Question of jurisdiction in online transactions

Over the last decade or so, the internet has become an important part of our lives. The internet we know now is indispensable, both for individuals and businesses. The reach of the internet transcends physicality. It helps individuals connect with people across geographical boundaries and provides businesses with an accessibility to wider audiences.

The wider scope of business activities comes with many conveniences, but also creates room for legal implications; especially relating to the question of jurisdiction of courts in the case of online transactions for trademark infringement suits.

In the absence of a laid-law as regards to the cause of action in cyberspace, the jurisdiction of courts in case of online transactions has become a point of discussion in various jurisdictions all over the world. Through various judicial pronouncements, many countries have developed the concept of ‘Internet Jurisdiction.’ The Delhi High Court has also dealt with this issue.

Jurisdiction is provided for in Section 19 and 20 of the Civil Procedure Code, 1908. Section 20 reads as under:

"19. Suits for compensation for wrongs to person or movables.- Where a suit is for compensation for wrong done to the person or to movable property, if the wrong was done within the local limits of the jurisdiction of one Court and the defendant resides, or carries on business or personally works for gain, within the local limits of the jurisdiction of another Court, the suit may be instituted at the option of the plaintiff in either of the said Courts.

“20. Other suits to be instituted where defendants reside or cause of action arises .- Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction—

(a) The defendant, or each of the defendants where there are more than one, at the time of the commencement of the Suit, actually and voluntarily resides, or carries on business, or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises.

Explanation: A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.”

Therefore, it is interpreted that a suit can be instituted either at a place where the Defendant resides, carries on business or where the cause of action arises. However, in online transactions, this interpretation cannot be attributed the same simplicity.

One of the first pronouncements on the issue in the world was Zippo Manufacturing Co. vs. Zippo Dot Com, Inc.[1] that laid down the “effects” and “sliding scale” test. This test was to determine the level of interactivity between the website and the jurisdiction. The “effects” test focused on the effect deliberately caused by the defendant website in the jurisdiction. Court observed that mere passive websites do not form personal jurisdiction but those websites that enable parties of forum state to enter into contracts contemplating business with the forum state, may confer personal jurisdiction.

The effects test was then elaborated in Calder vs. Jones.[2] In affirming the decision of the Court of Appeals, the Supreme Court took into account the “purposeful” and “targeted” nature of the actions of the Defendants which were expressly aimed at the state of California and that the brunt of injury would be felt there.

India first laid down its position in the issue, after taking into consideration many international judicial pronouncements in Banyan Tree Holding (P) Limited v. A. Murali Krishna Reddy and Anr.[3] The Delhi High Court considered the aspect of “purposefully availing” the jurisdiction of the forum state and the level of interactivity of the website, and held that the following were to be shown:

1. That the nature of the activity indulged in by the Defendant by the use of the website was with an intention to conclude a commercial transaction with the website user and that the specific targeting of the forum state by the Defendant resulted in an injury or harm to the Plaintiff within the forum state.

2. For the purposes of Section 20(c), CPC, prima facie that the said website, whether euphemistically termed as "passive plus" or "interactive", was specifically targeted at viewers in the forum state for commercial transactions.

3. The “trap transaction” will have to be shown to be a real commercial transaction wherein Defendant intended to specifically target customers in the forum state.

Subsequently, in the case of World Wrestling Entertainment vs. M/s Reshma Collection and Ors[4] the Court held that due to the spontaneous nature of the transactions (offer and acceptance and payment of consideration) over the internet, the cause of action is deemed to have occurred at the place the customer carried out his part of the transaction.

Earlier this year, the Delhi High Court pronounced two judgments on the issue that clarify the position of Internet Jurisdiction better.

In January this year, in the case of Impressario Entertainment & Hospitality Pvt. Ltd. Vs S&D Hospitality[5], the Plaintiff contended that due to the presence of the Defendant on websites like Zomato and Dine-Out, information about its services is available to customers in Delhi as well and they can book the restaurant remotely. Hence, for the purpose of jurisdiction the cause of action is said to have arisen in Delhi. The Defendant argued that the court had no jurisdiction to entertain the suit as "mere booking or placing an order through internet is insufficient to say that any transaction took place since the contract formation is not at the place of booking or ordering the product or service.”

In order to determine the jurisdiction in this scenario, the Hon’ble Court considered past judicial pronouncements and the tests applied by them, and pondered over the following:

1. Whether the defendant had purposefully availed himself to the jurisdiction of the forum state? It was also incumbent upon the plaintiff to show that the Defendant had availed the jurisdiction. The court evolved the concept of “purposeful avoidance” wherein it was on the part of the Defendant to show how he had avoided the forum state.

2. Whether the Defendant intended to carry out a transaction? The court held that the defendant must enter in some commercial transaction with the customers of the forum State intending to pass off their goods as that of the plaintiffs. Material must be produced to the court by the plaintiff regarding the same and not the mere possibility

3. Whether the nature of the website was an interactive one? - The court held that even if the defendant attracted or had been able to attract the customers from other jurisdictions by way of Zomato and Dine-out, the customers would still be required to go to Hyderabad to avail the services, where the cause of action would eventually lie.

In this case, jurisdiction could not be established because the Defendant did not specifically target customers in the forum state and neither intended to complete a commercial transaction. This judgment digresses from the view taken in World Wresting (supra) and relying on Banyan Tree Holding (supra) has laid down that in order to establish cause of action, the commercial transaction must be completed.

In March this year, the Delhi High Court was faced with the same question in Millennium & Copthorne International Limited vs Aryans Plaza Services Private Limited & Ors.[6] The court while relying upon the Impressario case, highlighted some incongruities that arise out of the nature of internet activities.

“Judicial notice can be taken of the fact that much of the volume of businesses of hotels is now through such third party websites, in comparison to the business through direct bookings and/or through travel agents. Thus, if the Courts at Delhi will have jurisdiction over subject matter of suit owing to defendants having interactive website accessible at Delhi and enabling defendants situated outside Delhi to carry on business at Delhi, I see no reason to hold that it will not be so where the defendants, instead of hosting its own interactive website, avails the service of third party websites to carry on business at Delhi. There is no rationale for carving out such a distinction. Certainly, making a booking/reservation, even if the same does not subsequently materialise, is part of carrying on business, inasmuch as the hotel which has taken the booking, even if has not received any payment, being unable to turn back a customer if shows up in pursuance to such booking.”

The Court henceforth dismissed the application for rejection of plaint stating that it had required the territorial jurisdiction to entertain the suit.

The concept of internet jurisdiction has evolved to quite an extent. It is interesting to note that the Indian Courts have been liberal in their approach to interpret the complexity of internet transactions. The Indian Courts have interpreted the concept of Internet Jurisdiction in nexus with the scope of jurisdiction as provided for in Section 19 and 20 of CPC, 1908 as well as considering judicial pronouncements from all over the world. In the absence of any law on the issue, judicial pronouncements will only set the footing in the issue.

*The article was originally published on lexology.com on June 22, 2018 and can be accessed here.