Contemporary Issues

The Liability of Cab Aggregators in India vis-à-vis their Consumers

Leave a Comment / Contemporary Issues, Contract Law /

[By Suyash Tiwari and Prakul Khera] Suyash is a student at the Hidayatullah National Law University, Raipur, and Prakul is a student at the Institute of Law Nirma University, Ahmedabad. The reputation of ride-hailing platforms like Uber has been marred with a plethora of cases involving sexual assault and negligence of its drivers. The case in the Indian context is no less different. These platforms are operating under such a regulatory grey area that they easily evade liability for the acts of drivers. The Motor Vehicles (Amendment) Act, 2019 introduced the term aggregator for these platforms which defines them as “digital intermediary or marketplace for a passenger to connect with a driver for the purpose of transportation”. This provision brought such platforms under the purview of the Motor Vehicles Act, 1988. However, the only body of law that governs the employment status of drivers engaged with these platforms is the terms and conditions of these aggregators. These terms and conditions that a user agrees to avail the services of these platforms provide that the drivers are independent third-party contractors and not employees of the company. Since the principle of vicarious liability doesn’t apply to independent contractors,[i] such clauses exempt the liability of these aggregators in case of any mishap. In the current article, the authors advocate for the liability of such aggregators for the acts of drivers.  Control test obsolete in the modern economy Under the control test, the employment status is determined not only through the control of the employer in directing what work is to be done but also through the control exercised over the manner of doing work. [ii]However, In Silver Jubilee Tailoring House v. Chief Inspector of Shops, the Supreme Court of India held that the control test can’t be treated as an exclusive one for distinguishing a ‘contract of service’ from ‘contract for service’ and it would be more reasonable to examine all the factors that constitute the case in hand. It was further opined that it would be unrealistic to apply the test of control in many skilled employments for determining the existence of a master-servant relationship. Therefore this test can’t be treated as a precise one for ascertaining the employment status of the drivers. A progressive test was propounded in Stevenson Jordan and Harrison Ltd. v. Macdonald and Evens. It was held that a person is under a contract of service when the work performed by him is an integral part of the business, whereas the person is under a contract for service when the work is ancillary to the main business. The rationale for using this test is that the functions which constitute a contract of service are the sole source of revenue for a corporation. Since transportation is an integral part of the business and constitutes a major source of revenue, the drivers should be treated as employees of the aggregators Position in other jurisdictions In 2015 a United States District Court for the District of Columbia in Erik Search v. Uber, where the driver had stabbed a rider, made Uber liable to pay damages. The court relied on the apparent agency theory which stems from the so-called duck test. According to this test, “if it walks like a duck, swims like a duck, and quacks like a duck, it’s a duck.” The rationale that stems from this test is that liability can be imputed to the principal if he, through his words whether written or spoken or any other conduct makes a third party believe that he has consented to the acts done on his behalf by the apparent agent. Hence the perception of a third party with respect to the agent’s authority is significant in determining the liability. Therefore, taking into account the way Uber functions, the court held that the riders were under a reasonable belief that the drivers were indeed the employees. Similarly, in Doe v. Uber Techs., Inc., where the driver had raped a consumer, the District Court for the Northern District of California held that drivers were employees and Uber was vicariously liable for their conduct. While holding so, the Court relied on a set of the factual matrix. These include, inter alia, the fact that the drivers can’t negotiate the fares and the same are set by Uber without any input from the driver. Further Uber has the authority to alter the amount being charged from customers if the driver takes a circuitous route. Thirdly, control over customer contact information lies with Uber. The drivers have to accept all rides requests when logged into the application or else they have to face disciplinary actions. Lastly Uber retains the right to terminate drivers at will. In Uber France v. M. A. X, the Court of Cassation (the highest court in France) classified the drivers as employees and not self-employed. The Court laid down a three-limb test to categorize a person as self-employed. Under this test, if the person can build his own client base, fix the tariff to be charged on his own, and set the terms and conditions for providing the service, only then, one can be classified as self-employed. Further, according to the Court, as the drivers were following orders from Uber, there was a relationship of subordination between the Company and the drivers. The High Court of Australia in Hollis v. Vabu Pvt. Ltd. held that persons employed as bicycle couriers by Courier Company under a ‘contract for service’ who owned their bicycles and also bore the expenses of running them, were employees. The court relied on the fact that their uniforms bore the logo of the company which represented to the general public that they were employees. As Lord Peace stated in Imperial Chemical Industries Ltd v Shatwell “the law of vicarious liability has evolved from social convenience and rough justice and not from any clear logical or legal principle.” Therefore, the Indian courts must take into consideration the principles evolved by the foreign courts as they reflect an approach

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Mediation in India- Challenges, Recommendations and Relevance in Post COVID Scenario

Leave a Comment / Contemporary Issues /

[By Krishnanunni U and Kessia E. Kuriakose] The authors are students at the NALSAR University of Law, Hyderabad. Introduction The outbreak of the COVID-19 pandemic has led to a sudden surge in the number of commercial disputes across the world. Most corporates have been inundated with unprecedented challenges arising out of delayed performance of contracts. At this juncture, the amicable restructuring of contracts to accommodate contemporary realities becomes ever pertinent. Hence, mediation being quicker and efficient than conventional modes of dispute resolution will automatically become the preferred option for businesses to tackle the predicament posed by COVID-19. Further, mediation will help in fostering relations by settling disputes amicably. In India, COVID-19 has brought about various developments that have set the stage for propelling mediation to the forefront. For example, insolvency proceedings have been terminated for a year and RERA has extended the timeline for completing projects by including COVID-19 as one of the force majeure conditions. Litigating disputes connected to COVID-19 will consume time, money, and effort. Mediation being cheap, quick, and confidential would be the most feasible solution to tackle the conundrum. However, blindly accepting mediation as the solution can have serious repercussions. Mediation in India is marred with a lot of problems, lack of legal sanctity being the primary concern. In this article, we seek to identify and provide recommendations to resolve the challenges faced by mediation in India by carefully analyzing the existing legal framework around mediation.  Existing Legal Provisions Mediation in India is primarily governed by two legislative acts viz. the Code of Civil Procedure, 1908 (“CPC”) and the Arbitration and Conciliation Act, 1996 (“ACA”). Section 89 of the CPC (added by way of amendment in 1996) gave courts the power to direct disputes to various ADR mechanisms including mediation for their settlement. Part II of the Civil Procedure – ADR Rules 2003 clearly defines the process of Mediation and specifies certain rules related to mediation (Mediation Rules). Further, Part III of ACA governs conciliation proceedings that courts have interpreted to be synonymous with the mediation process. In addition to that, several legislations like the Companies Act, 2013, and Commercial Courts Act, 2015 provide for mediation, but these rarely opt for dispute resolution. Hence, it is very apparent that laws governing mediation in India are in a rudimentary stage with no standardized process in place. Recently, the government has taken affirmative actions for promoting mediation but the absence of an overarching legislation will continuously pose impediments for the growth of mediation in India. Initial efforts to strengthen mediation can be traced back to 1988 where the 129th Law Commission Report recommended ‘Urban Legislation Mediation’ as an alternative to adjudication. Afterward, the judgment in Salem Bar Association v. Union of India held that all disputes coming to court need not necessarily be resolved by the courts and alternative dispute resolution mechanisms should be actively engaged. This prompted an amendment to the CPC and Section 89 was incorporated. Another major development was an amendment to the Commercial Courts Act, wherein Section 12A was introduced in 2018. This made it mandatory for parties to conduct mediation before instituting a commercial dispute. The constitution of the “The Mediation and Conciliation Project Committee” entrusted with discussing policy matters related to mediation has given further impetus to the development of mediation. In 2019, India signed the United Nations Convention on Mediation (the Singapore Convention), which made international commercial mediation agreements enforceable in India. However, the qualms regarding enforcement can be fully dismissed only when a new law concerning mediation is enacted. Challenges and Recommendations 1) Lack of Codification– In January 2020, the apex court in MR Krishna Murthi v. New India Assurance Co. Ltd pointed out the urgent need for enacting a uniform legislation for mediation in India. In furtherance to this, the court set up a committee to come up with a draft legislation that will help in conferring legal sanctity to disputes settled by mediation. A uniform statute governing mediation is the need of the hour. Such legislation should ideally aim at making mediation a mandatory exercise before approaching courts or arbitral tribunals. This would help in altering the current status of mediation from being a particular form of dispute resolution to the mandatory first stage of dispute resolution. A statute governing mediation will also address the enforceability concerns plaguing mediation in India. Even in the landmark Ayodhya case, the Supreme Court had initially directed the parties to mediation. However, the lack of a binding factor has deterred parties from acknowledging mediation, thereby vitiating mediation proceedings in India. An overarching legislation would confer legal sanctity and provide procedural guidance to parties. Just like how the ACA revolutionized the arbitration culture in India, a mediation specific law can instill confidence in parties to resolve their disputes through mediation. 2) Apprehension towards mediation & Lack of Awareness – Mediation has never garnered sufficient reception among the legal fraternity. In order to popularize mediation as a dispute resolution mechanism, training sessions and seminars should be conducted to familiarize judges with the benefits of mediation. This will help in creating a conducive environment for the growth of mediation in India. Further, public awareness related to mediation should also be increased.  A coordinated approach by the Judiciary and the Executive can help in disseminating information regarding the benefits of mediation to the public. Lawyers should also be encouraged to advise mediation to their clients. 3) Infrastructural Concerns and Quality Control– Improved emphasis on mediation will directly increase the workload on mediation centers which lack administrative strength. This can lead to the languishing of cases that go against the basic tenet of mediation i.e. fast resolution of disputes. To tackle this, the practice of mediation should be professionalized in India. People should be incentivized to become full-time mediators. The recent proposal of the Bar Council of India to compulsorily include mediation in the legal curriculum will definitely assist law students in taking up a career in mediation. Further, it is pertinent to supplement the growth of

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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

Leave a Comment / Contemporary Issues /

[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

Leave a Comment / Competition Law, Contemporary Issues /

[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

Leave a Comment / Competition Law, Contemporary Issues /

[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

Leave a Comment / Contemporary Issues /

[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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