Social commerce startup Meesho and its logistics partner Shadowfax have been sent legal notices by Bengaluru-based intellectual property (IP) law firm BananaIP Counsels over alleged fraudulent orders.
The notices, sent on behalf of BananaIP’s managing partner Kalyan C. Kankanala and chief financial officer Madhava Rao, have accused Meesho of placing orders on its platform or knowingly facilitating and encouraging the same for financial gain.
Meesho and Shadowfax have also been accused of "defrauding, scamming and exploiting consumers on a large scale" and "resorting to unfair trade and fraudulent practices, which give rise to both civil and criminal liability", according to the legal notices, a copy of which Techcircle has reviewed. BananaIP is an IP, entertainment and ecommerce law firm and works on projects relating to IP, eommerce, IT, privacy, consumer protection and related laws.
The legal action is in response to an unsolicited package from Meesho delivered to Kankanala on his office address on August 4 through Shadowfax. Kankanala was not in office at the time of delivery, and the package was handed over to Rao who paid for the order and collected it. Realising it was a fake order, BananaIP Counsels served a notice to Shadowfax and Manish Kumar Sharma, the sender of the package, on August 5, stating that Kankanala did not place any order from Meesho or engage Shadowfax for delivery.
Though Meesho was not a party in the first notice, a representative from the company contacted Madhav to inform that the order was placed by a third party. The notice established that Meesho’s voluntary response indicated that the Bengaluru-based company and its partners are aware of the illegal transaction and its fraudulent nature.
BananaIP then sent a second legal notice on August 10, which also added Meesho as a party in the case as it did not receive a response to the first notice. “It is clear from the transaction history that all parties involved in this illegal transaction aimed at defrauding, exploiting, misleading and scamming consumers. Online reports and consumer forums indicate that this activity that gives rise to civil and criminal liability is being carried out on a large scale, and that this is a fit case for a class action,” the notice said. It alleged that Meesho has taken no remedial action so far with respect to the illegal transactions.
The law firm warned that its clients may take this issue to court and cyber police if Meesho fails to give undertaking that it will comply with the Consumer Protection Law, IT Law, Privacy Law and other relevant laws that prohibit such exploitation of consumers.
“As soon as Meesho received the legal notice, we immediately initiated both our customer and legal teams. Our customer team has already initiated the refund and the legal team is in the process of responding to the legal notice. We are very cognisant of the situation and will take appropriate actions,” Meesho said in an email response to Mint. Queries sent to Shadowfax did not elicit a response till the time of going to press.
The case of ghost orders was first brought to light by technology news website Entrackr last month after several users took it to online forums and social media complaining about receiving products that they have not ordered. Meesho helps resellers on the platform, most of whom are women, source products through its network and sell to their community or group on WhatsApp or Facebook. The profit margin set by the reseller is shared by Meesho. Last month, it introduced a zero percent commission program which according to the company allows sellers to keep 100% profits to themselves.
According to Entrackr, Meesho’s structure helps resellers earn a commission (from placing ghost orders) if an item is accepted by a customer while they don’t suffer any losses if the item is refused as the cost of sending or returning a product is not borne by the reseller.
Meesho CEO Vidit Aatrey has acknowledged that the platform had seen an increase in cases of misuse by some resellers in sending out unconsented orders. He also announced that the company has appointed Deloitte to conduct a forensic audit to investigate fraudulent orders. Aatrey added these orders also placed a financial burden on the platform as Meesho had to bear the cost of logistics for the orders.
In a follow-up notice on August 13, BananaIP said as per Rule 3 of Information Technology, a grievance officer is required to respond to any grievance or notice within 24 hours of receiving the same and that it has not received an acknowledgement from them yet. The law firm has also reached out to Google with a demand to take down Meesho app. “Through this notice we bring to your attention that the Impugned App (Meesho) is being used for impersonating and defrauding consumers, and is not functioning in compliance with the consumer protection, IT and other laws, which makes it necessary to take it down in order to safeguard the interests of consumers,” the notice said.
It argues that even after the owners are made aware of the fraudulent transactions, no action was taken to remedy the same and its availability on Google Play Store means the app continues to be susceptible to fraudulent transactions that can harm consumers. “It may be noted here that the CEO of the Meesho app has himself admitted that it would take some time for the consulting firm engaged by them to review and resolve the issue, which makes it necessary to take the app down until the issue is fully resolved to the satisfaction of Google's policy and laws enforced in India,” the notice said.