Case Summary and Outcome

The High Court of Karnataka, by order dated January 7, 2021, quashed criminal proceedings against the directors of Snapdeal Private Limited (Snapdeal), a company operating an e-commerce marketplace “Snapdeal.com” in India. The criminal proceedings, which were initiated after a delay of six years, related to the unauthorised sale of medicines. The High Court quashed the proceedings on the ground that Snapdeal was an “intermediary” under s. 2 (1)(w) of the Information Technology Act 2000 (IT Act) and in view of the safe-harbor for intermediaries under s. 79 of the IT Act, was not liable for such unauthorized sale on its platform by a third-party seller.

Facts

The judgment arose out of two petitions filed for the quashing of a criminal complaint and proceedings under S. 482 of the Code of Criminal Procedure (Cr.P.C.). The first petition was filed by two directors of Snapdeal and the second by Snapdeal. The criminal complaint had been filed by Respondent 1, an inspector under the Drugs and Cosmetics Act, 1940 (D&C Act) against the Petitioners in relation to the unauthorized sale and delivery of Sildenafil Citrate tablets on the Snapdeal platform through the seller account of one M/S Adept Biocare between October 13 and December 13, 2014. Criminal proceedings were initiated against the Petitioners for an alleged violation of S.18(c) of the D&C Act for exhibiting drugs for sale on its platform without a license. The criminal court, by order dated June 8, 2020, assumed jurisdiction of the offence against Snapdeal under S. 27(b)(ii) of the D&C Act.

The Petitioners challenged the order as well as the criminal proceedings on the primary ground that their role was limited to providing a communication system for making information available by third party sellers and as intermediaries they were exempt from liability under S.79 of the IT Act. Section 2(1) (w) of the IT Act defines an intermediary as “with respect to any particular electronic records, any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, onlineauction sites, online-market places and cyber cafes” 

Decision Overview

The Judgment was rendered by a Single Judge bench comprising Mr. Justice S. Govindaraj. The primary question before the High Court was whether an intermediary under the IT Act providing a website or marketplace facility would be criminally liable for any action or inaction of a third party seller using its facilities. The Petitioners made a two-fold argument. First, that Snapdeal’s role was limited to provision of a communication system or a platform to facilitate online sale and purchase of merchandise and services offered by Snapdeal’s registered vendors. Second, that pursuant to its obligation to observe due diligence under S.79(2)(c) as an intermediary, Snapdeal had included “Prescription Medicines and Drugs” as a prohibited product for the Snapdeal platform under its seller agreements, as well as under a separate policy for sellers that dealt with the consequences of selling prohibited items on Snapdeal.

The High Court found that Snapdeal was an intermediary under S. 2(1)(w) of the IT Act that had observed “due diligence” as prescribed under S.79(2)(c) read with Information Technology (Intermediaries Guidelines) Rules 2011 to ensure that its sellers were compliant with applicable law.

In examining Snapdeal’s position as an intermediary, the High Court relied on the distinction between an inventory-based model and a marketplace model of e-commerce entities defined under the Press Note 3 of 2016 issued by the Department of Industrial Policy and Promotion and recognized under the Consumer Disputes (e-commerce) Rules 2020. The Court found that by distinguishing between an e-commerce entity that owns the inventory of goods and services and sells to customer directly (inventory based model) and one which only provides a platform and acts as a facilitator between a buyer and a seller (marketplace model), the Government  of India had recognized that the role of certain e-commerce entities was limited to facilitation services.

The Court held that since Snapdeal was a marketplace model e-commerce entity, it would be eligible for exemption from liability under S.79 and under Rule 5 of the Consumer Disputes (e-Commerce) Rules 2020 and quashed the criminal proceedings against Snapdeal and its directors. Furthermore, the Court interpreted S.18(c) of the D&C Act to hold that for application of S.18(c) of D&C Act, the person in question was required to manufacture, sale or exhibit the drug for sale, while the only allegation against Snapdeal was that it had provided a platform to sell a drug. As Snapdeal had not undertaken any of the aforementioned activities, the essential ingredients of S.18(c) were not fulfilled by Snapdeal or its directors. The Court also relied on Shreya Singhal v Union of India (2015) 5 SCC 1 and Sharat Babu Digumarti v State of NCT Delhi, (2017) 2 SCC 18 wherein the Supreme Court of India defined the manner and scope of operation of the safe-harbor provision for intermediaries under S. 79 of the IT Act, and allowed exemption to intermediaries from criminal liability.

In addition to the above, the High Court also laid down the basis of determining jurisdiction of a court for taking cognizance of an offence involving an e-commerce entity. In this regard, the Court held where the accused entity has an office, within the jurisdiction of the magistrate where the offence has been committed, such magistrate would have jurisdiction to take cognizance of the offence and proceed against the accused. However, if the accused entity has no presence in the jurisdiction where the offence has been committed, then the magistrate/court would have to undertake an enquiry under S.202 of the Cr.P.C. to decide whether sufficient grounds exist for proceeding against the accused company.

In conclusion, the High Court quashed criminal proceedings against Snapdeal and its directors after finding that owing to its market place model,  S. 18(c) of the D&C Act could not apply to Snapdeal and it would hence not be liable under the D&C Act and be exempted under S.79 of the IT Act.