Delhi HC Directs Flipkart to Combat GST Misuse by Rogue Sellers

 Zydus Healthcare Limited Vs Flipkart Internet Pvt Ltd & Ors. (Delhi High Court)

The case of Zydus Healthcare Limited Vs Flipkart Internet Pvt Ltd & Ors. was heard by the Delhi High Court, focusing on issues related to e-commerce platforms’ responsibility in preventing the sale of counterfeit products. This summary highlights the key aspects and directives from the court’s judgment.

Background and Compliance Steps

Affidavit of Compliance: Following an order dated March 5, 2024, Flipkart filed an affidavit outlining steps taken to ensure due diligence as an e-commerce marketplace. Key points included:

1. Publishing Platform Policies: Flipkart publishes rules, privacy policies, and user agreements that users must accept before using the platform.
2. Seller Warranties: Sellers must agree not to upload or sell products that infringe on intellectual property rights.
3. Intellectual Property Infringement Mechanism: As per the Information Technology (Intermediary Guidelines and Digital Media Ethics Code Rules) 2021, Flipkart has a mechanism for addressing intellectual property infringement complaints, including a takedown process.
4. Anti-Counterfeiting Measures: Measures include proactive steps during seller onboarding and reactive steps upon receiving complaints.

Seller Onboarding and Verification

Seller Onboarding Policy: Senior Counsel Jayant Mehta emphasized Flipkart’s seller onboarding requirements, which include:

• Basic identification and bank account details.
• Documents proving ownership, such as purchase documents or wholesale invoices, for certain product categories.
• Agreement to terms of use, which include compliance with all relevant conditions.

Comparison with Other E-Commerce Platforms: Plaintiff’s counsel presented onboarding practices from other platforms (Nykaa, Myntra, Amazon, Tyra, and Ajio), which require sellers to submit documents proving their authority to sell, such as trademark certificates, manufacturing licenses, selling licenses, authorization letters, etc. This comparative analysis demonstrated that e-commerce platforms are aware of counterfeit issues and take steps to mitigate them.

Judicial Observations and Precedents

Consumer Protection (E-Commerce) Rules, 2020: The court referenced a previous decision in Abhi Traders v. Fashnair Technologies Pvt. Ltd. The ruling emphasized that e-commerce platforms must:

• Ensure complete details of sellers are available to consumers.
• Provide geographic addresses, customer care numbers, ratings, and feedback to enable informed decisions.

Specific Issues Highlighted

1. Misuse of GST Numbers: Defendant no. 5 & 6 pointed out that rogue sellers had used their GST numbers to sell counterfeit products. This issue highlighted the need for better verification mechanisms.
2. FSN Number Allocation: Flipkart assigns a unique FSN (Fulfillment Service Network) number to products, which is shared among sellers of the same product. Complaints about counterfeit products using an FSN number lead to the de-listing of genuine products from other sellers as well.

Court Directives

The court directed Flipkart to address the following issues and report back within four weeks:

1. Bank Account Details:
   • Provide bank account details and cancelled cheque details of sellers as per the previous court order dated September 27, 2023.
2. GST Verification:
   • Investigate the misuse of GST numbers and suggest verification solutions, aligning with their policies outlined in the ‘Beginners Guide to Selling on Flipkart’.
3. FSN Number Differentiation:
   • Examine the feasibility of assigning different FSN numbers to different sellers for the same product.
4. Compliance with E-Commerce Rules:
   • Submit a tabulation demonstrating compliance with Rules 5 and 6 of the E-Commerce Rules, detailing current compliance measures and supporting documents.

Collaboration and Further Steps

• Affidavit Submission: The affidavit should be filed within four weeks, with a copy provided to the opposing counsel at least three days before the next hearing.
• Communication of De-Listed Products: The plaintiff’s counsel should notify Flipkart’s counsel about authorized sellers whose products were de-listed due to the FSN issue. Flipkart must respond within 48 hours to reactivate these listings.
• Next Hearing: The case is scheduled for a hearing on May 28, 2024.

The order underscores the court’s efforts to balance the rights and obligations of e-commerce platforms, sellers, and consumers, aiming to foster a secure and transparent online marketplace.