E-Commerce Laws and Regulations in India

Last Updated at: Aug 16, 2022
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E-Commerce Laws

On 7th December 2020, the Delhi High Court directed the Centre to verify and inform whether major e-commerce players such as Amazon, Flipkart, and Snapdeal were displaying the ‘country of origin’ for products listed on their websites. The Department for Promotion of Industry and Internal Trade (DPIIT) had set September 30 as the deadline for e-commerce firms to display the ‘country of origin’ for products listed on their websites. The ‘country of origin’ rule was inserted into the Consumer Protection (Ecommerce) Rules, 2020, notified on July 23.

 

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Introduction

It was in 1995 that the Internet was first launched in India, through dialup connections. Ever since then, technology has just been on an evolutionary ascent with online B2B online portals appearing from 1996 to 2007, when the number of players in the e-tailing segment saw a significant rise. E-commerce has made our lives simpler by making it possible to get what we need with a few clicks from the comfort of our homes.

The Organization for Economic Cooperation and Development (OECD) defines E-Commerce as a new way of conducting business, qualifying it as business occurring over networks that use non-proprietary protocols that are established through an open standard-setting process such as the Internet. Under the FDI Policy, ‘e-commerce’ comprises products, both digital and physical, and services traded on digital and electronic networks. 

In simple terms, e-commerce is a means of conducting business electronically rather than conventional physical means. This includes all retail activities conducted over the internet such as purchasing goods, availing services, delivery, payment facilitation as well as supply chain and services management.

Growth of E-Commerce

E-commerce is considered a game-changer for the Indian economy and the future of “Digital India”. The success of big players in the Indian market during the Internet Age depended on their ability to adapt and evolve with the times. While few successfully changed the tides to their favour by setting up online businesses, many failed to keep up and thereby declined. 

Presently, the key stakeholders in e-commerce include the government, travel services (airlines, Indian Rail, bus operators) retailers/manufacturers, entertainment service providers, and many others; enablers of the e-commerce sector such as logistics providers, financial intermediaries, social networking sites, internet service providers call centres, network service providers, etc. help facilitate transactions online.

Government Initiatives such as Startup India, Digital India, allocation of funds for the BharatNet Project, promotion of ‘cashless economy’, the launching of the Unified Payment Interface by the RBI and the National Payment Corporation of India have collectively contributed to the growth and success of the e-commerce sector in the country. Other factors such as constant advertisement of online services leading to increased awareness of the availability of such services have resulted in a greater number of consumers. 

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Applicable Laws & Regulations

Regulatory Technology & Data Protection
  1. Foreign Direct Investment Policy
  2. Further, the Foreign Exchange Management Act, 1999  Companies Act, 2013
  3. Payment and Settlement Act, 2007 and other RBI regulations on payment mechanisms
  4. Labelling and Packaging
  5. Legal Metrology Act, 2009 read with Legal Metrology (Packaged Commodity) Rules, 2011
  6. Sales, Shipping, Refunds and Returns
  7. Moreover, Regulations prescribed by the relevant ministry/state regulations
  1. Information Technology Act, 2000 
  2. Additionally, Information Technology (Intermediaries Guidelines) Rules, 2011 
  3. Information Technology Act, 2000 (IT Act) and General Data Protection Regulations (GDPR).
  4. Consumer Protection Act, 1986
Tax Legal
  1. Income Tax Act, 1961
  2. Double Taxation Avoidance Agreement
  3. Good and Services Tax
  1. Indian Contract Act, 1872
  2. Indian Copyright Act, 1957
  3. The Patents Act, 1970
  4. Intellectual Property Issues
  5. Labour laws

The FDI Policy

There are two models of e-commerce as defined in the Indian FDI Policy:
  • Marketplace Model: Marketplace based model of e-commerce means providing an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller. Further, the marketplace acts as a medium for multiple sellers to interact with buyers and sell their goods. Moreover, the marketplace charges a commission from the sellers for the service it provides. Additionally, Naaptol and Shopclues are the biggest online marketplaces currently functioning in the country.
  • Inventory Model: Inventory based model of e-commerce means an e-commerce activity where an inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly. Likewise, the seller is an e-commerce company that sources directly from brands and sellers and stocks it. Examples include Myntra.
It is important to note that according to the Government’s guidelines on FDI in the e-commerce sector, 100% FDI under automatic route is permitted in the marketplace model of e-commerce whereas FDI is not permitted in the inventory-based model of e-commerce.
Traditional models of commerce that have now transformed into online platforms include:
  • B2B: A business-to-business model involves selling one’s products to an intermediate buyer who then sells the product to the final customer. B2B e-commerce includes distribution services, procurement services, digital/online marketplace like services, etc. A wholesaler might place an order on the company website and sell it through physical retail stores.
  • B2C: In the business-to-consumer model, the manufacturer deals directly with the consumer. The consumer can choose a product and place an order(s) on the company’s website without an intermediary or a marketplace.
  • C2C: Portals such as OLX and Quickr enable consumers to communicate their needs and obtain the same from each other without the involvement of a third-party. E-commerce has made it possible for strangers to trade and deliver products.
  • C2B: The reverse version of traditional commerce models, the consumer-to-business model is relatively new. Here, consumers provide services to businesses thereby creating value for them. This can be seen in forums where consumers provide ideas for product development to companies or give their feedback which is then used for advertisement purposes. 

As per the FDI policy, contained in the ‘Consolidated FDI Policy Circular 2015’ (FDI Policy) FDI up to 100% under automatic route is permitted in Business to Business (B2B) e-commerce. No FDI is permitted in Business to Consumer (B2C) e-commerce. However, FDI in B2C e-commerce is permitted in the following circumstances: 

  1. A manufacturer is permitted to sell its products manufactured in India through e-commerce retail. 
  2. A single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce. 
  3. An Indian manufacturer is permitted to sell its single brand products through e-commerce retail. Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers. 

Other Conditions include:

  1. Digital & electronic networks will include a network of computers, television channels, and any other internet application used in an automated manner such as web pages, extranets, mobiles, etc.
  2. Marketplace e-commerce entities will be permitted to enter into transactions with sellers registered on its platform on a B2B basis.
  3. E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection, and other services.
  4. E-commerce entities providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into an inventory-based model.
  5. An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.
  6. In the marketplace model goods/services made available for sale electronically on the website should provide the name, address, and other contact details of the seller. Post-sales, delivery of goods to the customers, and customer satisfaction will be the responsibility of the seller.
  7. In the marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.
  8. Similarly, In the marketplace model, any warranty/ guarantee of goods and services sold will be the responsibility of the seller.
  9. E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field. 
  10. Further, guidelines on cash and carry wholesale trading as given in para 6.2.16.1.2 of the FDI Policy will apply to B2B e-commerce.

Payment and Settlements Systems Act, 2007

According to the law, a ‘payment system’ indicates a system that enables payment to effect between a payer and a beneficiary. Further, involving clearing, payment, or settlement service or all of them, but does not include a stock exchange. An e-commerce entity has to qualify as a payment system by complying with the relevant rules provided by the RBI relating to online payments. Further, it is mandatory for an intermediary that is receiving payments through electronic modes to have a Nodal Account in operation for settling the payments of the merchants on its online e-commerce platform.

Labelling and Packaging

Any e-commerce entity must comply with and meet the standards relating to labelling and packaging set by the Legal Metrology Act, 2009; Food Safety and Standards Act, 2006; Drugs and Cosmetics Act, 1940 etc. the Legal Metrology Act, 2009 read with Legal Metrology (Packaged Commodity) Rules, 2011 states that the online platform must display requisite information about the goods on display. They are such as dimensions, weight and other features on the product page itself.

Sales, Shipping, Refunds, and Returns

Likewise, the Sale of Goods Act, 1930 covers what the sales and shipping policy of the entity must contain. Additionally, such as the warranties, conditions, and the transfer of property in goods. Further, the policy must also contain the fact of existence or non-existence of return/refund options. 

Indian Contracts Act, 1872 r/w Information Technology Act, 2000

Governs the conditions for validity of contracts formed through electronic means; communication and acceptance of proposals; additionally, revocation, and contract formation between consumers, sellers, and intermediaries. Further, the terms of service, privacy policy, and return policies of any online platform must be legally binding agreements. Additionally, the law is yet to update to deal with the lack of online signatures. Additionally, this will require certain types of contracts and the impossibility of determining the true consumer’s age, with the standard age to enter into contracts set at 18.

Information Technology Act, 2000 and General Data Protection Regulations (GDPR)

E-commerce entities must comply with the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. Intermediary websites and the content they display will govern by the Intermediary Rules 2011, under the IT Act. 

Moreover, the General Data Protection Regulation (GDPR) by the European Union was made effective in 2018. Further, to protect the EU citizen’s data; impacting almost all businesses and organizations across the world that deal with the EU. Additionally, failure to protect personal data will lead to a heavy fine of up to €20mn or 4% of their global turnover.

Intellectual Property Issues

All trademarks and copyrights for the products/text/symbols intended to be used must be secured. While India has a well-defined legal and regulatory framework for the protection of IP Rights. Additionally, it is yet to completely update the laws for complete efficiency in the virtual world. For instance, there is no set law to prevent domain name deception and misuse except for a few judicial pronouncements. 

Jurisdiction Issues

The availability of jurisprudence in India on the issues of jurisdiction in the e-commerce sector is sparse. Settlement of disputes in the B2C sector especially is challenging due to the presence of multiple transactions. Additionally, they are such as ordering, arranging the delivery, and receiving e-payments. In general, a lot of local statutes provide for a long-arm jurisdiction’ whereby the operation of such local laws have extraterritorial application if an act or omission has resulted in some illegal or prejudicial effect within the territory of the country. 

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