Liability for Online Aggregators and Intermediaries: Insights from Karnataka High Court’s Ola Judgment

The rapid expansion of the e-commerce sector has transformed the way consumers and sellers interact, leading to the emergence of innovative business models, particularly in the realm of online aggregators. These platforms, which aggregate information about various goods and services, have gained prominence in diverse sectors, notably in transportation through companies like Ola and Uber. As these businesses continue to flourish, the legal landscape surrounding their operations, especially regarding liability, has become complex. The judgment from the Karnataka High Court has further clarified the responsibilities of such online aggregators, with significant implications for their operations and the consumers they serve.

In a short span, the e-commerce sector has become a favourite among consumers, bolstered by favourable foreign investment (FDI) policies under the automatic route for e-commerce entities (subject to limitations as per the FDI Policy). Aggregators serve as platforms that collect and present services, with the differentiator being the high level of customisation of services that are offered to consumers.

However, one defining characteristic of the aggregator model is that the service providers are not employees of the aggregator; rather, they act as business partners. This arrangement allows service providers to potentially work with multiple aggregators.

The Karnataka High Court’s ruling in Ms. X vs. ANI Technologies Pvt. Ltd. (2024) has delved on the liability of online aggregators. The case arose from a complaint filed against Ola, where the petitioner, a passenger, experienced harassment during a ride. Ola claimed to operate solely as an "intermediary" under the Information Technology Act, 2000, arguing that it merely facilitated connections between drivers and riders without direct control over their actions.

The term "intermediary," as defined in Section 2(w) of the Information Technology Act, 2000, includes entities that receive, store, or transmit electronic records. In Ola’s case, their Subscription Agreement, emphasized that they were merely a platform facilitating vehicle aggregation, disclaiming responsibility for driver conduct. However, the Court found this characterization insufficient.

The Karnataka HC, therefore, rejected Ola’s claim on the basis that Ola exercises substantial control over the drivers and hence had a public duty to ensure the safety of the passengers utilising the platform. While intermediaries generally enjoy limited liability for third-party content and actions, the Court highlighted that Ola’s operations indicated a higher level of control over drivers. Ola determines, on a day-to-day basis, the ride fares, routes to be taken, any discounts or surge fees and controls communication between the rider and the driver (on the mobile application). Therefore, the nature of Ola's involvement—actively managing drivers and facilitating transportation services—exceeds the traditional definition of an intermediary.

Section 79 of the Information Technology Act provides certain protections for intermediaries, stipulating that they cannot be held liable for third-party information if:

1. Their functions are limited to providing access to a communication system.

2. They do not initiate the transmission, choose the receiver, or modify transmitted information.

3. They observe due diligence and follow government-prescribed guidelines.

However, these protections are nullified if the intermediary is found to have conspired or assisted in unlawful acts or fails to act upon receiving actual knowledge of such acts.

The interpretation of Section 79 has evolved through various judicial precedents. In Myspace Inc. v. Super Cassettes Industries Ltd., the Delhi High Court asserted that an intermediary's liability can be established if they possess actual knowledge of an infringement, rather than mere general knowledge.

Furthermore, in Amway India Enterprises Pvt. Ltd. v. 1Mg Technologies Pvt. Ltd., the Delhi High Court highlighted the necessity for e-commerce platforms to demonstrate compliance with Section 79(2) of the IT Act. It emphasized that platforms must not initiate the transmission, select the receiver, or modify any information contained in the transmission. Therefore, if an intermediary exercises control over the information transmitted, and fails to do their due diligence on the activities being undertaken on their platform, they could very well be held liable or be penalised for any act or omission which is unlawful or harmful in nature.

The Karnataka HC also highlighted that Ola exercised total supervision and control over their drivers via the Ola application, wherein the drivers were left with no independent discretion despite being referred to as “independent contractors” in their respective subscription agreements with Ola. Therefore, a certain level of due diligence would be expected from Ola going forward, in accordance with Section 79(3) of the IT Act.

The rapidly evolving landscape of e-commerce and online aggregation necessitates a re-evaluation of the legal frameworks governing these platforms. The Karnataka High Court's judgment serves as a critical reminder that intermediaries cannot merely act as passive witnesses; they bear significant responsibilities regarding the safety and well-being of their users. As the gig economy continues to expand, it is imperative for regulatory frameworks to evolve, ensuring that worker rights are protected and that companies remain accountable for their operations.

With the awaited implementation of the Social Security Code, 2020, additional responsibilities may be imposed on platforms like Ola. In light of the same, online aggregators must work towards the creation of a robust protection framework by introducing enhanced background checks on “partners,” no tolerance for harassment policies as well as effective consumer support and grievance redressal helplines.

As this matter is currently before the Division Bench of the Karnataka High Court, upcoming judicial decisions will play a crucial role in shaping the rights and obligations of gig workers under the POSH Act, as well as in defining the future nature of the relationship between gig workers and gig economy companies.

About the author: Vanshika Kundra is an Associate at NovoJuris Legal.

She received assistance from the NJ editorial team and Shivam Kumar, a 5th year student of DSNLU, interned with NovoJuris.

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