New ruling on jurisdiction key for e-commerce cases

By Vivek Vashi and Krishnendu Sayta, Bharucha & Partners
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Adivision bench of Delhi High Court, in World Wrestling Entertainment v M/s Reshma Collection & Ors, recently dealt with an interesting question pertaining to the territorial jurisdiction of courts in relation to determining the “cause of action” of disputes.

This ruling is of great significance in light of reports of the e-commerce business exploding in India. The e-commerce market in India was worth US$11 billion in 2013 and is expected to grow approximately 37% a year and to US$20 billion by 2015, according to a recent report from Motilal Oswal Securities.

Judicial developments

The Supreme Court of India in Dhodha House v SK Maingi (2005) considered the meaning of the term “carries on business”. The court held that a person may carry on business at a place not necessarily by themself, but through an agent or a servant. But three conditions need to be fulfilled, namely: (1) the agent must be a special and exclusive agent; (2) the agent must be an agent in the strict sense of the term; and (3) to constitute the location of “carrying on business”, the essential part of the business must be performed within the said jurisdiction.

Vivek Vashi
Vivek Vashi

The division bench in the World Wrestling Entertainment (WWE) case, while relying on the above ruling, interpreted the term “carries on business” to mean the place where the transaction was completed and consequently where the cause of action arose.

WWE is a company incorporated under the laws of the US state of Delaware and is engaged in the sale of its branded products. WWE’s products were being sold through its website which can be accessed and operated from all over India. In the present case, the products were purchased by a buyer in Delhi. In a suit for infringement, WWE alleged that the respondent (a Mumbai-based firm) was in the business of selling counterfeit products under the WWE brand. The respondent filed an application for return of plaint on the ground that the court had no jurisdiction.

A single judge held that the sale of the WWE products in Delhi would not mean that WWE “carried on business” in Delhi and granted the application. Allowing WWE’s appeal against this ruling, the division bench relied on the third requirement in the Dhodha House case, which states that: “to constitute ‘carrying on business’ at a certain place, the essential part of the business must take place in that place”.

Further, while taking due note of the advancements in technology, the division bench stated that the availability of products and goods through the various websites and/or online portals is effectively the same as having a shop at the place of purchase, in the physical world. Accordingly, the division bench concluded that since the acceptance of a transaction is instantaneously communicated to a customer in Delhi through the internet, the cause of action would arise in Delhi.

The above ruling relates to intellectual property laws, however, as it seems to be in consonance with section 13 of the Information Technology Act, 2000, it will be interesting to see if courts concur with the above principles in other disputes, as well. If they do, there will be serious ramifications for e-commerce businesses as they would have to defend disputes at the location of the purchaser.

Legislative developments

According to recent media reports, India’s Consumer Affairs Department has submitted to the cabinet a proposal to regulate and bring e-commerce businesses through all electronic modes, including e-tailers and direct selling websites, under the ambit of consumer protection laws.

Krishnendu_Sayta_-_Bharucha_&_PartnersThe cabinet note also proposes the setting up of an authority which would have powers to act against marketing of products and services that are unsafe or hazardous. These moves would regulate the online sale of products and enable consumers to initiate action against e-commerce providers, e.g. for failing to take back defective items and return the amount paid, despite special requests.

To streamline complaints, the legislature would have to differentiate between companies that sell their products online and those that only market the products. Also, it will be interesting to see if the definition of “consumer” is appropriately modified.

Impact on business

The judicial and legislative trends suggest that in the coming months there will be more clarity for e-commerce businesses to defend and initiate litigation. On a preliminary analysis, it appears that the regulations will be slanted in favour of the consumer and not in favour of the businesses.

It is doubtful that these trends will dampen the substantial growth expected in these businesses, but they will possibly require these businesses to grasp and adapt to a more litigious society where consumers are empowered to actively pursue their rights.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Krishnendu Sayta is an associate.

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