Blog – Page 7 – Nautiliyaa Legal

24 Sep

The State Claiming under the Gujarat Value Added Tax (GVAT) Act, 2003 is a Secured Creditor under Section 53(1)(b)(ii) of IBC

The Supreme Court on the appeal of a Sales Tax Officer of the Gujarat government against the 2019 judgment passed by the National Company Law Appellate Tribunal (NCLAT), in the matter of State Tax Officer (1) Vs. Rainbow Papers Ltd. [Civil Appeal NO. 1661 of 2020 decided on 06.09.2022] while answering the issue whether the provisions of the IBC, in particular, Section 53, overrides Section 48 of the Gujarat Value Added Tax, 2003 (GVAT Act), has held that the provisions are neither inconsistent or in conflict with one another and therefore there is no question of overriding. The State would be considered a secured creditor under the GVAT Act under Section 53(1)(b)(ii) and a resolution plan which ignores the statutory demands payable to state governments, or legal authorities, is liable to be rejected. The Court observed that the definition of secured creditor in the Insolvency and Bankruptcy Code (IBC) does not exclude any government or legal authority.

Section 48 of the GVAT Act provides that : “Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case maybe, such person.” Section 53 of Insolvency and Bankruptcy Code, 2016 provides for the waterfall mechanism for the distribution of liquidated assets amongst the creditors of the corporate debtor.

While interpreting the Government dues under section 48 of the GVAT as one of secured creditor within the waterfall mechanism, the Court clarified that the financial creditors of a company cannot secure their own dues in approving the resolution package of a bankrupt company at the expense of other obligations including statutory dues owed to a government authority. The court also clarified that a company would have to be liquidated and its assets sold and distributed in accordance with Section 53 of the IBC if it was unable to pay its debts, which should include any statutory obligations to the government or other authorities, and there is no plan that contemplates dissipating those debts in a phased, uniform proportional reduction.

The appeal was against the National Company Law Tribunal (NCLT) order had passed holding that the government cannot claim first charge over the property of a corporate debtor, as Section 48 of the Gujarat Value Added Tax (GVAT) Act, 2003, which provides for first charge on the property of a dealer in respect of any amount payable by the dealer on account of tax, interest, penalty, among others, under the said GVAT Act, does prevail over Section 53 of the IBC. The NCLAT affirmed the order of the NCLT.

Setting aside the NCLAT order, the Apex Court held, “In our considered view, the NCLAT clearly erred in its observation that Section 53 of the IBC over-rides Section 48 of the GVAT Act”.

17 Sep

Whether Intermediaries Like Telegram Can be Directed to Disclose the Identity of the Creators of the Channels Infringing Copyright or Trade Mark of Other Person?

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The dispute surrounding listing of Rooh Afza, manufactured by a company based in Pakistan, on Amazon has been broiling and the matter is being heard by the Hon’ble Delhi High Court which in its interim order has recently directed Amazon to remove the Pakistan based Rooh Afza from its platform in India. Apart from the violation of Hamdard’s IP rights in India over Rooh Afza, the listing of Pakistan-manufactured products was found to be lacking the contact details of the manufacturer, thus making Amazon, an intermediary under Information Technology Act, 2002 (“IT Act”), liable for the lack of the relevant information which could potentially mislead consumers about the product they might be purchasing, or they might wrongly assume that the Pakistan Hamdard is associated with the Indian Hamdard Laboratories. It is now trite that the platforms which are intermediaries under IT Act shall be liable to address the complaint of copyright or trademark violation by de-listing or removing the product or channel.

Similarly, Telegram, the messaging app, also falls within the category of an intermediary under IT Act. The platform shall be liable to remove channels that violate the IP rights of the owners. However, the question that recently came up for consideration before the Delhi High Court was different. The issue emerged when the Plaintiffs – Ms. Neetu Singh, who owns a coaching academy and is an author of books and contents for the preparation of competitive examinations including the examinations of Staff Selection Commission (SSC), Bank Probationary Officer (PO), CDS, NDA, etc. and her company K.D. Campus Pvt. Ltd. found that her copyrighted works in form of videos, lecture, books and study material etc. were illegally being disseminated through various Telegram channels. According to the Plaintiffs, since any abuse on Telegram channels can be reported as per the Privacy Policy of Telegram, the Plaintiffs after acquiring knowledge of the illegal dissemination of the Plaintiffs’ works, called Telegram to take down the impugned channels and also sent e-mails to the e-mail addresses where abuse can be reported. As a response some channels were taken down and others continued to exist while new channels came up like hydra heads. Taking down the channels itself was turning out to be completely ineffective in such a scenario. The infringers operated through private channels and the phone numbers or other details were not visible. Thus, it was not possible to locate the owners of such channels. Since Telegram also makes secret chats possible, the phone numbers could not be traced and the identity of the person(s) was also unknown. Such information is exclusively available only with Telegram.

Telegram had a limited defense in the said suit. As it was already in the process of taking down such infringing channels, it only opposed the grant of relief to the plaintiffs in the interim application to the extent that it cannot share the data relating to the creators or users of the channels. Telegram contended that the said data is stored in Telegram’s data servers in Singapore and the law of Singapore prohibits such disclosure. Telegram uses a distributed physical infrastructure and is bound by the provisions of the Personal Data Protection Act, 2012, Singapore. Telegram itself is a Dubai-based company and is bound by the laws of Dubai. Moreover, In India it being an intermediary under the IT Act, it was not liable to disclose the identity as none of the pre-conditions which permit the intermediary to disclose the identity of the users, as per the IT Guidelines were satisfied. Telegram relied on Rule 3(1)(d) of the Information Technology Intermediary Guidelines and Digital Media Ethics, 2021 (IT Guidelines) and contended that unless and until, any one of the situations as contemplated in the first proviso to Rule 4(1)(2) of the said guidelines was satisfied, even a Court order cannot be passed directing disclosure of the basic subscriber information. As per Section 72A of the IT Act, any disclosure of information in breach of a lawful contract i.e., the contract between the Telegram platform and the subscriber/ creator of the impugned channels, would also be contrary to law and would constitute an offence.

The Court started its analysis by recording its concern that the number of channels that can be created despite taking down of existing ones are innumerable. The creators of the channels were able to mask their identity on account of how the app operates and its policies. Therefore, repeated blocking of the channels was proving to be insufficient. This is the fulcrum of the reasoning given by the court in the judgment.

The Court looked into the actions that Telegram is required to take as per its own policy. As per the Q&A provided on Telegram, it does not process any requests related Telegram chats and group chats as they are private amongst their participants. However, in relation to the sticker sets, channels, and bots on Telegram which are publicly available it has been provided that – “If you see a bot, channel, or sticker set that is infringing on your copyright, kindly submit a complaint to [email protected].” The Plaintiffs did follow the procedure and registered its complaint.

The Court then went on to analyse the Copyright Act, 1957 to determine if the Indian Courts have jurisdiction to direct the Respondent-Telegram to disclose the identity of the creators of the channels in the light of the fact that the Telegram stores the data on cloud and that its servers are located in Singapore – this being the core defense sought by the Respondent. The Court ruled that since the Plaintiff was the owner of copyright in the works, this alone fulfills the criteria of jurisdiction as per Section 62(2) of the Copyright Act which states that an owner can file a suit for infringement in a place where the said owner resides or carries on his business. This makes Delhi High Court the court of competent jurisdiction. The Court added that as the materials being circulated relate to Indian competitive examinations, it is likely that the infringers, though unidentified at this stage, may also be based out of India.

The Court further reasoned that the provisions of the Copyright Act were widely worded to be able to cover and extend protection in the situation where the illegal activities were done with the aid of recent technology as in the present case. The definition of “infringing copy” was broad enough to cover electronic copies which were being circulated on Telegram channels. Not only Section 14(1)(a) specifically included reproduction by “electronic means”, the devices of the channel operators including smart phones, computers, servers, and such other devices, which were permitting and enabling such dissemination and communication, would constitute “plates” within Section 2(t) of the Act (defined as “any device used for reproducing copies of the work”) and they would constitute “duplicating equipment”. The Court therefore concluded that “… both civil and criminal Courts in India would always be vested with jurisdiction to adequately deal with dissemination of infringing material through such devices and merely because the messaging service has its server located abroad, the same cannot result in the infringer escaping from the consequences of infringement. All contentions to the contrary would be untenable.” The Court then noted that the only party that is in possession of the information relating to the devices used, IP addresses used, channels created, number of users, identity of the devices through mobile numbers etc., was Defendant No.1 – Telegram.

The Court laid additional reasons for concluding jurisdiction in favour of the Indian Courts and why the Singaporean law cannot be an excuse for Telegram to justify the non-furnishing of the information relating to the channels –

infringement unabatedly was continuing within India;
Since the content was for preparation of exams in India, the accounts of infringing channels were likely to have been created from India and the data of such accounts would have been uploaded from India;
For the same reason the devices used in circulating the infringing material must be located in India and so be the owners of such channels/devices;
the conventional concepts of territoriality no longer would exist, as the data is accessible across different jurisdictions, including India – the physical server being outside India is inconsequential in determining jurisdiction of Indian Courts.
On analysis of law of Singapore, the Court observed that the law specifically recognized violations of law (which in this case is violation of copyright and other intellectual property rights) as an exception to privilege of privacy, when details of the originators of the infringing data can be revealed
Furthermore, the copyrighted works are entitled to automatic protection in all WTO countries under the Berne Convention for the Protection of Literary and Artistic Works, 1886 read with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 1995 to which Singapore, a WTO country, is a signatory. This shall provide reciprocal protection to authors who can enjoy rights across the world even without seeking registrations – India recognizes copyright in foreign works and reciprocally, foreign countries recognize the copyright granted under Indian Law.

While enumerating the remedies that an IP owner or a copyright owner is vested with, the Court stated that owner has the right to seek injunction and the right to claim damages. The latter remedy acts as a deterrent against further infringement. However, the remedy shall become completely a ‘toothless relief’ if infringers are permitted to hide their identity through technological means provided by Telegram, and further if their identity is not directed to be disclosed. Injunction becomes equally ineffective since it does not restrain the infringers from creating new infringing channels. ‘Take down’ or blocking orders were merely token relief. Plaintiffs would then be required to seek an injunction for every new channel which means undue and continuous harassment of plaintiffs which cannot be “integral to public policy behind the legislation.” Thus, the identity of the operators of the channels was required to be disclosed.

In respect of Telegram’s submission of it being an intermediary, and being obliged to not disclose the details of the originator of the information, in the opinion of this Court, these guidelines (esp. Rules 3 and 4 of the IT Guidelines) did not in any manner obviate the duty of Telegram as a platform to take all effective steps required to protect IP rights, including rights of copyright owners. The Court referred to the judgment in My Space Inc. v. Super Cassettes Industries Ltd., (2017) 236 DLT 478 (DB) wherein it was held that section 79 grants only a “measured privilege to an intermediary” and provides for an affirmative defence and not a blanket immunity from liability and it certainly does not pose a barrier in the applicability of the Copyright Act. The Court further underlined that the intermediary is to be granted safe harbour, so long as it complies with the requirements of law. Practically the Court cannot supervise such infringements all the time and, thus, the origin and source of the infringing material had to be traced.

The Court further asserted that the Court has power to exercise its authority under Order XI of Civil Procedure Code, 1908, to direct disclosure of documents and information relating to ‘any matter in question in a suit’.

While dealing with the contention of the Defendant that disclosing of information related to the creators of the infringing channels shall amount to violation of their privacy rights, the Court emphasized that under the IT Act and Rules, Telegram also has a duty to expeditiously remove or disable access to the unlawful material under Section 79(3)(b) of the IT Act. In addition, under Rule 3 of the IT Guidelines, the intermediary has a duty to tell its users not to host, display, upload, modify, publish, transmit, update or share any information, which infringes on copyright or other proprietary rights or violates any law. This is buttressed by Telegram’s Privacy Policy which does not permit spamming, phishing and other abuses. Therefore, the Court ruled that the fundamental rights of privacy or protection of freedom of speech and expression would not extend to protect personal data related to the infringers. It was only the “processing” of data, which can be stopped for protection of fundamental rights. Disclosure of such data pursuant to a Court order would not fall in the definition of “processing”. Moreover, it is trite that the fundamental right cannot be used by any person or entity in order to escape the consequences of illegal actions.

While Telegram relied upon the judgment of the Supreme Court in Justice K.S. Puttaswamy v. Union of India & Ors., (2017) 10 SCC 1, the Court was of the opinion that if there is a law in existence to justify the disclosure of information and there is a need for the disclosure considering the nature of encroachment of the right then privacy cannot be a ground to justify non-disclosure, so long as the same was not disproportionate. Thus, whenever the data is sought for a legitimate purpose, and for curbing the violation of law, including infringement of copyright, such action shall be in line with the Judgment given in Puttaswamy.

The Copyright Act is the law that clearly requires “infringing copies” to be taken into custody. Finally, a perusal of the provisions of Section 81 of the IT Act shows that the provisions of the IT Act are supplemental to the provisions of the Copyright Act:

“81. Act to have overriding effect.–The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Provided that nothing contained in this Act shall restrict any person from exercising any right conferred under the Copyright Act, 1957 (14 of 1957) or the Patents Act, 1970 (39 of 1970).” Finally, the Court after reviewing the law in the matter observed as a matter of public policy also if the protection of copyright is not evolved as per the changing times and if the issue is not nipped in a bud especially in the light of the fact that during the COVID-19 pandemic, teachers and the education system as a whole, have taken great initiative to ensure access of educational materials to students through online modes – it would have a chilling effect on the progressive initiatives taken by educators in sharing their materials and ensuring accessibility. The Court, therefore, directed Telegram to disclose the details of the channels/devices used in disseminating the infringing content, mobile numbers, IP addresses, email addresses, etc., used to upload the infringing material and communicate the same, as per the list of channels filed along with the present application. Telegram was also directed to submit list of infringing channels, if any and the data relating to the infringing channels and the details as to the devices/servers/networks on which they are created, their creators, operators including any phone numbers, IP addresses, email addresses, used for this purpose.

10 Sep

Distinction Between Maternity Leave And Childcare Leave Being Separate Entitlements

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Maternity Leave

In 2017 Parliament in New Delhi increased the extent of paid maternity leave from 12 weeks to 26 weeks. This needs to be appreciated not only from the angle of the physical and mental health of the mother and child alone but it should be seen through economic lens and from the broader perspective of growth of the nation. It is trite that human health is fundamentally a national asset. The social welfare legislations like Maternity Benefit Act, 1961 are implemented in order to ensure well-being of the females at the workplace (with negligible cost to be borne by employers) and thus it has the possibility of attracting female candidates and potential talent pool gets automatically doubled. By facilitating a woman to take ample care during the birth and raising of the child, the system ensures a physically and mentally strong generation for future too. ‘Maternity benefit’ essentially gives right of payment to every woman and imposes an obligation on every employer to ensure payment (as per the definition given under Maternity Benefit Act, 1961) “at the rate of the average daily wage for the period of her actual absence immediately preceding and including the day of her delivery and for the six weeks immediately following that day.” The average daily wage means the average of the woman’s wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself on account of maternity, or one rupee a day, whichever is higher.

Other than Maternity Benefit Act, 1961, the Central Civil Services (Leave) Rules, 1972 (CCSL Rules) have been framed to apply to Government servants appointed to the civil services and posts in connection with the affairs of the Union. The provisions for Maternity Leave and Childcare Leave are provided under Rule 43 and 43-C of the CCSL Rules. As provided under Rule 43 of the CCSL Rules, “A female Government servant (including an apprentice) with less than two surviving children may be granted maternity leave by an authority competent to grant leave for a period of 180 days from the date of its commencement.” Rule 43-C of the CCSL Rules provide for Child Care Leave and states that “A woman Government servant having minor children below the age of eighteen years and who has no earned leave at her credit, may be granted child care leave by an authority competent to grant leave, for a maximum period of two years, i.e., 730 days during the entire service for taking care of upto two children whether for rearing or to look after any of their needs like examination, sickness, etc.”

Where it is important that such legislations are framed and implemented by the Government, it is equally essential that the provisions of the legislations made by the Government are purposively interpreted by the judiciary. One such example found in the judgment delivered by the Apex Court in Municipal Corporation of Delhi v Female Workers (Muster Roll) [2000 (3) SCC 224], wherein it was held that the obligations laid down under Articles 14, 15, 39, 42 and 43 of the Constitution of India mandated that the benefits provided under the Maternity Benefit Act, 1961 be made applicable to the women engaged in casual/daily basis.

In a recent case before the Hon’ble Supreme Court of India – Deepika Singh v Central Administrative Tribunal and Others [Civil Appeal No. 5308 of 2022], the issue arose when the woman concerned had previously availed benefit under Rule 43-C of the CCSL Rules i.e. she was granted ‘childcare leave’ for taking care of the two children of his husband born out of his previous marriage. She had now applied for the benefit of maternity leave after conceiving her biological child. As per the Respondents (Post Graduate Institute of Medical Education and Research) where she was working, by availing childcare leave for her two children from her husband’s first marriage, she had accepted the fact that she has two ‘surviving children’ (as per Rule 43 of the CCSL Rules) and therefore, she was not entitled to avail maternity leave for the birth of her first biological child. On the other hand, the contention on behalf of the woman was that availing childcare leave on account of the two children from her spouse’s first marriage is distinct from availing paid maternity leave in connection with her first biological child.

The Hon’ble Supreme Court of India, while interpreting Rules 43 and 43-C of the CCSL Rules held that the expression ‘less than two surviving children‘ as provided under Rule 43 of CCSL Rules shall mean less than two surviving ‘biological children’ of that woman in order to not be allowed further maternity leave or to be provided with further maternity leave in a restricted manner. Therefore, a woman shall be eligible for maternity benefit related to the birth of her first biological child and the right shall not get diluted by the fact that she is a mother to her husband’s two biological children from his previous marriage and that she has already availed childcare leave as provided under Rule 43-C of the CCSL Rules in relation to the husband’s two biological children.

The judgment has once again upheld the rule of purposive interpretation that should be adopted while giving effect to the provisions of social welfare legislations. The Court also referred to the objective behind the Maternity Benefit Act, 1961 and that is to secure a woman’s participation in workplace by ensuring that her right to attain maternity status is balanced against her right to work. As per the Court, this balance is achieved by providing the woman with maternity benefit which enables her to proceed on her maternity leave for delivery and taking care of her child post-delivery.

The Court while applying the principle laid down in Municipal Corporation of Delhi observed that the rules prescribed under the CCSL Rules must also similarly achieve one of the constitutional goals of securing woman’s right of reproduction and at the same time ensures humane conditions of work and maternity relief. The Court also discussed India’s international treaty obligations and reiterated that social welfare legislations in the country need to be purposively interpreted to safeguard the rights provided thereunder and secure that the gap between the society and law is bridged by appropriate application of their provisions. The Supreme Court clarified and the law that maternity leave and childcare leave are distinct entitlements provided for a woman under the CCSL Rules and the grant of the childcare leave does not disentitle the woman from availing maternity benefit which is a separate right provided for in the CCSL Rules.

2 Sep

Insolvency And Bankruptcy Code, 2016 Will Prevail Over Customs Act, 1962

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Insolvency and Bankruptcy

Recently, the Supreme Court once again upheld the overriding effect of Insolvency and Bankruptcy Code, 2016 (“Code”) in the matter of Sundaresh Bhatt vs. Central Board of Indirect Taxes & Custom[Civil Appeal No. 7667 of 2021] and held that the provisions of the Code will prevail over the provisions of the Customs Act, 1962 (“Customs Act”).

The Liquidator of ABG Shipyard Ltd. (“Corporate Debtor”), challenged the order of the NCLAT wherein inter alia it was held that the goods lying in the customs bonded warehouses are not the assets of Corporate Debtor as the Corporate Debtor failed to take positive steps to take control of its assets by failing to pay customs duties and for that reason, the Corporate Debtor is deemed to have relinquished its title to its goods by legal implication in terms of the Customs Act. Therefore, a separate proceeding by Customs Authorities of confiscation of goods in the name of the Corporate Debtor undergoing liquidation, was not bad in law.

The question that came for consideration before the Hon’ble Supreme Court was whether the provisions of the Code will prevail over the provisions of the Customs Act and whether the Customs Authority was entitled to confiscate the goods of the Corporate Debtor which is currently undergoing liquidation in terms of the Code?

The Supreme Court held that goods belonged to the corporate debtor despite the fact that the Custom Duty was not paid and title to the goods did not pass on to the Customs Authority. The Custom Authority therefore could not have confiscated the goods, which were the assets of the Corporate Debtor, for the purposes of recovering customs duties. Further, on the imposition of moratorium, no proceedings could have been initiated/continued by the Customs Authority against the Corporate Debtor. After the initiation of CIRP and consequent imposition of the moratorium, IRP/Resolution Professional/Liquidator takes control of the assets belonging to the corporate debtor and in this case also he had the right to take control over the goods lying in the custom bonded warehouse. Therefore, the Customs Authority was only required to assess the custom duty payable and thereafter could have filed a claim with the Resolution Professional/Liquidator (as the case may be) with respect to outstanding custom duties. The judgment is in line with the very objective of the Code which is essentially to maximize the value of assets of the corporate debtor. The goods lying with the Custom Authorities were part of the transaction the Corporate Debtor entered into consequent to which the goods were received at Customs but could not be procured by Corporate Debtor on account of insolvency.

29 Aug

Is There A Civil or Criminal Liability of E-Market Portals like Flipkart and Amazon in Case of Persons Selling Unauthorized or Fake Products on such Portals

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Information and Technology

At least once in our online shopping experience, we all have returned items for not receiving a genuine product. Question arises whether the genuineness of the product is guaranteed by the e-portals where such items are listed or displayed? Can a buyer hold Flipkart or Amazon liable for letting persons/entities sell fake product through their website? Or can a company/person who owns or is an exclusive authorized dealer/distributor of the product take a legal action against such E-portals on an unauthorized person selling the same product?

E-portals like Amazon and Flipkart have been held to be “intermediary” as defined under Section 2(1)(w) of the Information Technology Act, 2000 (“I.T. Act”) [Google India Private Limited v. Visaka Industries (2020) 4 SCC 162]. Intermediaries are the platforms which on behalf of another person receive, store or transmit that electronic records or provides any service with respect to that record. An intermediary includes “telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online auction sites, online-market places and cyber cafes.” As per section 79 of the I.T. Act, these portals, including social media giants like Twitter, have been given ‘safe harbour’ protection. This means an intermediary is not liable for any third party information, data, or communication link made available or hosted by him on the website/platform of the intermediary. In other words, there is no liability of the ‘intermediary’ provided the conditions as stated under section 79 has been fulfilled by the intermediary.

In a recent case before Delhi High Court, Ashish Girdhar, the Managing Director of a company named Sanash Impex Pvt. Ltd. reported a case to Economic Wing, Delhi when his company noticed that unauthorized persons were selling products by the name DC DERMACOL on Flipkart while the Czech company DC DERMACOL, which is an international brand, had only authorized his company, Sanash Impex Pvt. Ltd., and granted it absolute and exclusive right to sell DC DERMACOL cosmetic products in India, both online and off-line. His complaint was registered as a FIR against Flipkart at the Economic Offences Wing, New Delhi, under Section 63 of the Copyright Act, 1957 and Sections 103 and 104 of the Trade Marks Act, 1999. Against the said FIR, Flipkart filed a writ petition under Articles 226 and 227 of the Constitution of India r/w Section 482 of the Code of Criminal Procedure, 1973 against State of NCT and Ashish Girdhar, praying for quashing of complaint.

The central argument of the Petitioner/Flipkart was that it being an ‘intermediary’’ under the I.T. Act, was protected under Section 79 of the I.T. Act, which provides a ‘safe harbour’ to intermediaries from liabilities for posting of material by third parties on their platforms. It was contented that Flipkart has complied with the Information Technology (Intermediary Guidelines) Rules, 2011 (“I.T. Guidelines”) where an intermediary is only required to post a Policy indicating that certain kinds of material were impermissible to be posted on its platform. Flipkart stated that it had made the policy part of its user agreement. Amongst other cases, the Petitioner’s Counsel relied on Shreya Singhal v. Union of India 2015 (5) SCC 1 and averred that the liability to take down such alleged unauthorised sites would arise only when a court order was brought to the notice of the Petitioner, Flipkart. The Counsel of the Petitioner further challenged the locus of the Respondent to file a police complaint on the ground that since as per Section 19 of the Copyright Act it is only the owner of the copyright who can file a complaint regarding infringement of copyright and the Respondent, being merely the one who has been authorized to sell the products with no assignment of copyright, could not have gotten the FIR registered. Therefore, the entire drill was stated to be a miscarriage of justice.

The Respondent, Ashish Girdhar, on the other hand contended that he had sent the information regarding the infringements to the Petitioner through 33 emails and had requested the Petitioner to take down total 10 such offending sites. Flipkart removed four of them without any court order. As per the Respondent’s Counsel once the actual information was sent to the Petitioner, it was expected to take down the site selling the offending products. If it had removed four, it did not require court order to remove the other six. The argument was that as per section 79 requirement, the Petitioner had ‘actual knowledge’ and it failed to adhere to the requirement of ‘due diligence’ and hence cannot invoke the protection under section 79 of the IT Act. The Counsel relied upon Rule 3 of the I.T. Guidelines according to which the intermediary shall not knowingly host or publish any information or shall not initiate the transmission, select the receiver of transmission, and select or modify the information contained in the transmission which infringes any patent, trademark, copyright or other proprietary rights. The proviso states that, when the intermediary subsequently gets the information of such infringement, the removal of access to any information, data or communication link by an intermediary after such information, data or communication link comes to the actual knowledge of a person authorised by the intermediary pursuant to any order or direction, it shall not amount to hosing, publishing, editing or storing of any information that infringes the IP rights. The Rule also puts an obligation on the intermediary that upon obtaining knowledge by itself or been brought to actual knowledge by an affected person in writing or through email signed with electronic signature about any such information as mentioned in sub-rule (2) above, shall act within thirty six hours and where applicable, work with user or owner of such information to disable such information that is in contravention of sub-rule (2). Further the intermediary shall preserve such information and associated records for at least ninety days for investigation purposes. The Intermediary shall inform its users that in case of non-compliance with rules and regulations, user agreement and privacy policy for access or usage of intermediary computer resource, the Intermediary has the right to immediately terminate the access or usage lights of the users to the computer resource of Intermediary and remove non-compliant information. It was contented that by reading of section 79 of the IT Act, it can be inferred that the protection was available under Section 79(2) if the intermediary did certain acts while protection would be withdrawn under Section 79(3) if the intermediaries committed certain other acts.

The Court analysed the obligation of an intermediary under section 79 of the IT Act and observed that the obligation of the intermediary is to observe due diligence and follow the guidelines prescribed by the Central Government. The intermediary is also required to observe due diligence as per Rule 3 of the IT Guideline which states that intermediary shall publish the rules and regulations, privacy policy and user agreement for access or usage of the intermediary’s computer resource by any person. However, any violation of these guidelines do not attract any penalty. The Court then digged into the question as to whether the FIR could have been registered at all against the Petitioner for offences under the Copyright Act and the T.M. Act? The Court started its findings by stating that I.T. Act does not provide for infringement of trademark or copyright and therefore reference was made to respective legislations. Section 63 of the Copyright Act prescribes punishment for infringement of copyright and makes an abettor equally liable for the same. The Court, therefore, closely examined whether e-portals will come within the ambit of abettor under Copyright Act. Similarly, section 103 and 104 of the TM Act prescribe penalties for any person who falsifies any trade mark or applies it to goods or sells goods or provides services to which false trade mark or false trade description is applied. The Court observed that by permitting unauthorized sale of the DC DERMACOL products, Petitioner may appear to have committed the alleged offence.

In order to examine the liability of the E-portal, the court appreciated the higher standards of proof required in case of fixing criminal liability as compared to cases involving civil liability. Whereas Court has to look into balance of probabilities in civil matters, it requires a proof of ‘beyond reasonable doubt’ in establishing criminal offence. The Court held that the platform has complied with the I.T. Guidelines by putting ‘use of the platform’ and ‘selling’ terms on their ‘Terms of Use’. On this premise, the court went on to reason that “when compliance with the “due diligence” requirement under Rule 3 of the I.T. Guidelines is evident, ex facie, the exclusion of liability under Section 79 of the I.T. Act would include exclusion from criminal prosecution”.

The Court, while addressing the contention of the Respondent on Petitioner having ‘actual knowledge’ of infringement of copyright and trade mark as communicated by the former via emails, stated that the issue regarding the claim to a trade mark or copyright is a ‘stoutly contested affair’ even before the courts and therefore an intermediary cannot be expected to take down a site/product only on communication or complaint by person aggrieved and any action without a court order in this regard would be problematic and infact cause havoc beyond imagination. Therefore, while referring to the judgment in Shreya Singhal the Court held that “the obligation to take down the offending material/sites, etc., from their platform would arise only on service of a court order upon them.” The Court, however, went to add an obiter that even when there is disobedience of order it would not amount to a criminal offence and no FIR can be registered in this regard. The Court further underlined a fundamental lacuna in the FIR that it did not even have the name of single website allegedly selling the products which were either fake or unauthorized, leave alone there being any allegation against them. The complaint was confined to the e-portals. Therefore, the Court observed that “Without determining the rights of those other sites to sell the products, prima facie, the petitioner has not committed any offence, leave alone under the Copyright Act or the T.M. Act.” Since the case was not made out on the face of the FIR, the FIR was liable to be quashed. In this judgment, therefore, the Court has once again reaffirmed that an intermediary’s obligation to take down the offending material from their platform would arise only on receipt of court order. The Court has further reasoned that any such allegation of infringement of IP rights is acutely contested matter and hence only Courts can decide such dispute and this cannot be left within the domain of the e-portals for immediate decisions and action. Moreover, the safe harbor protection under Section 79 covers both civil and criminal liabilities of intermediaries.

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