Cash-on-Delivery Model By Ecommerce Portals Is Illegal – Shocking RTI Reply by RBI!

RBI has replied to an RTI which questioned CoD model used by ecommerce firms.

Cash on Delivery is illegal?
Cash on Delivery is illegal?

As of now, almost 50% of all ecommerce orders are cash-on-delivery or CoD, wherein the end user pays for the products when it is actually delivered.

However, little did we knew that this CoD model, which is so popular among online shoppers, is actually illegal.

This has been shared by Reserve Bank of India (RBI), in their reply to a RTI query.

Who filed this RTI query? And what does analysts and FDI experts say on this matter?

You will soon find out!

RBI: Sorry, But CoD Is Illegal!

Dharmendra Kumar from India FDI Watch, an organization of small traders and farmers had filed an Right to Information query regarding the legality of Cash on Delivery model used by ecommerce players.

The RTI query had specifically asked about Payments and Settlements Systems Act, 2007, No. 51 of 2007, and whether CoD model is approved by this act or not.

In their reply, RBI has said that as per the Payments and Settlements Systems Act, 2007, Cash on Delivery model is not allowed for online marketplaces operating in India.

The reply said, “Aggregators/payment intermediaries like Amazon and Flipkart are not authorised under Section 8 of the PSS (Payments and Settlements Systems) Act, 2007,”

Hence, it seems that ecommerce players in India are working within a ‘grey area’ of the Payments and Settlements Systems Act, 2007.

But, the question is, will there be any action against ecommerce players now?

Analysts and FDI Experts Are Divided Over This Issue

While some analysts of ecommerce and FDI experts are arguing that the RTI reply doesn’t make CoD model entirely illegal, others are stating that RBI should now take action, and stop ecommerce players from using CoD model for accepting payments.

Abhishek A Rastogi, partner at Khaitan & Co. has argued that this interpretation of Payments and Settlements Systems Act, 2007 doesn’t mean that ecommece players cannot use CoD model.

He said, “It (COD) can be done through a contractual arrangement between ecommerce operators and merchants. These will be regulated by the Payment and Settlement Systems Act, 2007, rules and regulations framed thereunder.”

On the other hand, Chanakya Basa, an independent corporate lawyer has argued that RBI must take action as CoD is illegal.

He said, “The circular came out eight years ago and any firm found in violation of it can be penalised,”

He is referring to RBI circular DPSS.CO.PD.No.1102/02.14.08/2009-10 of November 24, 2009 which defined ‘intermediaries’ as mentioned in the Act.

All India Online Vendors’ Association (AIOVA), a powerful lobby of online sellers who are active on various ecommerce portals have also refuted the RTI reply, and said that CoD model is complex, and there is no clear cut guidelines on the issue.

As per AIOVA, the ecommerce players are not directly collecting the money from the customer in case of CoD – the courier companies are the ‘‘intermediaries’’ in this case, and they can collect the money for the services they are rendering.

Flipkart had introduced CoD model in 2010, and when Amazon entered India in 2013, they too used the same CoD model to make inroads into the market.

Do you think RBI will make CoD model illegal in India? Do let us know by commenting right here!

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