29 March 2019

To
Shri Ramesh Abhishek
Secretary (IPP)
Department for Promotion of Industry and Internal Trade
Ministry of Commerce and Industry
Government of India
Udyog Bhawan, New Delhi - 110011, India

Subject: Submission on the Draft National e-Commerce Policy 2019

Dear Sir,

I am a lawyer and policy professional currently working at India’s antitrust regulator, the Competition
Commission of India (CCI). I am interested in contributing to the discourse surrounding issues like e-
commerce, internet regulation, net neutrality, privacy, data protection and payment system, among other
issues.

I have written on various issues such as antitrust issues in the e-commerce sector in India, the payment
systems market in India, privacy and data protection in India, as well as the CCI’s approach in the field of
merger control. While at CCI, I have also helped prepare written submissions to regulatory
bodies/institutions such as the Telecom Regulatory Authority of India (TRAI), United Nations Conference on
Trade and Development (UNCTAD) and the Organisation for Economic Co-operation and Development
(OECD). Currently, I am also a member of the CCI’s Internal Coordination Committee for Think Tank on
Digital Markets.

I express my sincere gratitude to the Ministry of Commerce and Industry for the opportunity to submit
comments on the Draft National e-Commerce Policy. It is tenable and the need of the hour for the
Government of India to mould an e-commerce policy which addresses crucial issues such as intermediary
liability, privacy, data protection, anti-piracy measures and online marketplaces. Therefore, the initiative of
the Government of India to adopt a consultative process and seek public comments on the Draft National
e-Commerce Policy is very much appreciated.

Accordingly, please find annexed to this letter the detailed comments regarding the Draft National e-
Commerce Policy, which I would like the Ministry of Commerce and Industry to consider while constructing
or appraising a regulatory framework regarding e-Commerce in India. The comments submitted are my
own and do not necessarily reflect the position of the CCI.

Should you have questions or require any clarification on any of the comments, please do not hesitate to
contact me at bhandari.konark@gmail.com or at +91-8527639685. I once again thank the Ministry of
Commerce and Industry for undertaking this transparent and consultative exercise in policy-making.

Sincerely,

Konark Bhandari

CC:
• Shri Atul Chaturvedi, Additional Secretary, Department for Promotion of Industry and Internal Trade
• Shri Rajendra Ratnoo, Joint Secretary, Department for Promotion of Industry and Internal Trade

Enclosure: Comments on the Draft National e-Commerce Policy.

Comments of Konark Bhandari on the Draft National e-Commerce Policy

A. The Legal Framework of the Draft National e-Commerce Policy

1. The Foreword to the National e-Commerce Policy states that “elements of the envisaged
policy framework are already in place in India through ongoing policies on some aspects of
the digital economy” and how “these developments will provide/enable the Policy and legal
framework in respect of some crucial aspects of e-commerce". Therefore, the Foreword
states that “other remaining regulatory gaps shall be addressed through this Policy”
(emphasis added).

2. The underlined passage above indicates that the various aspects of the Draft National e-
Commerce Policy mentioned therein (such as intermediary liability / competition law issues
/ payments / data protection / Foreign Direct Investment (FDI) / anti-piracy measures) shall
be governed by their respective legislative schemes. This strongly suggests that the Draft
National e-Commerce Policy amounts to a form of residual policymaking which can only ‘fill
the gaps’ and not create an omnibus and cohesive policy by itself. Therefore, the
suggestions contained therein may be viewed as supplementary in nature and accordingly,
might not be perceived as supplanting the existing laws that govern the various aspects of
the Draft National e-Commerce Policy.

3. Furthermore, the Draft National e-Commerce Policy amounts to a ‘policy’ that is neither a
statute / legislation, nor a statutory rule1 created pursuant to a statute / legislation.
Therefore, it is largely in the nature of an ‘executive order’. As per the decisional practice of
the Hon’ble Supreme Court, such an ‘executive order’ would be bereft of any legitimacy vis-
à-vis the governing legislation. For instance, in B.N. Nagarajan vs. State of Mysore (1967)
ILLJ 698 SC2, it was held as follows:

“It is hardly necessary to mention that if there is a statutory rule or an Act

on the matter, the executive must abide by that Act or the Rules and it
cannot in exercise of its executive powers under Article 162 of the
Constitution, ignore or act contrary to that Rule or the Act.”

4. It is therefore settled law that executive orders cannot be issued to contravene the
statutory rules in this regard. This is due to the reason “that an administrative instruction is
not a statutory rule nor does it have any force of law” [Ashok Kumar vs. Stage of Rajasthan
(2000)(2) WLN 574]3.

5. Accordingly, the assertion that the present Draft National e-Commerce Policy can fill “other
remaining regulatory gaps” is accurate since the ‘executive orders’ can only fill the gaps on

1
‘Statutory rules’ may be seen as ‘executive orders’ issued by government departments, which, as soon as may be
after it is made, are laid before each House of Parliament, while it is in session and subsequently ratified by the
Parliament .
2
https://indiankanoon.org/doc/1476635/
3
https://indiankanoon.org/doc/654568/
2
Comments of Konark Bhandari on the Draft National e-Commerce Policy

areas or issues on which the legislation itself is silent. In Sant Ram Sharma vs. State of
Rajasthan4 (1968 IILLJ 830 SC), it was held as follows:

“It is true that the Government cannot amend or supersede statutory

Rules by administrative instruction, but if the Rules are silent on any
particular point, the Government can fill-up the gap and supplement the
rule and issue instructions not inconsistent with the Rules already
framed.”

6. The issuing of a Draft National e-Commerce Policy may also be viewed as being ultra vires
the ‘doctrine of excessive delegation’. As per this doctrine, essential legislative functions
cannot be delegated to any other authority.5 Doing the same is unconstitutional and
amounts to a usurpation of the power of the legislature itself. If the Ministry of Commerce
and Industry seeks to circulate a National e-Commerce Policy that adheres to the doctrine
of excessive legislation, then it may have to specify which provision of a legislative
enactment it is exercising its power under. The Hon’ble Supreme Court in ICICI Bank vs.
Official Liquidator of APS Star Industries Limited and Others [(2010) 10 SCC 1]6 observed
after a careful review of the Banking Regulation Act, 1949, that the Reserve Bank of India
(RBI) had the authority to issue a circular since there were provisions that enabled the RBI
to issue the circular.

B. The Draft National e-Commerce Policy and the Government of India (Allocation of Business)
Rules, 1961

7. The subject matter of the Draft National e-Commerce Policy concerns the following
subjects:

i) Intermediary Liability;
ii) Antitrust issues;
iii) Payments infrastructure;
iv) Data protection and privacy;
v) Foreign Direct Investment; and
vi) Anti-piracy measures.

8. All these subjects are dealt with by their nodal ministries which have been assigned the
task of looking after them pursuant to the Government of India (Allocation of Business)
Rules, 1961 (Allocation of Business Rules).7 These Allocation of Business Rules distribute
various subjects to various ministries. Below is a tabular representation of the Ministry (as
well as the concerned Department) which has been assigned the abovementioned subjects.

4
https://indiankanoon.org/doc/1320680/
5
See In Re Delhi Laws Act, AIR 1951 SC 332.
6
https://www.sci.gov.in/jonew/judis/36993.pdf
7
https://cabsec.gov.in/writereaddata/allocationbusinessrule/completeaobrules/english/1_Upload_1187.pdf
3
Comments of Konark Bhandari on the Draft National e-Commerce Policy

S.No. Subject Nodal Ministry Concerned Department

1 Intermediary Liability Ministry Of Electronics And -
Information Technology
(MEITY)
2 Antitrust issues Ministry of Corporate Affairs -
3 Payments infrastructure Ministry of Finance Department of Financial
Services
4 Data protection and privacy MEITY
5 Foreign Direct Investment Ministry of Commerce and Department for Promotion
Industry of Industry and Internal
Trade (DPIIT)
6 Anti-piracy measures Ministry of Commerce and DPIIT
Industry

9. Since the Draft National e-Commerce Policy pertains to all these subjects, no decision
should ordinarily be taken until all such Ministries/Departments have concurred on the
policy. Should there be a lack of consensus among Ministries on any overarching policy
issue presented in the Draft National e-Commerce Policy, then as per the Government of
India (Transaction of Business Rules), 1961 (Transaction of Business Rules)8 such cases shall
be mandatorily brought before the Union Cabinet. Therefore, all the concerned Ministries
should be on-board prior to the release of an eventual National e-Commerce Policy.

C. Preferential Treatment of Digital Products made in India

10. The ‘Scope and Objectives’ section of the Draft National e-Commerce Policy prescribes that
during negotiations on e-commerce under the aegis of the World Trade Organization
(WTO), “policy space to grant preferential treatment of digital products created within India
must also be retained”. While this is merely a suggestion as to how multilateral level
negotiations should be conducted, the same, if included in the final National e-Commerce
Policy, may run afoul of the principle of ‘competitive neutrality’ enshrined in the
Competition Act, 2002. ‘Competitive neutrality’ entails that the CCI should not confer
special advantages on a particular business operating in the market simply as a
consequence of its Indian ownership or the indigenous nature of the products. Excluding
‘Made in India’ digital products from the purview of ‘competitive neutrality’ would ensure
that products made overseas will be treated in a discriminatory manner. It also amounts to
carving-out an indirect exemption for enterprises selling ‘Made in India’ products –
something which can only be done by the Central Government pursuant to issuing a

8
Rule 7 of the Second Schedule of the Transaction of Business Rules.
https://cabsec.gov.in/writereaddata/transactionofbusinessrulescomplete/completeaobrules/english/1_Upload_30.pdf
4
Comments of Konark Bhandari on the Draft National e-Commerce Policy

notification under Section 54 of the Competition Act, 2002. The only exemption under the
Competition Act, 2002 when it comes to ‘competitive neutrality’ is regarding Government
enterprises that are carrying the sovereign functions of atomic energy, currency, defence
and space.9

D. Privacy and Data Protection

11. Data labelled as a “collective resource”: The Draft National e-Commerce Policy postulates
that data is best thought of as a “collective resource…that the government holds in trust”. It
is submitted that logic employed here is specious and not aligned with the provisions of the
Personal Data Protection Bill, 2018 (PDP Bill) and the attendant Report of the Committee of
Experts that deliberated on the PDP Bill under the Chairmanship of Justice B.N. Srikrishna.
On 31st July 2017, the Government of India had constituted a Committee of Experts under
the Chairmanship of Justice B.N. Srikrishna to ‘deliberate on a data protection framework
for India’.10 Pursuant to the deliberations carried out thereto, a White Paper on a data
protection framework for India was released on 27th November 2017, to the general public
for their comments.11 Subsequent to the feedback received, the Committee of Experts
published the PDP Bill along with a Report on its deliberations titled, “A Free and Fair
Digital Economy: Protecting Privacy, Empowering Indians” (Justice Srikrishna Committee
Report).12 While there was widespread consensus that the PDP Bill and Justice Srikrishna
Committee Report were much needed, most of the concerns revolved around how little
effort had been made to check the power of the government to seek personal data when
compared to the more onerous requirements imposed on companies.13

12. In fact, Section 2(1)(b) of the PDP Bill unequivocally states that it applies to the “processing
of personal data by the State, any Indian company, any Indian citizen or any person or body
of persons incorporated or created under Indian law”. Therefore to suggest that the State

9
The definition of ‘enterprise’ under Section 2(h) of the Competition Act, 2002 is as follows:
“enterprise” means a person or a department of the Government, who or which is, or has been, engaged in any
activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the
provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing
with shares, debentures or other securities of any other body corporate, either directly or through one or more of its
units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the
enterprise is located or at a different place or at different places, but does not include any activity of the Government
relatable to the sovereign functions of the Government including all activities carried on by the departments of the
Central Government dealing with atomic energy, currency, defence and space. (emphasis added)

10
Vide Office Memorandum No. 3(6)/2017-CLES issued by the Ministry of Electronics and Information Technology.
11
http://meity.gov.in/writereaddata/files/white_paper_on_data_protection_in_india_171127_final_v2.pdf
12
http://www.meity.gov.in/writereaddata/files/Data_Protection_Committee_Report-comp.pdf
13
https://theprint.in/opinion/draft-data-protection-bill-pays-little-attention-to-the-dangers-of-state-power/90511/

https://indianexpress.com/article/opinion/columns/the-little-done-the-great-un-done-data-protection-bill-aadhaar-
5283786/

https://blog.mozilla.org/netpolicy/2018/07/27/indian-draft-data-protection-bill/

https://www.livemint.com/Opinion/zY8NPWoWWZw8AfI5JQhjmL/Draft-privacy-bill-and-its-
loopholes.html?facet=amp&utm_source=googleamp&utm_medium=referral&utm_campaign=googleamp&__twitter_
impression=true
5
Comments of Konark Bhandari on the Draft National e-Commerce Policy

holds the data in trust for the individual is inaccurate and not consistent with the provisions
of the PDP Bill which also treats the collection of data by the State as falling within the
purview of the PDP Bill.

13. Inconsistency between the PDP Bill and the Draft National e-Commerce Policy on cross-
border data flows: Page 7 of the Draft National e-Commerce Policy states that cross-border
data flow is restricted, save for the exemption provided where “data [is] not collected in
India”. This statement may not be consonant with Section 2(1)(b) of the PDP Bill which
provides that Indian companies also have to comply with the PDP Bill. As per the Justice
Srikrishna Committee Report, one of the putative bases for exercising jurisdiction under the
PDP Bill is that “personal data processed by Indian companies must be protected,
irrespective of where it is actually processed. This is based on the principle of nationality as
the company is located/incorporated within one’s jurisdiction.”

14. However what happens in a case where an Indian entity is processing data of foreign
enterprises or foreign nationals? Should it still be required to comply with the provisions of
the PDP Bill (since it is likely already complying with the data protection laws of the host
country to which such foreign enterprises and foreign nationals belong)? If yes, then this
may impose a dual burden on the Indian entity to comply with the data protection laws of
both the host country and India simultaneously, thereby imposing a compliance cost. The
Justice Srikrishna Committee Report, perhaps recognizing this, has prescribed that
“however, the data protection law may empower the Central Government to exempt such
processors which only process the personal data of foreign national not present in India”.

15. However, the PDP Bill itself does not provide this. Therefore, this would make Indian
companies less competitive compared to their foreign counterparts that may have to
comply with only a singular data protection framework. Accordingly, the PDP Bill (which
may prevail in case of an inconsistency between the Draft National e-Commerce Policy and
the PDP Bill), should be amended in order to align it with the Draft National e-Commerce
Policy which provides that data not collected in India is exempt from the restriction
otherwise imposed on cross-border data flows.

16. Data localization: Page 16 of the Draft National e-Commerce Policy states that “location of
the computing facilities like data centres and server farms within the country will not only
give a fillip to computing in India but will also lead to local job creation”. Essentially, this
provision seeks to introduce the concept of ‘data localization’. Even the Justice Srikrishna
Committee Report even recognizes that prescribing the same “inverts what is perceived to
be the status quo, where freedom to transfer is the rule and restrictions on such freedom
are the exception”. However, the same has been included in the PDP Bill as well since as
per the Justice Srikrishna Committee Report, “the freedom to share personal data in the
digital economy operates selectively in the interest of certain countries that have been early
movers.”

17. It should be noted that the PDP Bill requires only “one serving copy” of the data to be
stored on a server or data centre located in India. But, the Justice Srikrishna Committee
Report has left open the possibility that ‘data localization’ is to be equated with

6
Comments of Konark Bhandari on the Draft National e-Commerce Policy

simultaneous prevention of transferring copies of personal data abroad. The same is

echoed in the Draft National e-Commerce Policy. The reasons given by the Justice
Srikrishna Committee Report for the data localization provision are as follows:

(a) Better enforcement by law enforcement bodies to tackle cyber-crime since data
stored locally will make it easier for law enforcement agencies to access such data
which will lie within their jurisdiction.

(b) Will avoid the vulnerabilities of relying on the undersea fibre optic cable network
that are significantly susceptible to attack.

(c) Higher investment in digital infrastructure will happen.

(d) Prevent foreign surveillance: The Justice Srikrishna Committee Report views
information intermediaries such as Google, Amazon and Facebook being
headquartered in the US and a how a large portion of data is stored on servers in
the US. Data localization will supposedly ‘cut off foreign surveillance of large
amounts of data’.

18. It is however, submitted that the same could have negative implications for competition in
India:

a) While it may appear that the investment in the digital infrastructure may be
boosted, there is no study that backs up this claim. Indeed, the Justice Srikrishna
Committee Report itself states that arguments highlighting the costs of data
localization are without merit since there no conclusive cost-benefit study that has
been carried out with respect to the data localization requirement. Accordingly,
setting up data centres in India for all businesses represents an additional cost that
may not be justifiable for some.

b) The Justice Srikrishna Committee Report itself recognizes that the data localization
mandate may favour foreign enterprises that may invest in the necessary servers
when compared to domestic companies that provide goods or services ‘with the
help of foreign infrastructure such as cloud computing’.

c) Establishing a data centre in India for even ad hoc collection of data may render the
company establishing such data centre as a tax payee since the data centre may be
seen as a ‘permanent establishment’ for the purpose of tax collection. The same
could lead to large technology companies to skirt the same by refusing to invest
altogether.

d) There is an argument put forth by certain Indian companies like PhonePe in favour
of data localization (although with respect to a similar mandate prescribed by the
RBI) which states that it is not that expensive to invest in data centres and that
having a data centre will address RBI’s desire to actively monitor digital payments.

7
Comments of Konark Bhandari on the Draft National e-Commerce Policy
14
However, the same misses the point. For instance, Aadhaar data is stored in India,
yet it has been the target of various hacks, thereby proving that storage of data
locally in India does not necessarily enable the regulatory authorities to monitor it
any more effectively.

19. Principle of ‘consent’ disregarded in violation of the provisions of the PDP Bill: At page 6 of
the Draft National e-Commerce Policy, it is stated as follows:

“Conditions are required to be adhered to by business entities which have

access to sensitive data of Indian users stored abroad. Sharing of such
data with third party entities, even with customer consent, is barred
under the Policy”. (emphasis added)

20. The PDP Bill however, differs from the above pronouncement of the Draft National e-
Commerce Policy as it allows companies collecting data (data fiduciaries) from sharing such
data with other data fiduciaries. Section 8(1)(g) of the PDP Bill provides as follows:

“The data fiduciary shall provide the data principal with the following
information, no later than at the time of collection of the personal data
or, if the data is not collected from the data principal, as soon as is
reasonably practicable - (g) the individuals or entities including other
data fiduciaries or data processors, with whom such personal data may
be shared, if applicable.”

21. Also, Section 9(1) of the PDP Bill provides that the data fiduciary shall take ‘reasonable
steps’ to ensure that the personal data processed is complete and accurate, not misleading
and updated. This may be read with Section 9(2)(b) of the PDP Bill, which states that on
considering whether ‘reasonable steps’ are taken under Section 9(1), the data fiduciary
shall also have regard to whether such data is likely to be disclosed to other individuals or
entities. Therefore, the PDP Bill clearly permits the sharing of data with third parties,
provided certain reasonable steps are taken, whereas the Draft National e-Commerce
Policy prohibits the same. As mentioned earlier, in case of an inconsistency between the
PDP Bill and the Draft National e-Commerce Policy, the former is likely to prevail.

22. Here, it is recommended that Draft National e-Commerce Policy be amended instead to
align it with the PDP Bill since restricting the sharing of data with third parties would have a
ruinous impact on the Internet of Things (IoT) industry which is predicated upon data-
sharing. Rather than prevent the sharing of data altogether, regulations such as those in
the PDP Bill can address concerns about data quality being shared. It is possible to envisage
a scenario where an e-commerce company that collects information about an online
shopper by looking at his/her purchases and even their financial profile (through the use of
a mobile wallet on their e-commerce website) may route this data to, say, a banking
company’s app - which may use that data to construct a credit profile and accordingly,

14
https://blog.phonepe.com/data-localization-why-this-kolaveri-di-6d5680e3f012
8
Comments of Konark Bhandari on the Draft National e-Commerce Policy

sanction or reject a loan to the online shopper concerned. In such a case, the e-commerce
company has a lot of responsibility to get things right, take reasonable steps and not pass
on inaccurate information that could prejudice the consumer’s access to credit. Banning
the sharing of data even after the customer consent has been given, would not be feasible
and is a patronizing approach which assumes that the data principal is incapable of giving
informed consent. Rather, it is better to address any concerns through the PDP Bill as it
requires data fiduciaries to take ‘reasonable steps’ to ensure that the data processed is
complete and accurate.

E. Online Marketplaces

23. Part III of the Draft National e-Commerce Policy states (at page 20) that “online
marketplaces should not adopt business models or strategies which are discriminatory, that
is, which favour one of few sellers/traders operating on their platforms over others.” After
also reviewing Press Note 2 of 2018, released by the DPIIT (erstwhile DIPP) on 26th
December, 201815, it appears that the putative rationale behind the anti-discrimination
requirement in the Draft National e-Commerce Policy is to ensure that e-commerce
marketplaces do not favour sellers/vendors which have equity participation by the e-
commerce marketplace itself.16 It is also to ensure that e-commerce marketplaces do not
favour any seller/vendor that makes more than 25% of its sales to the e-commerce
marketplace, as doing the same would render the e-commerce portal as an inventory-led e-
commerce website rather than a marketplace model-led e-commerce website.17

24. It is observed that this stipulation relating to the maximum ceiling of 25% for any one
vendor distorts competition and punishes the most efficient seller/vendor. How is this 25%
ceiling to be interpreted? How is this percentage to be calculated? Will it be 25% of the
total goods sold on the platform? Or will it be restricted only to 25% of the category of the
goods’ segment it competes in? Lastly, is it 25% of the sales by volume or by value? If it is
by value, then this regulation will penalize vendors/sellers that price higher as compared to
their competitors. This is so because such a firm is likely to achieve the 25% threshold limit
(by value) by selling higher price items.

25. By limiting the amount of sales that can be achieved by the most successful vendor, the
Press Note 2 of 2018 rewards those vendors that, but for the Press Note, would not have
been able to compete. As a result, the competitive structure of the market is skewed in
favour of less-competitive firms. This reduced the overall attractiveness of the e-commerce
entity for more efficient vendors and limits the appeal of e-commerce websites. This is also
against the “as efficient-competitor test” in antitrust law – The “as efficient competitor
test” postulates that a dominant undertaking should not be permitted to drive out entities
from the market that are as efficient as the dominant undertaking, but lack the same
financial resources. Here, under Press Note 2 of 2018, the most efficient vendor/seller is
being penalized irrespective of the financial resources it has at its disposal. It is humbly

15
https://dipp.gov.in/sites/default/files/pn2_2018.pdf
16
Condition 5.2.15.2.4 (iv) of the Press Note 2 of 2018.
17
Condition 5.2.15.2.4 (v) of the Press Note 2 of 2018.
9
Comments of Konark Bhandari on the Draft National e-Commerce Policy

submitted that the Government should not be concerned with individual players getting
excluded from the market on grounds of inefficiency.

F. Intermediary Liability / Anti-piracy measures

26. Intermediary Liability: Part II, Section (D) of the Draft National e-Commerce Policy dealing
with anti-piracy measures (at page 22) provides that “the identification of trusted entity
and anti-piracy measures shall be done on a voluntary basis”. It is submitted that voluntary
identification of items sold on the platform amounts to pre-screening and would militate
against the concept of an ‘intermediary’. As per Section 79(2) of the Information
Technology Act, 2000, (IT Act, 2000) an intermediary shall not be liable for any third-party
information, data or communication link hosted by it provided that it fulfills the following
criteria:

i) The function of the intermediary is limited to providing access to a communication

system over which information made available by third parties is transmitted or
temporarily stored or hosted;

ii) The intermediary does not – (i) initiate the transmission, (ii) select the receiver of
the transmission, and (iii) select or modify the information contained in the
transmission.

iii) The intermediary observes due diligence while discharging his duties under this Act
and also observes such other guidelines as the Central Government may prescribe.

27. The above protection is not available however, if the intermediary aids/abets the
commission of unlawful acts or as per Section 79(3)(b)of the IT Act, 2000, upon receiving
actual knowledge, or on being notified by the appropriate Government or its agency that
any information, data or communication link residing in or connected to a computer
resource controlled by the intermediary is being used to commit the unlawful act, fails to
expeditiously remove or disable access to that material on that resource without vitiating
the evidence in any manner.

28. Furthermore, the above provision has to be read with the landmark pronouncement of the
Hon’ble Supreme Court in Shreya Singhal vs. Union of India18 which made it unequivocally
clear that “Section 79(3)(b) has to be read down to mean that the intermediary upon
receiving actual knowledge that a court order has been passed asking it to expeditiously
remove or disable access to certain material must then fail to expeditiously remove or
disable access to that material.”19

29. Therefore, to require the intermediary to pre-screen and take down any information, data,
communication which it perceives as promoting piracy, without a notification from either a
Court order or a Government agency, would clearly place such intermediary as a pro-active

18
https://meity.gov.in/writereaddata/files/Honorable-Supreme-Court-order-dated-24th-March%202015.pdf
19
At paragraph 117 of the Order.
10
Comments of Konark Bhandari on the Draft National e-Commerce Policy

entity which would then not be entitled to protection otherwise accorded to intermediaries
under Section 79(2) of the IT Act.

30. Furthermore, the Information Technology (Intermediaries guidelines) Rules, 2011 issued
vide Notification dated 11th April, 2011 already make provision for the protection of
intellectual property under Rule 3(2)(d). Rule 3(2)(d) provides that the intermediary
concerned shall have a ‘user agreement’ which shall inform any users not to host, upload,
modify, publish, transmit, update or share any information that infringes any patent,
trademark, copyright or other proprietary rights.

31. Anti-counterfeiting measures: The anti-counterfeiting measures adopted at page 21 of the

Draft National e-Commerce Policy prescribe two measures (at 3.12 and 3.13) that may be
seen as anti-competitive:

“3.12 In case TM owners so desire, e-commerce platforms shall not list/offer for sale, any of
the owners’ products without prior concurrence. However, in case TM owners choose to opt
for this, they would have to undertake to respond to platforms within a certain time limit.”

“3.13 In case of specified high value (luxury) goods, cosmetics or goods having impact on
public health, marketplaces will be required to TM owner’s authorization (that is,
authorized/distributor/reseller agreement) before listing the product.”

32. It is noted and observed that if the consent of the TM owner is withheld to any e-
commerce platform, that would in effect, amount to a blanket ban on Internet sales. Such a
blanket ban may be the result of undertakings provided by the TM owner to its brick-and-
mortar distributor. Such an exclusive distribution agreement with such distributors would
amount to a ‘vertical agreement’ (an agreement among enterprises at different
stages/levels of the production chain) which effectively prohibits Internet sales. Such a
blanket ban is usually seen as without any redeeming value and is viewed as anti-
competitive in other jurisdictions. Indeed, the European Court of Justice (ECJ) in the case of
Pierre Fabre has held that an absolute ban on Internet sales amounted to a limitation on
the commercial freedom of Pierre Fabre distributors by excluding a means of marketing its
products through the Internet.20 The question for the ECJ to consider was whether an
absolute ban on selling contract goods to end-users via the Internet, imposed on
authorized distributors in the context of a selective distribution network, in fact constitutes
a hardcore restriction of competition. The ECJ found in the affirmative.

G. Conclusion

33. There is no refuting the fact that the recent changes caused by the Internet in the sphere of
trade and commerce are revolutionary and ‘disruptive’, having profound impact on
business strategies and operations. But we have also to be mindful not to stifle innovation
and commit Type 1 errors (over-enforcement of laws) that may be irreversible. Type 2
errors (under-enforcement of laws), while also being a cause of concern, can be redressed

20
Case C-439/09, 13th October, 2011.
11
Comments of Konark Bhandari on the Draft National e-Commerce Policy

with relative ease. The alleged failure of the Internet to minimize inequality is perhaps
more due to the giant tech incumbents buying out competitors in nascent and adjacent
industries as opposed to the nature of Internet itself. The Government would do well to
consider vigorous merger control measures to combat the same.

34. Regarding the other comments in this submission, they seek to provide a brief review of
the Draft National e-Commerce Policy. Even though the Policy prescribes measures which
are well-intentioned in various areas such as data protection, intermediary liability, online
marketplaces and anti-piracy, they might instead serve to undermine the blistering growth
which the e-commerce sector has registered over the last few years. Be it (a) the
prohibition on sharing of data among data fiduciaries, (b) the requirement of a 25% ceiling
on vendors selling to marketplaces, or (c) pre-screening by intermediaries of content
uploaded online, the current Draft National e-Commerce Policy may jeopardize the interest
of the domestic industry. I request the Ministry of Commerce and Industry to review the
Draft National e-Commerce Policy keeping in mind the comments submitted above.

End of submission

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