Intermediary under IT Act not liable for actions of vendors in online marketplace: Karnataka HC quashes case against Snapdeal, directors

The Court said that the only liability of an intermediary under Section 79(3)(b) of the IT Act is to take down third-party content upon receipt of either a court order or a notice by an appropriate government authority.
Intermediary under IT Act not liable for actions of vendors in online marketplace: Karnataka HC quashes case against Snapdeal, directors
Snapdeal, Karnataka HC

The Karnataka High Court has held that an intermediary or its directors/officers as defined under the Information Technology Act (IT Act) would not be liable for any action or inaction on part of a vendor/seller making use of the facilities provided by the intermediary in terms of a website or a marketplace.

On that basis, a single-judge Bench of Justice Suraj Govindaraj quashed a complaint against online market place, Snapdeal and two of its its directors, Kunal Bahl and Rohit Kumar Bansal.

"An intermediary as defined under Section 2(w) of the Information Technology Act or its directors/officers would not be liable for any action or inaction on part of a vendor/seller making use of the facilities provided by the intermediary in terms of a website or a market place," a single-judge Bench of Justice Suraj Govindaraj said.

The only liability of an intermediary under Section 79(3)(b) of the IT Act is to take down third-party content upon receipt of either a court order or a notice by an appropriate government authority and not otherwise, the Court added.

Thus, an intermediary would not be responsible and/or liable for sale of any item not complying with the requirements under the Drugs and Cosmetics Act, 1949 on its platform, the Court made it clear.

Factual matrix

The Drug Inspector had filed a complaint against Snapdeal on the basis of information allegedly received by the Deputy Drugs Controller, Mysore on November 20, 2014.

It was alleged that in October 2014, M/s Adept Biocare, a proprietary concern of one Amandeep Chawla, created a seller account on Snapdeal's online marketplace for listing and selling its own products namely--SUHAGRA-100 Tablets (Sildenafil Citrate Tablets 100 mg).

During the period between October, 2014 and December, 2014, Snapdeal had warned Adept Biocare not to sell the said tablets on their website.

Later, one Manjunath placed an online order and the same was delivered to him. It is alleged that Snapdeal has exhibited SUHAGRA-100 mg Tablets for sale and provided a platform to the Seller and purchaser. The delivery was made in the presence of Investigation Officer and Panch witnesses.

On the basis of the above, it was alleged that there was a violation under Section 18(c) of the Drugs and Cosmetics Act, which is punishable under Section 27(b)(ii) of the Act.

Six years later, a case was registered before the Court of the Principal Senior Civil Judge and CJM, Mysuru and on June 8, 2020, it issued order of summons to Snapdeal and its directors.

Aggrieved by this, the directors moved the court seeking to quash the order dated June 8 and further proceedings pending before the Principal Senior Civil Judge and CMM, Mysuru.

Arguments Advanced

Senior Advocate CV Nagesh (assisted by Advocates Sanjanthi Sajan Poovayya, Mrinal Shankar, Abhilash Vaidyanathan and Sriraj Gowda from Poovayya Associates) appearing for the petitioners submitted that Snapdeal is an intermediary as defined under Section 2(1)(w) of the IT Act, 2000 as amended by the Information Technology (Amendment) Act, 2008.

It is, therefore, entitled to the exemption from liability in terms of Section 79 of the earlier Act (Exemption from liability of intermediary in certain cases), it was contended.

Further, the petitioners also argued that an order taking cognisance is required to be done by way of a speaking order and the said order requires to be passed after due application of mind.

The sine qua non for taking cognisance of an offence is the application of mind by the Magistrate and his satisfaction that the allegations, if proved, would constitute an offence.

However, in the present case, a mere perusal of the impugned order made it abundantly clear that the same did not disclose any application of mind, it was submitted.

It was also the petitioners' case that while issuing summons, the Magistrate did recorded his satisfaction about the prima facie case as against Respondents 2 to 7 and the role played by them in the capacity of Managing Director, Company Secretary or Directors.

The concept of 'vicarious liability' is unknown to criminal law, Nagesh went on to contend.

Finally, he pointed out that there was a delay of six years in filing the said complaint. No explanation or justification has been afforded for the unreasonable delay caused by the Respondent, and as such the same is fatal, concluded Nagesh.

Advocate C Nageshwarappa, appearing for the State government submitted that the fact that the petitioner owns a marketplace Snapdeal is sufficient to prosecute it for any offence or violation committed by any seller on the platform.

Irrespective of whether Snapdeal is an intermediary or not, there could be no product which could have been advertised for sale contrary to the prohibitions under the Drugs and Cosmetics Act, Nageshwarappa contended.

Since Snapdeal is the entity which provides a platform and permitted advertisement for sale of the said prohibited item, it is liable to directors are liable to be prosecuted along with its directors, it was added.

Further, the order of cognisance dated June 8 passed by the Magistrate is proper and correct. The Magistrate cannot be expected to write a detailed order and his prima facie satisfaction is sufficient for the purpose of taking cognizance or issuance of summons, he said.

It was also submitted that since e-commerce transaction occurs across the country, it cannot be expected for a purchaser of a product in one part of the country to proceed against the e-commerce website only where it is registered and therefore, the Mysore Court where the item was ordered and delivered could exercise jurisdiction.

The prosecution submitted that the fact that Snapdeal was registered outside the State of Karnataka or outside the jurisdiction of the Magistrate, and that the accused are residing outside the jurisdiction of the Magistrate is not relevant for the reason that the transaction occurred within the jurisdiction of the Magistrate at Mysore.

Therefore, there is no requirement to hold an enquiry under Section 202(2) of the Code of Criminal Procedure (CrPC), added the State.

Observations and ruling of the Court

The Court went on to take note of the terms of use executed between Snapdeal and its users to hold that Snapdeal had exercised due diligence and being an intermediary, it can enjoy the protection granted under Section 79 of the IT Act. Therefore it cannot be prosecuted for transactions conducted on its platform.

"In my considered opinion Snapdeal has exercised ‘due diligence’ under Section 79(2)(c) of the Information Technology Act, 2000, read in conjunction with the Information Technology (Intermediaries Guidelines) Rules, 2011.....Neither Snapdeal nor its Directors can be prosecuted for the offence under Section 27(b)(ii) of the Act", the Court ruled.

Regarding the order passed by the Special Court on June 8, 2020, the Court held that it "is not in compliance with the requirement of Section 191(1)(a) of the Cr.P.C and further does not indicate the procedure under Section 204 of Cr.P.C having been followed."

The reason for this, the Court added, is the fact that the judicious application of mind to the law and facts of the matter should be apparent on the reading of the order of cognisance.

"At the time of taking cognisance and issuance of process, the court taking cognisance is required to pass a sufficiently detailed order to support the conclusion to take cognisance and issue process. The judicious application of mind to the law and facts of the matter, should be apparent on the ex-facie reading of the order of cognisance," the judgment said.

This apart, the Court opined that the delay in 6 years cannot be ignored and may prove to be quite fatal to the matter at hand.

"In the present case, I am of the considered opinion that there being no acceptable explanation for the highly belated lodging of the Complaint, the delay is fatal to these proceedings."

Relevantly, the Court also held that when the accused is having an office, branch office, corporate office, sales office or the like within the jurisdiction of the Magistrate where the offence has been committed, there would be no requirement for any enquiry under Section 202 of CrPC.

However, in the order of issuance of summons/process, the Magistrate is required to record as to why the enquiry under Section 202 of CrPC is not being held. Similarly, no inquiry is needed to be conducted in the event of the accused being an individual, who has a temporary residence within the jurisdiction of the Magistrate.

However, when the accused has no presence within the jurisdiction of the Magistrate where the offence has been committed, then it would be mandatory for an enquiry under Section 202 of the CrPC to be held, the Court held.

This process is required because if the accused being aggrieved by the issuance of summons, the said accused can move petition under section 482 CrPC, stated the Court.

Justice Govindaraj also held that only a court in which the accused has a presence, like registered office, branch office, corporate office or the like could exercise Jurisdiction as regards an offence relating to an e-commerce transaction.

However, this would not apply to a Cyber Crime, the Court clarified, as the same comes under global jurisdiction according to the IT Act, 2000. This means that any cyber-crime complaint can be registered with any of the cyber cells in India, irrespective of where the crime was originally committed.

On these grounds, the Bench proceeded to allow the petitions and quashed the proceedings pending before the Court of the Principal Senior Civil Judge and CJM, Mysuru.

[Read Order]

Attachment
PDF
Snapdeal v. State of Karnataka.pdf
Preview

Related Stories

Bar and Bench - Indian Legal news
www.barandbench.com