B2B Marketplaces Are Not Exempted Under Consumer Protection Act 2019

The Central Consumer Protection Authority (CCPA) imposed a penalty of Rs 10 lakhs on Dial4Trade Technologies Private Limited (Dial4Trade) for listing a regulated product, i.e., Ammonium Nitrate, on its e-commerce platform without any regulatory disclosures or warnings. The CCPA found Dial4Trade in violation of the Consumer Protection Act 2019 (the Act), Consumer Protection (E-Commerce) Rules, 2020 (E-Commerce Rules) read with the Explosives Act, 1884 and Ammonium Nitrate Rules, 2012.

The Order is significant as CCPA has held that even if a platform is a B2B marketplace, it falls within the consumer protection measures contemplated by the consumer protection laws as the definition of 'e-commerce entity' under the E-Commerce Rules is not confined to platforms dealing with retail consumers alone.  Specifically, Rule 4(3) and Rule 5 of the E-Commerce Rules cast obligations upon every marketplace e-commerce entity, without any exceptions being carved out for platforms that self-designate their transactions as business-to-business.

The CCPA carried out an investigation of various e-commerce platforms to identify whether these platforms were selling hazardous chemicals, explosive substances including Ammonium Nitrate, Gun Powder, Picric Acid and Pentaerythritol Tetranitrate (PETN) in compliance with applicable regulatory framework.

During the preliminary inquiry, the CCPA found that an e-commerce platform operated by Dial4Trade has listed, hosted, advertised and made available for sale of Ammonium Nitrate which is an explosive under the Explosives Act, 1884. It was further observed that the aforementioned listing did not disclose:

• that the third-party seller had a valid PESO (Petroleum and Explosives Safety Organisation) license
• identity and licensed status of the buyer to purchase Ammonium Nitrate
• any mechanism for ensuring traceability of transactions mandated under the Ammonium Nitrate Rules, 2012
• appropriate disclosures, cautions or regulatory notices regarding dealing with Ammonium Nitrate.

CCPA issued a Show Cause Notice to Dial4Trade alleging violations of the Act and Rules.  In response, Dial4Trade explained that it operates as an intermediary B2B marketplace platform. Dial4Trade also stated that the listing related to Ammonium Nitrate was an old listing and was uploaded by an independent third-party seller in absence of Dial4Trade’s approval or knowledge. Further upon CCPA highlighting the issue, Dial4Trade blocked the seller’s account, and the product was added to the ‘Banned Product List’ to prevent future listings. The CCPA referred the matter to Director General for detailed investigation.

The DG’s investigation report found that Dial4Trade failed to cooperate with the investigation proceedings, and that the listing of Ammonium Nitrate on its platform was in absence of any mandatory safeguards. It was found that subsequent corrective measures, i.e., removal of the listing from the platform by Dial4Trade, cannot negate or cure the violations that had occurred, and its defense that it is an intermediary is not sufficient to avoid responsibility.

 Decision of the CCPA: Key Findings 

Listing of Ammonium Nitrate without requisite disclosures, cautions and safeguards amounts to violation under Act

CCPA held that a product listing hosted on a digital marketplace, being a visual representation constitutes an “advertisement” within the meaning of Section 2(1) of the Act.  Further, since the platform promoted sale of a product by presenting it as though freely purchasable and withheld material disclosures, cautions and safeguards prescribed under the Explosives Act, 1884, and Ammonium Nitrate Rules, 2012 that govern its sale, the conduct of Dial4Trade amounts to a violation of consumer rights [Section 2(9)], misleading advertisement [Section 2(28)] and unfair trade practice [Section 2(47)] under the Act.

B2B nature does not absolve the platform’s obligations under consumer protection laws

The primary defense taken by Dial4Trade was that it operates as a B2B platform, acts merely as an intermediary for the purpose of facilitating interaction between independent third-party sellers and prospective buyers and neither sells, manufactures nor stores any goods through its platforms. The CCPA rejected this argument holding that characterisation as a B2B marketplace does not eliminate regulatory non-compliance. It was observed that the product could be purchased without any minimum order quantity, bulk-procurement condition or institutional buyer verification, leading to any member of the general public being able to purchase the product. Furthermore, CCPA also observed that even if the platform is accepted to be a B2B marketplace, the same would not take it outside the purview of the Act or the E-commerce Rules as Rules 4(3) and 5 of the E-Commerce Rules do not carve out any exception for a B2B platform.

Intermediary defense under Section 79 of the IT Act rejected

Dial4Trade also sought refuge under Section 79 of the Information Technology Act, 2000, claiming safe harbour as an intermediary. The CCPA rejected this argument stating that the benefit of safe harbour is conditional upon compliance with the due diligence obligations prescribed under Section 79(2). However, Dial4Trade having failed to place on record any material recording its compliance with adequate due diligence, cannot seek refuge under the provision. Dial4Trade also failed to comply with Rule 3(1) (b) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 which obligates every intermediary to exercise due diligence to ensure that unlawful information, including the sale of goods prohibited under applicable law, is not hosted, displayed, uploaded, published or transmitted on its platform.

 Directions 

The CCPA imposed a penalty of Rs 10 lakhs on Dial4Trade and directed Dial4Trade to discontinue listing, hosting, advertising or facilitation of sale of Ammonium Nitrate or any other substance classified an explosive under the Explosives Act, 1884, or otherwise regulated under any applicable law, on its platform.

 Conclusion

While CCPA’s Order is appealable before the National Consumer Disputes Redressal Commission, CCPA’s approach serves as reminder that merely being a B2B platform would not aid in surpassing the obligations under consumer protection laws. Further, the obligation to comply with law is a continuing and independent one and that e-commerce entities should not operate on a reactive or post violation basis and should not wait for a CCPA investigation to identify non-compliant listing.

Further, CCPA has clarified that while initiation of proceedings under the Explosives Act, 1884 fall within the jurisdiction of Petroleum and Explosives Safety Organisation, the Explosives Act and Rules prescribe precautionary measures and safeguards such as licensing, restrictions, on sale/delivery verification and transaction traceability. Non-disclosure of such material information to a consumer at the time of sale and purchase of Ammonium Nitrate has been held to be misleading advertisement and unfair trade practice. Accordingly, an e-commerce entity needs to be alert that products listed, hosted and advertised on its platform contains necessary disclosures as may be applicable to its sale or use, as prescribed under various laws.

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