Delhi High Court - Direct selling guidelines advisory in nature and not binding as a law
The Delhi High Court (“High Court”) in the judgement of Amazon Seller Services Pvt. Ltd. v. Amway India Enterprises Pvt. Ltd. & Ors. (FAO(OS). Nos. 133, 134, 135, 141, 142, 157 of 2019 & CM. APPL. Nos. 32954, 32956, 32958, 34228, 34230, 37244 of 2019 (stay)) decided on, 31 January 2020, delivered by Justice Dr. S Muralidhar and Justice Talwant Singh on 31st January 2020 (“Judgment”) explained the nature and applicability of direct selling guidelines (“Guidelines”). The High Court ruled in favour of the plaintiffs in the aforementioned case and set aside the finding that the Guidelines are law and they were enforceable on the e-commerce platforms.
In July 2019, a single judge bench of the High Court in the matter of Amway India Enterprises Pvt. Ltd. v. 1Mg Technologies Pvt. Ltd. & Anr.( CS (OS) 410/2018, 453/2018, 480/2018, 531/2018, 550/2018, 75/2019 & 91/2019) had granted an interim injunction (“Order”) in favour of Amway and other entities like Modicare and Oriflame in view of the alleged unauthorized sale of their products on e-commerce platforms. The High Court in its Order had held that the Guidelines were binding in nature as they amounted to law. It was further held that the sellers, as well as the platforms, were bound to take consent of Direct Selling Entities (“DSE”) to offer, display, and sell their products.
The High Court in its Judgement ruled that the Guidelines are not law and they are merely advisory in nature. It was stated that the Government of India constituted an Inter-Ministerial Committee (“IMC”) with representatives of the Ministry of Finance, Department of Industrial Policy and Promotion, the Department of Legal Affairs, the Department of Information and Technology and the Ministry of Corporate Affairs. Besides these five (5) ministries and departments, the representatives of the Government of NCT of Delhi, the States of Andhra Pradesh and Kerala were also part of the IMC. The main objective was to look into the matters concerning the direct selling industries. The IMC formulated the model guidelines for the states and the union territories in order to protect the legitimate rights and interests of industry and consumers and to act as mechanism to supervise the activities of direct sellers and DSE regarding compliance of the Guidelines for direct sellers. The Government of India urged the state governments and union territories to take necessary action to implement the Guidelines. The Guidelines however were an advisory to state governments and union territories and only a model framework for guidelines on direct selling, which was not meant to be treated as law. The High Court therefore in its Judgment stated that merely because the Guidelines are notified in the official gazette, they do not attain the status of law within the meaning of Article 13 of the Constitution of India which states that law includes any ordinance, order, bye-law, rule, regulation, notification, custom or usages having in the territory of India the force of law.
Although the Judgement clarifies the position with regard to Guidelines, it appears to ignore the fact that the Guidelines, after being notified in the official gazette and implemented by various state governments, do acquire some binding executive authority and are not merely advisory in nature. The DSE operations are regulated by the Guidelines. The High Court in its Order recognized the principal of tort of inducement of breach of contract committed by the e-commerce platforms in which performance of contractual obligations are insisted upon even by third parties, who are not privy to the contracts. The e-commerce platforms carry out substantial sales of consumer products on their platforms and invest heavily on their logistics, warehousing, etc. They are conscious of the sellers whom they permit to operate on their platforms and the products that are being sold. They are not merely passive non-interfering platforms but provide a large number of value-added services to the consumers and users. Therefore, they cannot take the plea that they are merely an intermediary under section 79 of the Information Technology Act, 2000. Hence, the admitted selling of products of DSE by sellers on intermediary platforms such as Amazon, Flipkart, etc. seems more than just an innocent arrangement between the sellers and the intermediaries. This may be a tactical tool to kill the exclusivity of the DSE.
It is advisable that the DSE protect themselves contractually. To prevent or dissuade sellers to sell their products through intermediaries like Amazon, Flipkart etc. they can enter into water tight agreements with the intermediaries which prevents them from selling their products on their platforms without their consent