Consumer Class Actions Against Online Marketplaces

Introduction : Consumer commerce has undergone a transformation in India due to the growth of online marketplaces, and the e-commerce market is expected to reach a value of US$90 billion in 2025 and US$250 billion by 2030. Issues such as receiving faulty products, fake reviews, counterfeit items and delayed refunds can impact large numbers of consumers in one fell swoop as millions of people increasingly go online to shop. When consumer harm is systemic, not individual, questions arise: Can the current mechanisms of collective redress really hold online marketplaces accountable?

In this context, this paper explores the possibility of collective claims based on common marketplaces practices and the extent to which this is possible, and how claims are affected by platform liability and digital evidence preservation. It first looks at the options for collective consumer redress, and when individual complaints can be combined. It then examines the liability of online platforms, and the obvious difficulties in proving systemic harm. The article then examines the settlement pressures and litigative risks that platforms encounter, and concludes with suggested practical risk-management measures that marketplaces can adopt to reduce the risks of litigation and enhance consumer protection.

Legal Provisions

Consumer Protection Act, 2019 : The Consumer Protection Act, 2019 (“CPA”) is the main piece of legislation for systemic consumer harm. Defective goods, inadequate services are covered by Section 2(10) and Section 2(11) respectively and deceptive reviews and representations are covered in Section 2(47) and misleading advertisements in Section 2(28). Collective redress is provided by Section 35(1)(c) which allows one or more consumers with the same interest to bring a complaint for many consumers. Sections 82-87 add to the concept of product liability for injury from defect products.

Consumer Protection (E-Commerce) Rules, 2020 : The Consumer Protection (E-Commerce) Rules, 2020 covers e-marketplaces and impose duties and responsibilities on e-marketplaces in relation to consumer protection, disclosure, presentation of information to sellers, redressal of complaints and refunds. Rule 4 and Rule 5 are of special significance with regards to the duties and liabilities of entities conducting e-commerce or marketplace activities and Rule 6 applies to sellers engaging in e-commerce through the use of such platforms. These are the considerations that help examine the obligations for a marketplace with regard to flawed goods, deceptive reviews, and late or incorrect refunds.

Information Technology Act, 2000 : The concept of intermediary status and safe-harbour protection is governed by the Information Technology Act, 2000, in particular by Section 2(1)(w) and Section 79. There are exceptions to this protection in Section 79(3). These provisions are in addition to the E-Commerce Rules and lead to the question of when an online marketplace can become an active intermediary and be held liable for consumer damage resulting from transactions or content placed on its site.

Bharatiya Sakshya Adhiniyam, 2023 : The Bharatiya Sakshya Adhiniyam, 2023, specifically sections 61-63, has recognised and regulated the use of electronic and digital records as evidence. These rules apply in collective consumer disputes to evidence such as product listings, customer reviews, screenshots, order records, communications to customers about refunds, product-generated evidence, etc. Record keeping is especially relevant in cases where customers look to build a consistent history of faulty products, false reviews or long delays in refunds in a marketplace.

Legal Analysis

Challenges in Aggregating Consumer Claims : The CPA, 2019 under Section 35(1)(c) offers a way for one or more consumers with a common interest to raise a complaint on behalf of many consumers. The biggest hurdle, however, is determining if there is a common enough interest in disputes over products that are faulty or go astray or reviews that are false or a failure to provide a timely refund. Even if the underlying platform practice is similar, aggregation can be complicated by the fact that there are differences in products, sellers, transaction values, and personal losses. Collective redress thus requires a proof of a common course of conduct or systemic practice on a platform; a proof of similar individual grievances is not enough.

Platform Liability and Intermediary Protection : Where platforms are intermediary in transactions without production or selling of goods, the liability of online marketplaces continues to be disputed. The E-Commerce Rules create specific obligations for marketplace operators, and Section 79 of the Information Technology Act, 2000 gives protection to intermediaries based on specific conditions laid down in the statute. The key question is when the platform's role in the listing, review, ranking, payment, refund, or grievance process becomes too significant to shield it from liability under the law. This results in a potential overlap between consumer protection requirements and intermediary protection, in the context of repeated actions within the platform, leading to a possible overlap.

Preservation and Availability of Digital Evidence : Digital evidence, such as product listings, reviews, screenshots, transactions, refund communications, and complaint tracks, are crucial in collective consumer claims. But this kind of information is typically only available in the marketplace and can change, be removed or become unavailable over time. While the Bharatiya Sakshya Adhiniyam, 2023 acknowledges electronic and digital records, there is a practical challenge of preserving relevant evidence and then producing the same. Lack of full platform records could make it harder for consumers to develop a trend of behavior and could lead to conflicts about the authenticity and fullness of digital evidence.

Settlement Pressure and Litigation Risks : Many small claims from consumers can add up to a large financial and reputational liability for an online marketplace. Where similar complaints show a systemic practice among a large consumer base, a platform can then be subject to significant settlement pressure. Collective litigation also raises compensation, regulatory, legal, disclosure of internal information and reputational liability risks. Procedural complexity and difficulties in demonstrating a commonality between claims are other issues that might arise in the context of collective proceedings, to the detriment of consumers. Marketplaces may therefore have a business interest in solving systemic problems at an early stage, whereas consumers may have an economic advantage in having collective proceedings, due to the fact that they are able to overcome the economic constraints of pursuing low value individual claims.

Risk of Regulatory and Litigation Contingencies : Systemic consumer grievances can go beyond the individual compensation claims, and can lead to actions by consumer authorities, in particular if the practice is a misleading advertisement, an unfair trade or widespread consumer rights violation. What can start as a single individual grievance of “fake reviews,” “defective products” or “no refund” can then become a larger regulatory and legal problem. It's especially crucial for online marketplaces to identify recurring complaints and keep proper records, as early as possible.

Relevant Case Laws

The Supreme Court in the case of National Seeds Corporation Ltd. v. M. Madhusudhan Reddy (2012) 2 SCC 506, acknowledged the consumer protection laws’ applicability in cases of defective agricultural seeds. The ruling can be helpful in establishing that collective remedies are available to remedy common defects that impact many different consumers, thereby reinforcing the underlying principle of collective remedies.

In its decision in Kandimalla Raghavaiah and Co. v. National Insurance Co. Ltd., (2009) 7 SCC 768, the Supreme Court highlighted the statutory character of consumer remedies and that the claims must be within the ambit of the CPA.

Flipkart Internet Pvt. Ltd. v. State of U.P. & Ors. (Allahabad HC, 2022): The Court noted that the definition of intermediaries under the IT Act is not binary, between passive or active, with regard to its application to the doctrine of “safe-harbour”, the conditions laid down in the statute are relevant.

In Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal, (2020) 7 SCC 1, the Supreme Court suggested the guidelines for admissibility of electronic records and emphasized the need for the statutory procedure for the evidence of secondary electronic records.

Practical Implications for Stakeholders

The increasing possibility of collective consumer claims has significant implications for online marketplaces, sellers, consumers and legal advisors. 

First, online marketplaces need to be aware of regular issues related to faulty products, false reviews, and slow refunds as early as possible, because many of the same types of complaints can lead to collective proceedings. Platforms need to keep enough product listing, review and transaction records, keep records of refunds and consumer complaints, and have a strong record-keeping system in place if litigation is expected.

Secondly, sellers and marketplace participants should ensure that the product is described correctly and the reviews are also genuine and the sellers will be prompt in processing the refunds. Repeated infraction by individual sellers could cause the marketplace to be subject to regulatory and reputational pressure, so more robust seller verification, monitoring and contractual indemnity mechanisms may be required.

Thirdly, consumers might benefit from collective redress, when many consumers are substantially similarly harmed. But, customers should keep invoices, screenshots, communications, product listings and records of refunds, as a trend of behaviour may rely on them.

Fourth, legal counsel and compliance staff should determine if there is a systemic issue with the complaint that is occurring repeatedly or it is a one-off dispute. Marketplaces can minimize litigation costs, regulatory risk and harm to reputation through early legal evaluation, evidence gathering procedures, and proper settlement options.

Last, and not least, from a policy perspective, the growth of digital commerce makes it more important than ever to have clarity around collective consumer proceedings, marketplace liability and the preservation of evidence created on the platform. Better clarity within the standards would help limit and simplify uncertainty in procedures and guarantee that collective redress will be available in case of systemic consumer harm.

Conclusion

Systemic consumer harm is a critical issue to consumers and online markets as the volume of online trade continues to grow. Collective redress is a valuable tool for consumers to use to address persistent complaints, but it is also important that marketplaces are able to distinguish between a “true” systemic claim versus an isolated, fraudulent, or abusive claim. This is why a balance must be found in order to safeguard the interests of consumers while not placing an unfair burden on the platforms.

Firstly, marketplaces need to establish a clear threshold for complaints to be escalated. If there are 10 or more complaints that are substantially similar against the same seller, product or platform practice within 30 days, it should automatically be escalated to the legal and compliance team. The review should establish if the issue should be dealt with by consumer-wide refunds, seller action, suspension or settlement. Meanwhile the platform must capture the singular facts, and keep all records of fraudulent, abusive or contractually prohibited claims, in order to be able to make any necessary defence or counterclaim.

Second, marketplaces should have a required litigation-hold process. If a legal notice is received, or if regulatory notice is given or the threshold for systemic harms is met, the corresponding product listings, review histories, order data, refund data, seller communications and complaint tickets should be retained in their original format with access logs and timestamps. The hold should also retain evidence of consumer or seller misconduct which would allow the platform to support collective claims and stake any valid counterclaims or set-offs as legally may be available.

Collectively, these measures can help marketplaces become more aware of potential systemic risks before they escalate to wider disputes, retain evidence of the dispute for future reference, and be able to respond in proportion to consumer complaints. This preventative risk management can mitigate the cost of litigation and settlement liability, and maintain a strong collective consumer redress mechanism for true systemic harm.

Author: Aaransha Shankar in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

1. The Consumer Protection Act, 2019 (Act No. 35 of 2019), §§ 2(10), 2(11), 2(28), 2(47), 35(1)(c), 82–87 (India).

2. The Consumer Protection (E-Commerce) Rules, 2020, G.S.R. 462(E), dated 23 July 2020, rr. 4–6, issued under the Consumer Protection Act, 2019.

3. The Information Technology Act, 2000 (Act No. 21 of 2000), §§ 2(1)(w), 79 & 79(3); see also Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, G.S.R. 139(E), dated 25 February 2021.

4. The Bharatiya Sakshya Adhiniyam, 2023 (Act No. 47 of 2023), §§ 61–63; see also Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal, (2020) 7 SCC 1.

5. Flipkart Internet Pvt. Ltd. v. State of Uttar Pradesh & Ors., 2022 SCC OnLine All 1536; National Seeds Corporation Ltd. v. M. Madhusudhan Reddy, (2012) 2 SCC 506; Kandimalla Raghavaiah & Co. v. National Insurance Co. Ltd., (2009) 7 SCC 768.