when they outsource their noncore activities and it provides for flexibility so that intervention can be made, however, the law for fintech, licensed neither as banks nor NBFCs is unclear, when they outsource any of their functions The Wirecard collapse demonstrates the dangers firms face that fall between regulatory cracks. It is important for us to tight seal the new laws we are coming up within a way such that the defaulters cannot bypass it. The Way Forward In the wake of the scandal, the UK has revamped rules governing its international payment sector and now requires careful scrutiny before third party providers are selected, in addition to requiring periodic reviews. Moreover, payments providers and e-money issuers in the UK, besides maintaining a record of funds received are also now required to maintain a “safeguarding account” for the customer money.  The rapid advancement of diverse fintech products offered along with the government’s support for digital payments has caused the Indian fintech space to flourish in the last few years. Insofar as regulation is concerned, it is necessary for the law to balance the risks arising from these new fintech entrants, alongside the need for innovation and competition. India does not have a consolidated set of guidelines tailored to fintechs but follows a more generic approach, making it a challenge for companies

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The Desideratum of Synergizing Competition Law with Consumer Protection: ACCC v. Kogan

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[By Naman Katyal] The author is a student at Gujarat National Law University. In an interesting decision, the Federal Court of Australia in Australian Competition and Consumer Commission v. Kogan Australia Pty Ltd (17 July 2020) has ruled that the act of inflating product prices prior to a sales promotion constituted misleading and deceptive conduct. This ruling comes against the backdrop of the Australian Competition and Consumer Commission’s (‘The ACCC’) finding that Kogan Australia Pvt. Ltd. (‘Kogan’), an Australian e-retailer was engaged in making false representations about a discount promotion in 2018. Consequently, the ACCC instituted proceedings against Kogan in the Federal Court for misleading consumers in contravention of the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act, 2010. In this article, the author provides an analytical account of the aforementioned judgment. Further, the author argues that unfair trade practices such as the one discussed above, not only violate consumer rights but also have an adverse bearing on the competition in the market. Additionally, it is argued that the absence of a unified consumer and competition law regulator in India, which practice is a departure from the established practice of incorporating a unified regulator followed in other major jurisdictions, does little good for consumer welfare, the endmost goal of both, competition law and consumer law. Factual Matrix Kogan, the respondent, carried out an online sales promotion in 2018, offering a 10% discount on prices of listed products for consumers who entered a previously advertised promotion code at checkout. However, 621 of the 78,111 listed products (‘affected products’) saw a price increase a day prior to the commencement of the sale, in many cases by at least 10%, and a subsequent price decrease two days after the end of the sale, in many cases by at least 10%. This practice according to the ACCC constituted a violation of sections 18(1) and 29(1)(i) of the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act, 2010 which proscribe the adoption of misleading or deceptive trade practices. To reason its submissions, the ACCC relied on the representations made by Kogan in the course of advertising the sale. According to the ACCC, the representations conveyed that a consumer who purchased an affected product using the advertised code during the sale period would receive a 10% discount on the price at which that product was previously offered or would be offered for sale in the future. However, contrary to the representation, a consumer who purchased an affected product using the advertised code did not receive a 10% discount off the price at which that product was available for sale for a reasonable time before and after the promotion. On the other side, Kogan’s defense predominantly rested on lamenting the “reasonable period” approach adopted by the ACCC. Per this approach, the ACCC fixed a two-week time period before and after the sales promotion for comparing the prices of the affected products to gauge the extent of variation in product prices. This approach according to Kogan was arbitrary and unsupported by evidence. Further, Kogan maintained that by representing that a consumer who applies the advertised code would receive a 10% discount off the listed prices, it conveyed that the 10% discount would be applicable to the current advertised price of the product and not a price which was previously offered. The Decision The context in which Kogan made the promotional statements was the foundational issue addressed by the Federal Court. The genesis of this issue was a result of Kogan’s contention that the offered discount ought to be considered on the price available at checkout and not a price that was offered prior to or after the sales promotion. According to the court, the promotional statements relied upon by Kogan to advertise the promotion made the ordinary and reasonable member of the relevant consumer class to conclude that the current advertised price was the price at which the product had been available for sale before the promotion. Consequently, any discount made available would be over and above the price at which the product had been available for sale before the promotion. Further, the court also observed that the promotion was time-specific and therefore, it was evident that the consumers would have understood that there was a limited opportunity to obtain the reduced price and the prices would not decrease during a reasonable period after the end of the sale. On Kogan’s contentions concerning the ACCC’s definition of “reasonable period”, the court ruled that the two-week time period before and after the sales promotion adopted by the ACCC was reasonable and well-reasoned. The court also noted that the object behind delineating a fixed period was only to capture the expectations of reasonable consumers that a reduction in prices be a genuine reduction, from the price at which products were available for sale before the promotion. Finally, on the question, whether the representations made by Kogan were false or misleading, the court rejected Kogan’s defence that ACCC’s case was based on a “de minimis product set” and it ought to be rejected since the affected products constituted a mere 0.8% of the 78,111 products on the Kogan website. The court observed that the fact there may have been a genuine discount obtained by a large number of the target audience consumers did not gainsay that the representations were false or misleading. Analysis The Competition Commission of India (‘CCI’) although has been vested with the duty to protect the interests of the consumers along with eliminating practices having an appreciable adverse effect on competition (‘AAEC’) under section 18 of the Competition Act but the focus of the commission has largely been on the latter. Two justifications look plausible behind the embracement of this policy path. Firstly, the term “protect the interests of the consumers” can be subjected to wide interpretations to even include consumer law issues having a nugatory effect on competition in the market. A more proactive approach concerning consumer law violations could open flood

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GAFA – An Economy of Untamed Capitalism

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[By Dhriti Mitra] The author is a student at Symbiosis Law School, Pune. Introduction GAFA, an acronym coined in France for Google, Apple, Facebook, and Amazon, identifies these Big Tech companies as an entity with expansive capital infrastructure and great customer reach. However, the fact that these companies can use their popularity to ensure that its products sit on top while suppressing competition in downstream markets, have repeatedly drawn the attention of the antitrust authorities. In today’s digital era where personal data is the currency to market power and expansion, GAFA has a tight grip over an abundance of user data. Google is the largest search engine in the world and has access to almost every search that we make with the help of the internet. Apple monopolizes through its mobile operating system platforms (iOS) and its downstream apps, for example, apple music. Facebook holds an advantageous position in the social network market, especially after it purchased Instagram and WhatsApp in 2012 and 2014 respectively. Amazon runs the most prominent e-commerce platform that allows consumers to purchase all kinds of goods from third-party vendors as well as its brand. It can be discerned from the above, that to protect competition, it is essential to have adequate legal regulation in this ‘winner takes all’ market system. GAFA poses multiple challenges to the overall competition existing in various global markets and the same has been discussed below along with the extant regulatory framework and the tenable courses of action that will help deal with the defined issues. Predominant Facets of GAFA It is an established fact that the aforementioned tech quadropoly dominates our digital spaces, but that in itself is not a breach of antitrust provisions. All digital markets have a unique set of characteristics that create significant barriers to entry, access to large amounts of consumer data, and often low cost or free. It is therefore important to understand them before we delve into exactly how their behavior is a threat to competition. Two-sided Markets: In a two- sided market, the size of the network determines the user utility. Due to the existence of economies of scale, the overall cost incurred in providing a service automatically reduces. Hence, the reduced cost allows companies to provide the services at a lower price or for free. GAFA is characterized by this form of market and accumulates a substantial amount of data, human resources, and technology, thereby enforcing its market dominance. Control over Data: Algorithms and data influence indeed make our lives infinitely easier, but it is also a matter of great concern how people who have access to this data, utilize it. For example, through software and devices such as Alexa, Google Home. and Siri, GAFA has complete access to our data usage on a day to day basis.  All in all, from the news we read, to the friends we add on our social media, are all influenced by a variety of cognitive biases that we are unaware of. Advertisement Income: Prima facie the four companies seem to diversify into different markets, but one thread that binds them all is their advertising revenue. In order to provide inexpensive or free services, it is essential that the revenue is earned from elsewhere. Advertisement helps in subsidizing their overall costs and allows GAFA to earn a substantial portion of their revenue. International Taxation: The traditional models of taxation that were directed towards brick and mortar businesses are not well equipped to handle the taxation of online businesses. GAFA is known to have made large revenues by shifting all its profits to low-tax jurisdictions. For example, Amazon received undue tax benefits of around €250 million in Luxembourg. Threats Posed by GAFA GAFA’s omnipotence helps them to impose their products and services on the masses, thereby creating multiple threats that may kill innovation and competition in such markets. Some of the threats have been discussed as follows; Firstly, in the case of data protection, GAFA’s algorithms have pressed us into conformity and laid waste to privacy. A great example of this is how Cambridge Analytica with the help of data collected from millions of Facebook users, were able to target messages in support of Brexit in the UK and Trump’s 2016 election in the US.  Although this episode in particular concerns Facebook alone, it has highlighted the excessive power of GAFA over our societies. Secondly, GAFA banks on its dominance in one market to enter new markets and gain substantial market share in that sector. For instance, Facebook introduced its cryptocurrency libra, and GAFA have their respective e-wallet platforms. With its significant investments in the provision of financial services, if unregulated, GAFA may become the future of finance. On the legal front, GAFA has often been charged for breach of antitrust provisions.  In the recent past, Google was fined €1.49 billion by the EU for abusing its market dominance for the brokering of online search adverts, Apple was fined $1.2 billion by the French antitrust authorities for the creation of cartels within its distribution network and abusing the economic dependence of its outside resellers. Germany’s top court declared that Facebook has abused its dominance in the social media sector by illegally harvesting user data for its benefit, and Amazon is under the EU’s radar for breach of antitrust provisions for its illegal use of data from third-party retailers that sell on its marketplace. Unfortunately, these cases account for only a few of the anticompetitive activities practiced by GAFA. Lastly, as GAFA indulges in a great deal of non- price competition, most of its services are primarily free for its users. So much so, that one could argue that they promote consumer welfare. However, GAFA earns its currency from the data that its users provide, and by concealing the full extent of its, they cause more harm than good. It is also important to note the loss that is caused to small businesses that do not have the resources or ownership of other vertical platforms in

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Online Dispute Resolution In Digital Payments– An Attempt To Read Consumer Protection In Digital Payments Framework In India

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[By Vanya Chhabra & Sadhvi Chhabra.] Vanya is an associate at AZB & Partners, Delhi and Sadhvi is a student at National Law University, Jodhpur. The blog post seeks to address the introduction of ODR by the RBI as the need of the hour on account of increased digitalization and growth in the digital payments ecosystem. It traces and attempts to capture the transition in approach to a consumer-friendly mode to deal with the disputes online considering conventionally the industry has seen onerous consumer litigation. The blog in detail explores the contours of RBI policy to address concerns related to failed transactions while using ODR in digital modes of payment. The blog also touches upon the challenges involved in the evolution of the RBI policy and how innovation may come to rescue dispute resolution with fintech solutions. India is rapidly moving towards a digital economy. E-commerce has captured large segments of the Indian population making the online market space more complex and information rigorous due to the rising number of digital transactions. The RBI has shown quick adaptability to hold onto the speed of the steadfast moving financial technology with the introduction of online dispute resolution for digital payments. The increased digitisation has radically altered the relationship between the customer and the financial institution. This blog aims to analyse RBI’s attempt to introduce the online dispute resolution mechanism for the digital payments ecosystem in India. Post-demonetization, the digital payments ecosystem saw a sharp acceleration and growing malleability towards online cash-less payments. The major contributors to this success and growth in digital payments are the flagship government initiatives inter alia Digital India, etc. Furthermore, in order to address the growing COVID- 19 concerns, digital payments appeared as one of the most promoted method of payment. Keeping in mind the increase in transactions, the questions of faster dispute redressal remained prominent and unanswered. In the past, the banking industry adopted a hands-off approach while dealing with disputes that arose out of digital transactions. As a result, it was seen that in a plethora of cases, the realm of disputes had always been onerous with the burden of proof on the consumer to fight for their rights through the means of litigation. In order to address the rising concerns relating to digital transactions, the Reserve Bank of India (“RBI”) introduced a policy of “Online Dispute Resolution (ODR) for Digital Payments” vide its statement on developmental and regulatory policies dated August 6, 2020 (“Policy”), which aims to enhance and ease the digital payments framework in India. The purpose of introducing such a Policy with mandatory compliance for payment system operators is to encourage an easy and accessible online dispute settlement for cases arising out of digital transactions. The effort of addressing online disputes through the means of this  Policy is a welcome step to match the global outlook on FinTech policies. Furthermore, in order to accommodate the rapid digitisation of courts, Niti Aayog is also exploring avenues for advancing online dispute resolution in India. The Policy is in consonance with the RBI’s mission to ensure that all payments and settlement systems operating in India are inter alia primarily safe, secure, efficient, and accessible. Through this Policy, the RBI seeks to use customer friendly online dispute resolution to address concerns related to failed transactions while using digital modes of payment like Net Banking or E-wallets or any other grievance as raised. The ease of dispute resolution even though dependant on the design and structuring of applications by the payments system operators, shall be a significant step to boost to digital payments ecosystem in India. Online Dispute Resolution in Digital Payments Online Dispute Resolution (“ODR”) could be simply defined as an online method of dispute resolution using the means of technology to facilitate the dispute resolution between parties. The various schools of thought bifurcate multiple dispute resolution techniques between involving absolute control over the process to reach an amicable solution (negotiation) and the parties being mere spectators to a process led by third parties in fiduciary relationships (arbitration).. ODR for digital payments would involve ‘technology-driven redressal mechanisms’ that are rule-based, transparent and involve minimum (or no) manual intervention to deal with the disputes in an effective manner within a specified timeline. In India, the payment systems are governed and regulated by The Payments and Settlement Systems Act, 2007 (“PSSA”). Regulatory Regime of ‘Payment System’ Under The Payments and Settlement Systems Act, 2007 A ‘payment system’ under PSSA means a system that enables payment to be effected between a Payer and a Beneficiary. The essentials to qualify as a ‘payment system’ would involve performing three major functions – clearing, payments or settlement services or all of them; the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations (Section 2(1)(i), PSSA), while categorically excluding stock exchanges (Section 2(1)(i)  r/w Section 34, PSSA). The RBI is a statutory regulator of payment and settlement systems in India (Section 4 of PSSA), while the Board for Regulation and Supervision of Payment and Settlement Systems (“BRSPSS”), a sub-committee of the Central Board of the RBI, is the highest policy-making body on the payment and settlement systems. Before the introduction of the Policy, the RBI had a fast- track and cost-free dispute resolution mechanism for complaints regarding digital transactions undertaken by customers of the system participants vide the As per Clause 9 of the Scheme, the complainant for redressal of any grievance must first approach the system participant concerned. “If the system participant does not reply within a period of one month after receipt of the complaint or rejects the complaint, or if the complainant is not satisfied with the reply given, the complainant can file the complaint with the Ombudsman for Digital Transactions within whose jurisdiction the branch or office of the system participant complained against would be located.” As per the RBI, there has been ‘a concomitant increase’ in the number of disputes and grievances due to the steady rise in the

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An Analysis Of NCDRC Rulings on Insurance of Lifestyle Diseases

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[By Koshy Mammen and Shabna Stephen] The authors are students at Jindal Global Law School. Introduction In the case of Neelam Chopra v. Life Insurance Corporation of India (2018) handed down by the National Consumer Disputes Redressal Commission (“NCDRC”), it was settled that common lifestyle diseases cannot be a ground to repudiate insurance claims. The petitioner’s husband, who was suffering from diabetes for the past 3-4 years, issued a life insurance policy in 2003 from LIC. However, while filling the proposal form, he failed to report his disease. He died of a cardiac arrest, non-related to diabetes, in 2004. The NCDRC was of the opinion that even though the insured was diagnosed with diabetes, the disease was under control at the time of filling up of the proposal form. Consequently, the apex commission concluded that the non-disclosure of information regarding common lifestyle diseases such as diabetes, will not totally disentitle the insured from claiming the policy amount and may only suffer a reduced claim amount. This judgment was relied on by NCDRC as a precedent in several cases including the recent Reliance Life Insurance Co. Ltd. v. Tarun Kumar Sudhir Halder (2019) to decide that diabetes is a lifestyle disease in India and the entire of an insurance claim cannot be rejected only based on its non-disclosure. In light of these judgments, this article advances the argument that the NCDRC has made an apparent error in the primary precedent case – Neelam Chopra v. LIC. The crux of the issue before the NCDRC in the case was whether the fact that the insured was suffering from diabetes at the time of taking out the policy was “material fact”. And on account of non-disclosure of this fact in the proposal form, whether the insurance company was justified in avoidance of the insurance contract. By going through the established principles of insurance law, the failure of the NCDRC to notice certain nuanced aspects of insurance law in Neelam Chopra v. LIC is highlighted. Duty of Utmost Good Faith According to Section 19 of the Marine Insurance Act, 1963, an insurance contract is a contract of utmost good faith, and if good faith is not observed by either party, the contract may be avoided. The duty of utmost good faith was aptly summarized in Carter v. Boehm (1905) and reiterated in several Indian judgments in the following words: – “The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only and the underwriter trusts to his representation…Good faith forbids either party, by concealing what he privately knows…” Thus, it needs little emphasis that when required in the proposal form, the insured is under a solemn obligation to make a true and full disclosure of all information, which is within their knowledge. Applying this doctrine to the case in the discussion, the insured did not disclose the fact that he was suffering from diabetes in the medical history section of the proposal form. Therefore, it would appear that there is a violation of the duty of disclosure by the insured. Material Fact The next issue for consideration would be as to whether diabetes for the past 3-4 years was a “material fact” for the purpose of a life insurance policy. Section 20 of the Insurance Act, 1938 states that every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether they will take the risk. The term “material fact” has been further explained in Pan Atlantic Insurance Co v Pine Top Insurance Co (1994), relied on in several Indian cases, as any fact which goes to the root of the contract of insurance and has a bearing on the risk involved. Whether or not a fact is material, is a question of fact. The question does not depend upon what the insured thinks or even what the insurer thinks, but whether a ‘prudent and experienced’ insurer would be influenced in their judgement if they knew it (The Prudent Insurer Test). Further, in Satwant Kaur Sandhu v New India Assurance Co Ltd  (2009), it was emphasized that any inaccurate answer will entitle the insurer to repudiate his liability because there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into an insurance contract. Applying this to the case at hand, all past and present health of the insured is a material fact as no prudent insurer would underwrite the life of a person with diabetes and without diabetes, on the same terms. Diabetes adversely affects the chances of longevity of the insured and the insurance company in the case was unable to assess the real risk as all facts were not disclosed. Further, any contention that the insured was medically examined by a panel of doctors authorized by the insurance company has no merit since this is a standard procedure that happens in all cases. It cannot be employed as an excuse to absolve the duty on the insured to disclose material facts. Therefore, the fact that the insured had diabetes is unquestionably a material fact as any prudent insurer would take this into account when assessing the risk. Suppression of Material Facts The next issue is whether the non-disclosure tantamount to suppression of material facts enabling the insurance company to repudiate its liability under the policy. It would be impossible to contend that the insured was not aware of the fact that he was suffering from diabetes, more so when he was diagnosed 3-4 years back. His diabetes was a material fact and answers given in the proposal form were definitely factors that would have influenced and guided the insurance company to enter into the contract of life insurance with the insured. Judged from any angle, the statement made by the insured about his disease in the proposal form was palpably untrue to his knowledge. There was clear suppression of material facts regarding his

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Corporate Board Gender Diversity in the Shadow of the Controlling Shareholder

Leave a Comment / Company Law, Contemporary Issues, Guest Posts /

[By Dr. Akshaya Kamalnath] The author completed her graduation from NALSAR University of Law, Hyderabad, and her post-graduation from New York University (NYU). The author is currently a lecturer at Auckland University of Technology, Law School, New Zealand. Dr. Kamalnath runs a blog named The Hitchhiker’s Guide to Corporate Governance which can be accessed here. In an article co-authored with Professor Annick Masselot, I examined corporate board diversity in the Indian context. In this blog post, I will introduce some of the arguments in the article and build on them with ideas from other articles. India introduced a mandatory quota that requires companies to have at least one woman director on their board of directors in 2013. Since then, India’s market regulator, Securities Exchange Board of India (SEBI) has required listed companies to have at least one woman director who is also an independent director. In terms of numbers, the percentage of women on boards rose from 5.5% in 2010 to 12. 7% in 2017. But do these numbers have the potential to improve corporate governance? Corporate board gender diversity has been canvassed for two reasons – business benefits and gender equality. The most convincing reason for board gender diversity to yield better results seems to be that diverse boards are more effective monitors of management. In other words, the corporate governance case is the most convincing aspect of the business case. Drawing from the analogy of independent directors who are meant to improve corporate governance, we focused (in the article) on the effectiveness of board gender diversity as a corporate governance measure in India. Since controlling shareholders influence board nominations, independent directors in India are not likely to be effective monitors. Some reputed directors have also pointed out that even where independent directors take their monitoring role seriously, the problem is that management does not share adequate information with them. While this is also a problem in countries like the US, the concentrated ownership model makes information flow even more challenging. Could gender diversity be one way in which the structure of the independent director institution is enhanced? Studies in various countries have shown that gender diversity does indeed enhance board functioning in terms of board processes. There could be gains even beyond just enhanced board processes. A recent news article reported Biocon’s Biocon, Kiran Mazumdar-Shaw recounting her experience on a company board which was dealing with a sexual harassment complaint lodged by an employee: “The men on the board, she says, described the complaint as “silly”, “rubbish” or “an exaggeration”. Mazumdar-Shaw says it took her, a woman director, to object to this “flippant” approach, put her foot (down)”. Despite Mazumdar-Shaw’s story having a happy ending, it is not easy for a single board member to change the board culture or even quality of decisions. We have to rein in our expectations in terms of what can be achieved by one woman director on the board. The controller dominated firm structures means that we cannot expect too much from independent directors, let alone a single women director. Further, the mandatory law means that in many cases, companies are merely appointing women directors to comply with the law rather than to enhance board processes and governance. Such a lack of genuine motivation to improve governance would impose a burden on the incoming women directors in terms of having to deal with an unwelcoming board. Ultimately, solutions to improve corporate governance, including board culture, should go beyond a requirement for companies to appoint one woman independent director.

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Re–Examining the Domestic Tax Scenario in a Pandemic (Part 2)

Leave a Comment / Contemporary Issues, Guest Posts, Taxation Law /

[By Mohit Gupta] The author is a PhD Researcher at Centre for the Study of Law and Governance, Jawaharlal Nehru University, New Delhi. To read Part 1 of the article, please click here. Now, if one talks about the indirect taxes in the country then there are various types of indirect taxes that were levied by Central Government and various State governments before the introduction of The Goods and Service Tax (GST), which are referred at the beginning of the discussion. However, the GST which came into effect on 1 July 2017, following the passing of The (Constitution 122nd Amendment) Bill, 2014 by the parliament of India, and an amendment to the constitution of India which changed the arrangement of powers of taxation between central and state government, and also subsumed a majority of then-existing centre and state-level taxes[1]. The need to re-examine the GST also stems from the fact that recently it completed three years of its implementation and the voices of unrest related to this tax reform are getting louder[2]. The key rationale for the introduction of GST was that it would broaden the tax base and remove the cascading effects of taxation. However, the realisation of these objectives was constrained by various facts which included; that the GST on a few important products like diesel, petrol, air turbine fuel, natural gas etc. were immediately not included in the scope of the GST at the time of its introduction while goods like alcohol for human consumption was kept out of the purview of the GST. The obvious reason was that GST took away the power to levy taxes like sales tax which are the single largest source of tax revenue for the states and the states were not ready to compromise on their autonomy to levy and collect the taxes on these goods immediately. This then takes to the debate between the apologists and critics of the GST around the issue of Efficiency Considerations with GST vs. Fiscal autonomy of the states. There were various reasons provided to support the efficiency rationale emanating from the implementation of the GST which included its ability to improve the competitiveness of the domestic industry in the international market, creation of a common national market for India, broadening of the tax base by expanding the coverage of economic activities and prevention of leakages from the system (Rao and Mukherjee, 2019). However, what has received less attention is the question that whether or not introducing GST was a desirable choice for a country like India where there are a federal structure and a lot of heterogeneity among states in their tax base. A few studies, at the time of introduction of GST, made a case against the introduction of this tax by pointing out the likely pitfalls of introducing this tax form – that it will significantly undermine the fiscal autonomy of the states in India, efficiency considerations were not the basis of its introduction in various jurisdictions around the world thereby cautioning against any attempt to transplant this form of tax from other jurisdictions and most importantly that it has not been adopted by the largest economy of the world with a federal structure- the United States of America (USA).[3] However, despite these cautions against the efficacy of GST in a country like India, it was adopted with haste in 2017. These concerns around the fiscal autonomy of the states getting compromised with GST have visibly surfaced over time and more cogently in the times of a pandemic. This is in so far as the central government and the state governments have now realised that with the introduction of GST – they are left with very limited or no space to manoeuvre around indirect taxation structure in emergencies like a pandemic; especially the resource-constrained state governments. Hence, when the revenues began to dry up because of the halt in economy induced by pandemic, both central and state governments levied hefty taxes on products which currently don’t attract GST – an increase in excise duty by the central government on petrol and diesel, increase in value-added tax and special cesses by state governments on petrol, diesel and alcohol for human consumption etc.[4] Following this surge in taxes, while one can always debate the case for an excess tax on alcohol because it is a sin good but an increase in taxes on fuel is surely not the desired way of filling the government coffers because the very nature of a regressive tax is to hurt the poor more and likely to push up food inflation as well. Further, the finance ministers of various states have now begun to echo the demand to overhaul the GST regime and finding out ways of increasing the revenue share of states in the GST[5]. Adding to the concerns of the state is also the fact that The Goods and Services Tax (Compensation to States) Act, 2017 that has assured states to protect revenue during the first five years of GST introduction (also known as transition period) is approaching its deadline in June 2022 and given the shortfall in GST collection and uncertainty associated with revenue on account of State Goods and Services Tax (SGST) collection, many states have approached the Fifteenth Finance Commission (FFC) for a possible extension of the GST compensation period by another three years, i.e., up to 2024-25 (Mukherjee 2020) and this was demanded even before the onslaught of the pandemic. The real conundrum here is that the centre may not have the fiscal space to provide the compensation beyond the transition period while states may suffer a major fiscal blow with the withdrawal of the GST compensation after the transition period. At the heart of all these developments lies a twofold  problem; one is that from the beginning GST debate abstracted away from the issues of intra-state disparity in its assumption of a uniform tax spread within the state in the projection of its potential gains, ignoring the structural constraints of intra-state

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