The All India Online Vendors Association (AIOVA), which claims to represent the interests of more than 2,000 sellers, has written a letter to the Reserve Bank of India (RBI) over the non-payment of dues by Chinese ecommerce platform Club Factory.
In its complaint, AIOVA has alleged that by suspending the payments to sellers, Club Factory is in violation of Section 28 of the Payments and Settlements Act, 2007, as it has withheld payments to sellers for more than a month after the products were delivered to the customers.
“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, copies of which were accessed by the Economic Times. “…if Club Factory is allowed to withdraw money from this escrow account, small sellers and their families will be put to irreparable loss.”
Club Factory Suspends Payment To Sellers
Last month, Club Factory — one among the 59 Chinese apps banned by India on June 29 due to data privacy concerns — suspended payments to sellers. In a letter to the sellers, a copy of which was accessed by Inc42, Club Factory wrote that since the government’s ban was unforeseen, it constituted a ‘force majeure’ event, temporarily freeing both parties from their obligations as per their contract.
“We wish to intimate you of the force majeure event (the banning of the Club Factory app by the government of India) and accordingly, the suspension of settlement with sellers during the continuation of the force majeure event, as well as to inform you that we are taking all possible steps to get the ban revoked, however, given that this is a government action, the period for which such ban may be extended is presently unknown,” Club Factory’s letter to its sellers read.
In its complaint filed with the RBI, AIOVA has alleged that Club Factory had withdrawn money from the escrow bank account meant for merchant’s dues, and asked the central bank to seize Club Factory’s bank accounts.
“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 recent complaint. “…if Club Factory is allowed to withdraw money from this escrow account, small sellers and their families will be put to irreparable loss.”
It was not possible to ascertain the exact amount of pending dues with Club Factory. However, last month, Inc42 spoke to Amit Singh Sengar, who used to sell personal care items on Club Factory. According to Sengar, the amount is likely to run into crores of rupees, since Club Factory has been withholding payments since the lockdown opened. Sengar himself has INR 1,56,000 in pending dues with Club Factory.
Club Factory’s Past Troubles
This is not the first time that Club Factory has come under the scanner. 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.