Chinese Company Misusing "Force Majeure"
How did a Chinese app dupe customers after getting banned in India?
The ban of 267 Chinese apps in India sent shock waves through the entire country. Some hailed the move as a worthy strike against China, while others lamented the ban of Tik-Tok, PUBG, Shein, and other apps that had become their lifeline.
But, there was also a class of small businesses that were duped and destroyed because of this ban.
Club Factory that had once become the third-largest shopping app in terms of monthly active users, disappeared from the scene after the ban. All it did was invoke something called a “Force Majeure”, and walked out without making any payments to the sellers to whom it owed money.
So, what exactly did Club Factory do?
Well, before going into Club Factory’s modus operandi, let’s understand what “force majeure” really means.
What is Force Majeure?
In a trust deficit environment, contracts are trust enablers. Whether it is to rent a property, purchase office supplies, or provide services, pretty much every significant business activity is backed by a contract.
And you know what, a contract doesn’t necessarily have to be that signed and stamped legal document that you are thinking of right now. It can be any form of an oral or written agreement (of course with some terms and conditions asterisk).
Then why do people sign those jargon-heavy documents that run several pages in numbers? Why waste time in all that hoopla?
Well, because these documents are watertight and give a whole host of what-if scenarios.
What if you take a property on rent but cause a lot of nuisance? What if the furniture goes missing after you vacate the property? When and how can you vacate the property?
You might miss out on them if you were just doing a random contract over mail or call.
And so, contracts provide certainty and comfort. But, what if this certainty was to be taken away. Like now, in the times of Covid.
Don’t worry. A lot of contracts even have a clause for such uncertain situations.
Enter: ‘Force Majeure’.
This is how it typically looks like:
“No party shall be liable or responsible to the other party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement when and to the extent such failure or delay is caused by or results from acts beyond the impacted party’s reasonable control, including, without limitation, the following force majeure events: (a) Acts of God; or (b) [list other potential disasters or catastrophes] …..”
Pretty heavily worded, huh?
But it saves you. All the parties to the contract can list down a whole host of events that they mutually agree with. And when such an event occurs, anyone can take a rain check for some time.
So when covid happened, a lot many people enforced this clause. Companies that had taken office space on lease and were not occupying the space, asked for a reduction in rent payment for as long as the pandemic continues.
Hmmm, you can get away with anything and everything because of Covid?
No, laziness cannot be an excuse. You will have to prove that your side of the deal has been impacted because of Covid or any event as was mutually agreed in the contract.
While force majeure has proved to be a boon to many people who are genuinely in distress, there are also some miscreants who took undue advantage of it.
Club Factory is one of them.
Club Factory’s Modus Operandi
Club factory is an e-tailer (just like Amazon and Flipkart) where sellers list their products for sales to the consumers. While Amazon and Flipkart are more popular for big brands, the small business owners of India found a saviour in the name of Club Factory.
Little did they know that it would turn out to be a wolf disguised as a sheep.
Now, if a vendor made sales to 10 customers in a week, Club Factory would club all these payments and release them to the vendor once a week. But there was always a risk of customers returning the products, so Club Factory would retain 20% of that amount and pay that to the vendor on a later date.
This is where Club Factory played its card.
When the apps were banned, the company simply refused to make payments citing that the app ban was beyond its control and hence was a Force Majeure event. The payments will be released only after the ban is lifted.
But, e-tailers are merely middlemen. They collect the payment on behalf of the seller. They don’t own the money and so they are supposed to keep this amount in an ‘Escrow account’.
So, if Club Factory has already collected the money from the customers, does it make sense for it to not to release the payments to the rightful owners, that is the vendors? How does the ban justify invoking a force-majeure in this case?
The All India Vendor Association has sent legal notices to Club Factory. One year on- they seem to be losing willpower and have given up the cause. The poor small vendors are scared of getting into legal matters and they even lack the means.
On the other hand, the giant Club Factory has hired Khaitan & Co. (it’s a big law firm) as its counsel. How will the small vendors stand a chance?
Well, it’s not the first time that Club Factory has played dirty. Several other instances have also come to light. It has resorted to malpractices such as wrongfully charging higher fees and untimely payments to vendors, avoiding customs duty, and planting its own vendors.
From a distance, it might feel that if the law is on your side, no one can even put a finger on you.
But in reality, even if the law is on your side, winning a legal case is not that easy. The cases drag on and on while you get stripped of money, determination, and optimism. It takes extraordinary strength and grit to keep going against all odds for the truth to win.
And, that’s the sad reality on the back of which the unethical and powerful players mount their ulterior motives. Our heart goes out to these small, brave warriors.
Hustle on.
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