Supreme Court rules against High Court's observations

Supreme Court rules against High Court's observations

Merits of contentions should not affect the pending trial

The Supreme Court has directed that while both the division and the single benches of the Delhi High Court had made observations on the merits of the contentions, this should not affect the pending trial.

This was in connection with the Amazon versus Amway direct selling case,

The bench of Justice D Y Chandrachud, Justice Surya Kant and Justice Vikram Nath was hearing an SLP against a 2020 decision of a division bench of the Delhi High Court.

The High Court had held that products of 'Direct Selling Entities' including Amway and Oriflamme might be offered for sale on e-commerce platforms, as the Direct Selling Guidelines were merely advisory in nature.

The division bench of Justice S Muralidhar and Justice Talwant Singh had overruled the judgment rendered by a single judge of the High Court in 2019. Therein, Amazon (the original respondent) was injuncted from selling the goods of Amway (the original plaintiff), in terms of the Model Framework for Guidelines on Direct Selling in 2016 issued by the Department of Consumer Affairs.

Disposing of the SLP, the Supreme Court said, "Since it arose from an interlocutory order, there was evidently no grave urgency to get into merits of the orders passed by the single and division benches."

The Delhi High Court division bench held that the impugned judgment was passed without considering whether the grant of an injunction would have an adverse impact on online marketing.

"What was not considered is whether the requirement of online marketing entities to seek the prior consent of the DSEs would not deprive the consumer of exercising the choice to buy such products on online platforms while ensuring free flow of trade, " the court said.

The judgment is significant as it addresses the legal issue pertaining to the obligation of intermediaries to ensure that products of DSEs are not sold on their marketplaces without their authorization.

The division bench, while setting aside the impugned judgment, observed that the single-judge of the High Court had held that DSGs were binding in nature since they did not impinge on any fundamental rights of either the sellers or the platforms. However, the bench clarified that DSGs were not law and thus, were not enforceable.

The High Court further held that once the title to a product passed through the sale, no further condition could be imposed on the buyer to restrict 'post-sale alienation'. "By permitting private entities like Amway to restrict downstream distribution of genuine goods, by enforcing contractual stipulations against third parties, the judgment of the single judge recognizes a monopoly that can be exercised in perpetuity," the court had ruled.

Notably, the single-judge had also found Amazon to be guilty of infringing Amway's trademarks and of diluting it and passing it of as their own, thus misrepresenting their association with Amway.

Making an observation to the contrary, the Supreme Court said that Amway had not asserted or even mentioned anything about trademark registration in its plaint.

There was no occasion for the plaintiffs to assert ownership of such trademarks. In fact, there was no such pleading to that effect at all. How the single judge came to the conclusion in the absence of any pleadings was a mystery.

The division bench also put to rest the single Judge's finding that continued sale of Amway's products on the e-commerce platforms, without its consent resulted in the inducement of breach of contract and interference with contractual relationships of Amway with their distributors.

It held that inducement to breach of contract necessitated that there had to be a contract between the online platforms and the DSEs. The mere fact that the online platforms may have knowledge of the Code of Ethics of the DSEs, and the contractual stipulation imposed by such DSEs on their distributors, was insufficient to lay a claim of tortious interference.

It added whether in fact any of the online platforms induced a breach of contract between the DSE and its sellers was at best a matter of evidence, and not of inference.

The court declined Amway's argument that Amazon had indulged in the sale of tampered, damaged and in-genuine sale of Amway products and held that there was no material at the prima facie stage to conclude as such. It imposed a cost of Rs.50,000 on all the respondents.