Grofers has millions in its warchest but cannot spend any of it to sell baby foods at a discount as laws prohibit it. Flipkart had to go to court after the Kerala government asked it to pay up Rs.49 crore in taxes. Lawyers of Ola and Uber have spent much of last year in court after several states clamped down on app-based cab services.
Spunky start-ups encountering disputes and lawsuits that come with rising web commerce in uncharted terrains are responding by adding muscle to their legal teams.
Web grocer Grofers, delivery firm Roadrunnr and ride hailing firm Ola are among those putting together legal teams, while Paytm is expanding its existing legal team given the growth in its business. At many such companies, finance teams handle compliance-related matters while legal functions are outsourced to law firms.
However, some of the fast-growing start-ups now want to move legal functions that have an impact on their business in-house to enable faster decision making. To be sure, companies continue to rely on specialist law firms for legal matters related to mergers and acquisitions, fund-raising and even in case of vendor disputes.
To deal with such operational issues and to advise firms on business strategy, Grofers is looking to hire a counsel and set up a legal team of five people.
Ashneer Grover, chief financial officer at Grofers, pointed to the “plethora of laws” for Grofers, a hyperlocal delivery start-up. It can’t offer any discounting on baby food as the India Milk Substitutes Act controls marketing practices of baby food manufacturers. “So our discounting decisions need to take into account laws that exist in a particular category.”
Besides operational issues, disputes on brand protection and lawsuits by consumers and vendors are beginning to trouble e-commerce companies. The five large marketplace companies Flipkart Ltd, Snapdeal, Amazon India, Shopclues.com and Paytm have more than 50,000 vendors selling on their platforms. Many vendors sell on multiple platforms.
According to Ashish Chandra, general counsel at Snapdeal, disputes involving consumers and buyers are up by over 50% in the last one year because of this volume. Law firms have taken note too. “We have seen disputes involving e-commerce companies on the rise and our litigation practice in this space has doubled over last couple of years,” said Vaibhav Parikh, partner, Nishith Desai Associates, a law firm, without revealing specific numbers.
Quite often, litigation can be avoided by having the right legal framework in place. Many shopping portals get routinely pulled up for listing spurious goods. This can be easily avoided by having the right documentation, which is why they need a team in place, points out Suneeth Katarki, partner at legal firm IndusLaw. Bigger e-commerce companies are also expanding their legal practice to hire people with expertise in mergers and acquisitions and fund raising, in addition to other functions. In 2015, Snapdeal added 15 legal professionals to its five-member team. Amit Sinha, human resources head of Paytm, said his company is doubling the strength of its legal team in the next five months from 10-12 to 20-22.
“We want to place people with legal background in our North, South, East and West regions. So that all our business decisions are evaluated from the legal angle and also because we want our representatives in each hub to take up matters that come up with state courts and law enforcement,” said Sinha.
Uncertainty around regulation and compliance is also driving start-ups to hire more legal talent. “Labour laws in the country have still not caught up with modern businesses like ours. So, we are working with the government so that there is legal space for companies like us too to exist,” said Mohit Kumar, co-founder and CEO of Roadrunnr, a hyperlocal delivery start-up, which is setting up a legal team and looking for a general counsel.
In October, 2015, the ministry of road transport issued guidelines for ride hailing services such as Uber and Ola, identifying them as on-demand information technology-based transport aggregators, although it is still up to the states to accept or reject this. In July, Mint reported that Ola is looking to hire a counsel, and a person close to development said that the position is still open. Ola, Uber, Flipkart and Practo Technologies Ltd did not comment for this story.
“We received about 10 mandates for placing a general counsel, and we expect at least 20-25 queries in 2016,” said Rohit Srivastava, partner at LongHouse Consulting, a boutique consultancy firm.
“In 2015, we saw only 5% of all legal hiring demand from e-commerce firms, we expect that to increase to 30% in 2016,” said Balanand Menon, head-consulting at Vahura.