Delhi HC sets aside order restraining Amazon, Flipkart from selling Amway products without consent

While setting aside an order restraining several e-commerce platforms from selling Amway, Oriflame and Modicare products without consent, the Delhi High Court has held that Direct Selling Guidelines, 2016 are purely advisory in nature and do not qualify as law..The judgment was passed by a Division judge bench of Justices Dr S Muralidhar and Talwant Singh in an appeal preferred against the injunction order by e-commerce platforms Amazon, Flipkart, and others..In July 2019, a Single Judge Bench of the High Court had granted an interim injunction in favour of Amway and other entities like Modicare and Oriflame in view of the unauthorised sale of their products on e-commerce platforms..Holding that the Direct Selling Guidelines (DSGs) were binding in nature as they amounted to “law”, the Single Judge had held that the sellers, as well as the platforms, were bound to take consent of Direct Selling Entities to offer, display, and sell their products. .The Single Judge had also held that e-commerce platforms or sellers were not entitled to the benefit of the principle of ‘exhaustion of trademark rights’ and that in order for the platforms to continue to enjoy the status of intermediaries, due diligence was required to be undertaken..Delhi HC restrains Amazon, Flipkart from selling Amway products without consent.In the present case, the Court at the outset noted that it was “highly unlikely” that the issues framed and adjudicated upon by the Single Judge at the stage of grant of interim reliefs would be the issues in the suits themselves..It also took note of the fact that the Single Judge even considered the submissions of the Union of India while deciding the interim relief, when it was not even a party to any of the suits..It thus opined that in a civil suit, the Court requiring the Union of India to address it on an aspect, was a deviation from the Civil Procedure Code..It stated,."...this Court has original jurisdiction does not mean under that jurisdiction the Court will assume to itself the powers of a Writ Court. The flexibility of procedure that may be available to the Court while dealing with a writ petition under Article 226 of the Constitution, is not, and ought to not be adopted while dealing with civil suits filed on the original side, which would be strictly governed by the provisions of the CPC read with the corresponding provisions of the Delhi High Court Act and the Original Side Rules of the Delhi High Court."Delhi High Court.The Court then proceeded to test the findings of the Single Judge..Are the Direct Selling Guidelines law?.The Court, at the outset, observed that the issue formulated by the Single Judge as to whether the Direct Selling Guidelines (DSGs) were valid and binding was “erroneously framed”..The Court opined that a perusal of the DSGs clearly revealed that they were not meant to be treated as law themselves, much less binding law.."It was only to be a model framework and ―advisory in nature. It was for the State Governments to adopt it into law. Therefore, Clause 7 (6) of these 'model guidelines' is also purely advisory."Delhi High Court.The Court stated that merely because the DSGs were notified in the Official Gazette, they did not attain the status of ‘law’ within the meaning of Article 13 of the Constitution..It added that the source of the power to frame such guidelines was traceable only to the Consumer Protection Act.“The distinction between rules, which are made under a statute, regulations, which also ought to be traced to a statute, and mere 'guidelines‘, was lost sight of by the learned Single Judge...The Plaintiffs appear to have jumped the gun in not waiting for the law to be formally made and enforced.”.The Court, nonetheless, clarified that the e-commerce platforms may challenge the Direct Selling Rules under the CPA, once they are notified..Does sale of Amway products on e-commerce platforms amount to infringement of trademark, passing off etc?The Court stated that the Single Judge had committed a "fundamental error" by holding that Amway and other plaintiffs in the suit were the owners of their respective trademarks..It noted that the Amway, Oriflame etc- were not the proprietors of the trademarks being used by them, as the same were registered in the name of their overseas parent entities..The Court further obeserved that the suits were not suits for infringement of trademarks or passing off, and therefore, to examine the same was “entirely outside the purview of the pleadings”..It, nonetheless, considered the contentions put forth by the parties and held that the Single Judge had erred in holding that the 'principle of exhaustion' in terms of Section 30 of the Trade Marks Act, 1999 could not be invoked by the e-commerce platforms..The Court also perused the report of the Local Commissioner and remarked that it was difficult to conclude that Amazon had been tampering with the products of Amway, and that it was anyway a matter to be determined by trial..Do e-commerce platforms qualify as intermediaries under IT Act?The Court opined that the Single Judge had misinterpreted Section 79 of the IT Act to conclude that it was restricted to ‘passive’ intermediaries..It noted that in terms of Section 79, any intermediary which complies with Sections 79 (2) or (3) of the IT Act was not be liable for any third-party information, data or communication link made available or posted by it..However, given the disputed questions of facts in the pleadings, the Court opined that whether an entity was an intermediary or not, could only be decided only after a trial.."There was no occasion for the learned Single Judge to have, at the stage of considering applications for interim injunction, returned a conclusive finding that Amazon is ―a massive facilitator and plays an ―active role in the sales process. These are too sweeping and definitive a set of findings which have to be properly rendered at the conclusion of the trial."Delhi High Court.Can e-commerce platforms be held guilty of tortious interference with the contractual relationship of the plaintiffs with their distributors/direct sellers?The Court observed that in the first place, the tort of inducement to breach of contract necessitated the existance of a contract between the online platforms and the DSEs like Amway..It added that the mere facts that the online platforms might have knowledge of the Code of Ethics of the DSEs, and the contractual stipulation imposed by such DSEs on their distributors, was insufficient to lay a claim of tortious interference..The Court stated that it was incumbent on Amway and others to prove that there were contracts entered into by e-commerce platforms to make a viable case for tort of inducement to breach of contract. However, the same was a matter of trial, it said..In view of the above, the Court opined that Amway and others had failed to establish a prima facie case for grant of interim relief and the order of the Single Judge was set aside..The Court also awarded costs of Rs. 50,000 in each of the appeals, to be paid by the plaintiffs in the suit to the e-commerce platforms. .Amazon was represented by Advocates Saikrishna Rajagopal with Advocates Sidharth Chopra, Sneha Jain, Sauni Dutt, Devvrat Joshi, Surabhi Pande, Nilofar Absar, Abhiti Vaccher, and Vivek Ayyagari..Amway was represented by Senior Advocate Parag Tripathi with Advocates Priya Kumar, Shailabh Tiwari, CD Mulherkar, Chanakya Deviedi, Tejas Chhabra, Anand Chichra, Arjun Maheshwari, Kunal Dhawan and Lalltaksh Joshi..Oriflame was represented by Senior Advocate Balbir Singh with Advocates Mahesh B Chhibber and Monica..Modicare was represented by Senior Advocate Jayant Bhushan with Advocates Pooja Dodd, Vinay Tripathi, Saksham Dhingra, Aman Singhal, Aditi Menon, Ketal Paul, Tushar Bhushan, Amartya Bhushan and Ayush Samaddar..Cloudtail was represented by Senior Advocate Gurukrishna Kumar with Advocates Nischal Anand and Praful Shukla..Snapdeal was represented by Advocates Rajshekhar Rao with Advocates Aditya Verma, Shantanu Rawat, Siddharth Rawal and Chaitanya..Read the Judgment: