Club Factory Saga: A Case Of Chinese Ecommerce Company Leaving Indian Sellers In Lurch

There’s something peculiar about Indian sellers. They’re the subject of much fanfare and celebration when the topmost functionaries of the government take the podium. “MSMEs form the backbone of the Indian economy,” goes the oft-repeated claim from countless ministers before they announce fiscal packages, moratoriums, and welfare benefits to ensure that the wheels of the Indian economy keep moving. 

However, when ecommerce companies default on payments to these sellers, jeopardising the survival of their small enterprises, their concerns fall on deaf ears. Tragically, in India, ecommerce companies defaulting on payments to sellers isn’t a rare occurrence. Worse still, is when such a deplorable situation for Indian sellers is, albeit partially, of the government’s own making.

On June 29, India banned 59 Chinese apps, including popular ones such as TikTok, UC Browser, and Club Factory, in a move aimed to safeguard data privacy of users. That the ban came in the wake of clashes between the armies of both countries in Ladakh’s Galwan Valley meant that any scrutiny of the move and its possibly damaging implications was muffled by invoking the nationalist cause which it supposedly furthered. 

In the immediate aftermath of the ban, the government’s pitch for forging an ‘Aatmanirbhar Bharat’ or ‘Self-Reliant India’ attained a feverish pitch. Overzealous citizens interpreted the call in their own simplistic manner and went about smashing television sets and pricey electronic equipment made by China-based companies. 

Amid the growing anti-China sentiment in the country, Chinese ecommerce store Club Factory — one of the 59 banned Chinese apps — went rogue and suspended payments to Indian sellers, by invoking the ‘force majeure’ clause. In an email sent to sellers on July 14, the company wrote that the government’s ban on Chinese apps constituted a ‘force majeure’ or unforeseeable event, thus preventing the company from fulfilling its obligations to the Indian sellers. 

One would think that the prevalent anti-China sentiment in the country would have thrust the issue in the spotlight. However, barring token coverage from a few digital media portals, the sellers waiting on payments from Club Factory haven’t found an outlet to detail their sufferings. 

To find their elected representatives, many of the sellers took to Twitter. Since July, a lot of them have been tweeting about the financial crisis — of loans, EMIs and pending payments to manufacturers of the items they used to sell — that has befallen them because of Club Factory suspending payments. Others’ tweets are more worrisome, as they talk about committing suicide and blame the government for their miseries. 

“The Prime Minister was talking about an Aatmanirbhar Bharat. Little did we know we’d be completely self-reliant, with no one from the government to help us in times of crisis,” says Pankaj Gaba, who used to sell Kurtis and bedsheets on Club Factory and is waiting on payments worth INR 3.31 lakhs from the Chinese ecommerce store.

It wasn’t possible to ascertain the exact number of sellers who are waiting on payments from Club Factory. The All India Online Vendors Association (AIOVA), which claims to represent the interests of more than 2,000 Indian sellers, hasn’t undertaken the exercise of finding out the number. To its credit, the association seems like the lone force urging the government to take notice of the situation. 

Besides sending a legal notice to Club Factory within days after it suspended payments to sellers, the association, last month, also wrote a complaint to the Reserve Bank of India (RBI), claiming that by withholding payments to sellers for more than a month after the confirmation of deliveries, Club Factory had violated Section 28 of the Payments and Settlements Act, 2007. 

“Thousands of small sellers whose dues are in lakhs of rupees (are) pending to be cleared. The total dues amount to crores of rupees,” AIOVA said in its complaint to the RBI. According to AIOVA, marketplaces are bound by RBI directives to keep the money collected on sellers’ behalf in escrow. Further, the ‘force majeure’ clause can’t be applied to escrow. An escrow account is one where funds are held in trust whilst two or more parties complete a transaction.

Last month, Inc42 reported that four Indian sellers had also sent a legal notice to the Chinese ecommerce store. The notice said that the ‘force majeure’ clause, invoked by Club Factory, does not apply in times when the government has invoked the Disaster Management Act in the country. The notice also had details of the pending dues for each of the four sellers. The total amount in pending dues for the four sellers amounted to INR 2.58 Cr. 

Inc42 has been able to collect responses from 12 more sellers thus far. Their pending dues from Club Factory collectively aggregate to around INR 2.1 Cr. However, emails to Club Factory have yielded no answer. The AIOVA has also not received any reply from Club Factory to the legal notice it sent last month.

Just last month, the Department for Promotion of Industry and Internal Trade (DPIIT) frequently made the news when it urged ecommerce platforms such as Amazon and Flipkart to display the ‘country of origin’ tag on products being listed on their website. The ‘country of origin’ tag is meant to enable customers to make an informed decision, as also, to uplift Indian sellers and their products against the global competition in the market. 

However, Inc42’s queries to DPIIT, about any measures taken by the government to recover Indian sellers’ dues from Club Factory, have yielded no replies thus far. To date, no government representative has spoken on the issue, which begs the question — who is answerable here? Is there a government body working to safeguard the interests of Indian sellers against a Chinese company? Or is the tale of Club Factory another sordid addition to the long list of Indian sellers being looted of their hard-earned money by big corporations which escape accountability at will. 

Something similar happened in June last year when Indian vendors alleged that their dues weren’t paid by digital commerce platform HomeShop18. The initial rumblings of distress came after the Network18 Media and Investments Ltd-owned HomeShop18 was acquired by another company called SkyBlue Buildwell Private Limited. 

While sellers were still hopeful that their dues would be cleared, confusing statements and failure to complete payments from the new management of the company sparked protests by a group of sellers associated with the HomeShop18 Vendors Association, outside the Network18 office in FilmCity, Noida, Uttar Pradesh. The Network18 Group is owned by Reliance chairman Mukesh Ambani. 

Media reports from the time suggest that 200 sellers on the platform were waiting on payments collectively aggregating to INR 150-200 Cr. A year later, HomeShop18 sellers are forlorn figures, still waiting. The Twitter handle of HomeShop18 Vendors Association is still active, frequently retweeting the handle’s posts from last year, because the account’s tweets from June-September 2019 are as relevant.

Today, another ecommerce company has gone rogue. Indian sellers have been left in the lurch. But the government has yet again, turned a blind eye to the complaints of its electorate. Is there room for hope here? 

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.