(Image Source: https://flic.kr/p/KcswR)
In a judgement dated 15th October 2014, the Delhi High Court has decreed, in the case of World Wrestling Entertainment, Inc. v. M/S Reshma Collection, that if you buy an item in Delhi through online retail, Delhi courts have the jurisdiction to hear disputes in relation to your shopping. This post analyses the reasoning employed in the judgment, and concludes by discussing certain issues brought to the fore by the case, including Forum Shopping, Email contracts, and Online Dispute Resolution.
Facts of the case
The case in question was brought to the Delhi High Court on appeal from an order of a Single Judge Bench which had rejected the plaintiffs argument of jurisdiction. The plaintiff in this case is World Wrestling Entertainment, incorporated in Delaware, and all the defendants in the case reside in Mumbai. Neither the plaintiff nor the defendants ‘carried on business’ within the territorial jurisdiction of the Court, but the plaintiff argued that the Delhi Courts had jurisdiction to hear the matter under Section 134(2) of the Trademarks Act, 1999 and Section 62(2) of the Copyright Act, 1957.
The plaintiffs argument was that since its programmes are broadcast in Delhi, its merchandise goods and books are available in Delhi, and since its goods and services are sold to consumers in the city through its websites, that qualifies it as ‘carrying on business’ within the territorial jurisdiction of the Court.
The plaintiffs argued that in order to meet the ‘carrying on business’ requirement, they do not need to have an office at a particular place, but only need to have ‘a business activity’ at such a place. The Delhi High Court agreed with this argument, going so far as to state that they need not have argued it in the first place, as the Supreme Court itself had stated the same in the case of Dhoda House, discussed later.
The Reasons for Rejection by Single Judge Bench
The learned Judge rejected the arguments of the plaintiffs, stating that the essential criteria of ‘essential part of the plaintiff’s business’ and ‘element of control’ had not been met. The judge also stated that established tests for determination of where a contract is made or where a vendor carries on business will not change simply because of the introduction of the ecommerce model.
At the same time, the Court also noted that if such changes were thought necessary, they were introduced by the legislature through amendments, but since such changes had consciously not been introduced by the parliament through the Information Technology Act, 2000 and its 2008 amendment, the ‘new media’ would be subject to the same rules as ‘old media’.
The learned judge further made a note that allowing such a plaint would open the door to forum-shopping, allowing the plaintiff to institute its case wherever its website was accessible.
The High Court’s Resoning
The High Court, in allowing the petition, placed reliance on the M/S. Dhodha House vs S.K. Maingi and the Bhagwan Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. cases. In this case, it was held that in order to meet the ‘carrying out business’ requirement, three conditions have to be fulfilled. The first two conditions focus on ‘agents’, but it is the third condition that is relevant here: “(iii) to constitute “carrying on business” at a certain place, the essential part of the business must be performed at that place. “
Thus, the Court focused on the question that “when a transaction takes place over the Internet, where is the contract concluded?”
Under existing Indian jurisprudence, a contract is concluded when the offeror receives intimation that the offeree has accepted the offer. But there is a crucial difference between contracts negotiated with the parties being in a ‘sense of presence’ of each other, and contracts negotiated over slow mediums such as telegrams and post. Thus, there is an exception to the general rule with regard to the latter, that in such cases the contract would be complete when the acceptance of the offeree is put into a course of transmission by him.
The question then becomes which of these two categories does the medium of the internet fall into. Crucially, in the case of Bhagwan Goverdhandas Kedia, the Supreme Court had stated that the medium of the Telephone would fall into the former category due to the instantaneous nature of telephonic conversations, and the exception would not apply.
The High Court noted the same, stating that the lower Court had misread the judgement, and applied it to the context of the Internet. In the case before the Supreme Court, the offerer was in Ahmadabad, and the offeree accepted the offer over the phone. The Supreme Court held that the acceptance was conveyed to the offerror in Ahmadabad and thus a cause of action can be raised in Ahmadabad.
The High Court’s Decision
The Court applied this line of reasoning to the Internet. It held that in this context, the website of a plaintiff is an invitation to offer, not an offer itself. It becomes an offer when the invitation is accepted by the consumer residing in Delhi, and he or she places an order. Thus, the transaction is confirmed and payment is made to the website owner (offeree), the offeree accepts the offer of the customer at Delhi. Since the transaction is instantaneous, the acceptance of the offer by the website is instantaneously communicated to its customer through the Internet at Delhi. Therefore, the Court held, in such a case, part of the cause of action would arise in Delhi.
Using this line of reasoning, the Court held that since the offers are made by customers at Delhi, subject to confirmation/ acceptance of the appellant/ plaintiff through its website, the money would emanate or be paid from Delhi, the appellant/ plaintiff is, to a certain extent, carrying on business at Delhi. The following extract from the case captures the judge’s line of reasoning quite nicely:
“Because of the advancements in technology and the rapid growth of new models of conducting business over the Internet, it is possible for an entity to have a virtual presence in a place which is located at a distance from the place where it has a physical presence. The availability of transactions through the website at a particular place is virtually the same thing as a seller having shops in that place in the physical world.”
Points to Note
- Further Developments in the Case: At this stage in the case, the standard that the plaintiff has to meet to allow the Court to move forward is low. Thus, the defendants can still challenge the jurisdiction of the Court under Order 7, Rule 11 of the CPC (as Apar Gupta discusses on his blog here). The final judgment of the Court regarding jurisdiction and the relevance the reasoning given this judgment will take on remains to be seen.
- Forum Shopping: The biggest concern raised by this order is that of ‘forum shopping’. Whichever way you interpret the judgement, it empowers either the consumer or the website-owner to file a case at their place of choosing (as Apar Gupta discusses on his blog here). This is a power that has been consistently abused over time. While such abuse can more easily be expected from established companies rather than consumers, the fact that the judgment talks about all websites means that even start-ups would be included here. This thus opens the doors to nationwide litigation against start-ups in India, something that can possibly seriously affect innovation in the Internet-based start-ups sector.
- Email Contracts: The second question that arises here is that of the affect this judgment will have on contracts concluded through emails. The learned judge has made no differentiation on the various modes of communications on the Internet itself, thereby including within the ambit of the judgement slow modes of communications such as emails and messages as well. How this line of reasoning applies to such modes of communications can only be seen through the passage of time. Shantanu has discussed the point of email read receipts before here.
- Online Dispute Resolution: The final point that this case itself raises is that of Online Dispute Resolution (ODR) mechanisms. These mechanisms have been employed to great effect by eBay in the past, though the eBay and PayPal partnership that made that possible has now broken. But ODR mechanisms are extremely helpful for matters such as these, especially when the issues are regarding small claims. With the burgeoning ecommerce in India, it is perhaps high time that ODR mechanisms were seriously looked into by the State. (I will be following up on this with a detailed post about ODR mechanisms.
1. Delhi HC defines jurisdictional rules for Ecommerce, Apar Gupta, India Law and Technology Blog.