SUMMARY
AIOVA, in its legal notice, demanded Club Factory to settle the payment of dues to sellers in 48 hours
The association said that by suspending the payment to sellers, Club Factory was violating various provisions of Indian law
After being banned last month, Club Factory has now invoked the ‘force majeure’ clause and suspended payments to sellers
The All India Online Vendor Association (AIOVA), on Thursday, issued a legal notice to Chinese ecommerce platform Club Factory, demanding immediate settlement of dues to sellers.
This comes two days after Club Factory, in an email to sellers, invoked the ‘force majeure’ clause to suspend its outstanding payments to sellers, until the government’s ban on the application is lifted.
Club Factory and 58 other Chinese apps were banned on June 29 citing threats to data security and privacy. In an email to sellers, Club Factory said that the government’s ban was an “unforeseeable circumstance” and hence, constituted a ‘force majeure’ event, temporarily freeing both parties from their obligations and duties as per the contract. Earlier this week, Inc42 talked to one such seller who said that Club Factory owed him INR 156,000 in payments.
In the legal notice sent by AIOVA’s legal counsel Chanakya Basa to Club Factory, it is mentioned that the client (AIOVA) is “an association of more than 2000 sellers across the country, selling on ecommerce platforms such as Flipkart, Amazon, Snapdeal and Club Factory, among others.”
The notice adds that Club Factory’s suspending the payment of dues to its sellers is a “clear violation of Reserve Bank of India (RBI) circular dated March 17, 2020, ‘Guidelines on Regulation of Payment Aggregators and Payment Gateways.” According to the RBI circular cited in AIOVA’s legal notice, no payment aggregator can defer settlements to sellers beyond one day of delivery confirmation.
According to the AIOVA, by not settling payments to sellers within the given time period, Club Factory has violated provisions of the Payment and Settlement Systems Act of 2007. The sellers’ association has previously mentioned that Club Factory should have kept the sellers’ money in escrow, according to RBI guidelines. Escrow is defined as a contractual agreement between both parties, where a third party receives and disburses money or property for the primary transacting parties, which in this case, are the sellers and Club Factory.
This is not the first time that Club Factory has been accused of violating Indian laws. In December last year, the ecommerce store — founded in 2014 by Chinese company Jiayun Data Technology and headquartered in Hangzhou, Zhejiang, China — was accused by a customer of selling counterfeit products. The customer alleged that the company had advertised heavy discounts on popular brands but shipped fake products to the customers.
Club Factory has also been accused of misusing the provision which allowed duty-free imports of gifts and samples as long as they were below INR 5000. Club Factory, along with other Chinese ecommerce platforms such as Shein, would label their orders as gifts, avoiding any custom duties on it. To avoid any more exploitation of the provision, the central board of indirect taxes and customs (CBIC), in November 2019, decided to remove it.
