DISCLAIMER: As per the rules of the Bar Council of India, law firms are not permitted to solicit work or advertise. This article is solely for the purpose of providing information and creating legal awareness about the 2026 SOP impact on businesses. The content herein should not be interpreted as legal advice or a solicitation of legal work.

Collateral Damage or Protected Class? The 2026 SOP Impact on Merchants & P2P Traders

E-Commerce & Commercial Law | By M S Sulthan Legal Associates | January 2026

In the aggressive fight against financial cybercrime, legitimate businesses often become collateral damage. A customer purchases goods using stolen money, and days later, the merchant's entire bank account is frozen. The Standard Operating Procedure (SOP) released by the I4C on January 2, 2026, attempts to address this by distinguishing between "Mules" and "Merchants," but it also introduces strict liabilities for businesses.

This analysis breaks down what E-commerce platforms, Offline Merchants, and P2P (Peer-to-Peer) Traders need to know to survive the new regulatory landscape.

1. The "Stop-Delivery" Mandate for E-Commerce

The SOP explicitly brings E-commerce platforms and merchants under the purview of immediate action. If funds in a Merchant's pool account are flagged as "Disputed" or "Fraudulent," the SOP mandates a specific protocol based on the delivery status:

Scenario A: Goods NOT Delivered

If the police alert the merchant/platform before the goods are delivered:

The Merchant is legally bound to cancel the order immediately.
The funds received must be put on "Hold" and eventually reverted to the victim.
Benefit: The merchant retains their inventory and avoids liability.

Scenario B: Goods ALREADY Delivered

If the delivery is complete before the alert arrives:

The Merchant cannot be forced to refund the money immediately if they are a legitimate business.
Instead, the Merchant must provide full KYC details of the buyer (Name, Address, IP, Phone) to the police.
The Risk: While the SOP theoretically protects the merchant here, in practice, banks often freeze the merchant's account anyway until the police issue a specific "No Objection" instruction.

2. The High-Risk Zone: P2P Crypto Traders

Peer-to-Peer (P2P) crypto trading (e.g., on Binance, Bybit) is the most dangerous activity under the new SOP. Unlike registered E-commerce merchants, P2P sellers are often viewed with suspicion by the I4C framework.

The Legal Reality: When a P2P seller receives INR for selling USDT, and that INR turns out to be proceeds of a cybercrime:

The police often classify the seller as a "Money Mule" (Layering Agent) rather than a "Merchant."
Pro-Rata Application: The funds in the seller's account may be subject to the "Pro-Rata Distribution" to victims, meaning the seller loses the money even though they have already released the crypto assets.
Defense Strategy: P2P traders must maintain rigorous "Counterparty Due Diligence" (video verification of the buyer, matching bank names) to prove they are bona fide sellers and not complicit money launderers.

3. Protection Against "Double Loss"

A major fear for businesses is the "Double Loss" scenario: losing the goods (delivered to the fraudster) AND losing the money (frozen/reversed by the bank). The 2026 SOP provides a legal basis to fight this.

Legal Action: If a merchant can prove Bonafide Sale (Invoice, E-way bill, Proof of Delivery), they can file a representation to the Investigating Officer under Section 106 BNSS, arguing that they are a "Holder in Due Course" of the funds. The SOP encourages police to pursue the *goods* (from the buyer) rather than penalizing the *merchant*, provided the merchant cooperates fully.

Conclusion: Compliance is the New Security

For merchants in 2026, KYC is not just a banking formality; it is an insurance policy. If you cannot identify who paid you, the law presumes you are part of the laundering chain. Businesses must update their Terms of Service to allow for immediate order cancellation and data sharing with LEAs upon receiving a Section 94 BNSS notice.

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