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E-Commerce Laws And Regulations In India

E-commerce is a game changer for the Indian economy and the future of 'Digital India’. The ability of major firms in the Indian market to adapt and change with the times is critical to their success during the Internet Age.

The Organisation for Economic Cooperation and Development (OECD) defines E-Commerce as a new way of doing business, defined as transactions that take place over networks that use non-proprietary protocols established through an open standard-setting process, such as the Internet. learn on about E-Commerce Laws And Regulations In India.

Table of Contents


E-commerce is a method of conducting business electronically rather than through traditional physical means. This includes all internet-based retail activities such as purchasing goods, receiving services, delivery, payment facilitation, and supply chain and service management. Get to know about the E-Commerce Laws and Regulations in India.

Growth of E-Commerce

Government initiatives such as Startup India, Digital India, the allocation of funds for the BharatNet Project, the promotion of a “cashless economy,” and the launch of the Unified Payment Interface by the RBI and the National Payment Corporation of India have all contributed to the country’s e-commerce sector’s growth and success.

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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

E-commerce Laws FDI Policy

There are two models of E-Commerce Laws as defined in the Indian FDI Policy:
  • Marketplace Model: E-commerce business registration on a digital and electronic network to serve as a facilitator between buyer and seller is known as the marketplace based model of e-commerce. The marketplace charges sellers a commission for the service it renders. The largest online marketplaces now operating in the nation are Naaptol and Shopclues.
  • Inventory Model: A business that engages in online commerce using an inventory-based model possessing a supply of products and services that are sold directly to customers. Likewise, the seller is an online retailer that stocks it straight from brands and sellers. One such example is Myntra.

It is significant to note that, in accordance with the Government’s regulations on FDI in the e-commerce industry, FDI is allowed under the automatic route in full under the marketplace model of e-commerce laws but not under the inventory-based model.

Additionally, 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 Laws. 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 laws.
  3. It is legal for an Indian manufacturer to sell its single-brand goods through e-commerce retail. The investee business, which is the owner of the Indian brand and manufactures at least 70% of its products in-house and sources a maximum of 30% of its products from Indian manufacturers, would be considered the Indian manufacturer.

Link with Payment and Settlements Systems Act, 2007

A ‘payment system’ is a mechanism that permits payment to take place between a payer and a beneficiary. additionally involving a stock exchange but excluding a clearing, payment, or settlement service. By adhering to the pertinent guidelines set by the RBI on online payments, an e-commerce company must be eligible to function as a payment system. Furthermore, a Nodal Account must be operational for the purpose of settling the payments of the merchants on an intermediary’s online e-commerce platform in order for that intermediary to receive payments via electronic means.

Regulations Pertaining to Labelling and Packaging

An e-commerce business must adhere to and meet the labeling and packaging requirements set out by the Legal Metrology Act of 2009, the Food Safety and Standards Act of 2006, the Drugs and Cosmetics Act of 1940, and other relevant laws. In accordance with the Legal Metrology Act, 2009 read with the Legal Metrology (Packaged Commodity) Rules, 2011, the online platform is required to provide the necessary details about the items being displayed. On the product page itself, they must include information like size, weight, and other attributes.

Sales, Shipping, Refunds, and Returns Under E-commerce Laws

The Sale of Goods Act, of 1930 regulates what information the entity’s sales and shipping policy must provide. Moreover, such as the guarantees, terms, and the transfer of ownership in commodities. In addition, the policy must state whether return/refund options are available or not.

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

The IT Act regulates the requirements for electronic contract validity, proposal communication and acceptance, proposal withdrawal, and contract creation between buyers, sellers, and intermediaries. Furthermore, any online platform’s terms of service, privacy policy, and return policies must be enforceable contracts.

Scope of 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 be governed by the Intermediary Rules 2011, under the IT Act.

In addition, the European Union’s General Data Protection Regulation (GDPR India) came into force in 2018. Additionally, to safeguard the data of EU citizens; affecting practically all companies and organisations around the world that do business with the EU,  failure to protect personal data might result in steep penalties of up to €20 million, or 4% of their annual global revenue.

Types Of Business Models Under E-Commerce

E-commerce, or electronic commerce, encompasses a variety of business models that facilitate online transactions and the exchange of goods and services. Each model serves a distinct purpose, catering to different market dynamics and consumer needs. Understanding these business models is crucial for businesses entering the digital marketplace. 

Here are some prominent types of business models under e-commerce:

  1. Business-to-Consumer (B2C):

Definition: B2C is one of the most common e-commerce models where businesses sell products or services directly to end consumers.


– Direct Sales: Businesses showcase their products or services on online platforms, allowing consumers to purchase directly.

– Consumer-Focused Marketing: Marketing strategies are tailored to attract individual consumers.

– Examples: Online retail stores, subscription services, and online marketplaces.

  1. Business-to-Business (B2B):

Definition: B2B e-commerce involves transactions between businesses, where one business sells products or services to another.


– Bulk Transactions: Typically involves large-scale transactions and bulk purchases.

– Negotiations: Prices and terms are often negotiable, and contracts may be established for ongoing relationships.

– Examples: Wholesale platforms, manufacturers selling to retailers, and business service providers.

  1. Consumer-to-Consumer (C2C):

Definition: C2C e-commerce facilitates transactions between individual consumers, allowing them to buy and sell directly.


– Peer-to-Peer Transactions: Individuals can list products or services for sale, and other consumers can purchase from them.

– Online Marketplaces: Platforms connect individual buyers and sellers.

– Examples: Online auction sites, classified platforms, and peer-to-peer marketplaces.

  1. Consumer-to-Business (C2B):

Definition: C2B reverses the traditional model, where individuals offer products or services, and businesses act as consumers.


– Individual Sellers: Individuals provide goods, services, or expertise to businesses.

– Reverse Auctions: Businesses may accept bids or proposals from individuals.

– Examples: Freelance platforms, influencer marketing, and user-generated content.

  1. Business-to-Administration (B2A):

Definition: B2A involves transactions between businesses and government entities or administrations.


– Government Procurement: Businesses may provide goods or services to government agencies.

– Online Government Services: Businesses collaborate with government platforms for service delivery.

– Examples: E-procurement platforms, government service portals, and tax filing platforms.

  1. Consumer-to-Administration (C2A):

Definition: C2A e-commerce involves transactions between individual consumers and government entities.


– Online Citizen Services: Individuals access government services and information online.

– Fee Payments: Payment of taxes, utility bills, and government fees through online platforms.

– Examples: Online tax filing, government service portals, and citizen engagement platforms.

Laws Governing E-Commerce Information Technology Act, 2000 (“IT Act”)

Here’s an overview of the key aspects of the IT Act relevant to e-commerce:

  1. Electronic Contracts (Section 10A):

Definition: The IT Act recognizes the validity of electronic contracts. Section 10A states that contracts formed through electronic means shall not be deemed unenforceable merely because they are in electronic form.


– E-commerce transactions, including online purchases and agreements, are legally binding.

– Parties involved in electronic contracts have the same legal standing as traditional paper-based contracts.

  1. Digital Signatures (Section 3):

Definition: Section 3 of the IT Act provides legal recognition to digital signatures. Digital signatures authenticate the identity of the sender and indicate their approval of the information contained in an electronic record.


– Digital signatures are crucial for ensuring the integrity and authenticity of electronic records.

– E-commerce platforms often use digital signatures to secure transactions and documents.

  1. Electronic Records and Authentication of Documents (Section 5):

Definition: Section 5 of the IT Act validates the use of electronic records for various purposes. It also establishes the legal recognition of electronic documents when authenticated by digital signatures.


– E-commerce businesses can maintain records electronically, streamlining documentation processes.

– Authentication through digital signatures enhances the security and legal validity of electronic documents.

  1. Regulation of Certifying Authorities (Sections 17-35):

Definition: Sections 17 to 35 of the IT Act regulate certifying authorities that issue digital signatures. Certifying authorities play a crucial role in ensuring the trustworthiness of digital signatures.


– Certifying authorities are accountable for verifying the identity of individuals or entities receiving digital certificates.

– E-commerce platforms may collaborate with recognized certifying authorities to enhance the credibility of their digital transactions.

  1. Due Diligence for Intermediaries (Section 79):

Definition: Section 79 of the IT Act provides a safe harbor to intermediaries, such as e-commerce platforms, protecting them from liability for third-party content hosted on their platforms.


– E-commerce intermediaries are protected from legal repercussions for content posted by users.

– Platforms must adhere to due diligence practices to maintain safe harbor protection.

  1. Cybersecurity Measures (Section 43):

Definition: Section 43 of the IT Act addresses unauthorized access to computer systems and data. It outlines penalties for unauthorized access, data breaches, and other cybersecurity offenses.


– E-commerce businesses must implement robust cybersecurity measures to protect customer data and sensitive information.

– Unauthorized access or data breaches may lead to legal consequences for non-compliance.

E-commerce FDI Policy

The Foreign Direct Investment (FDI) policy in India plays a significant role in regulating foreign investments in the e-commerce sector. The government has established specific guidelines to ensure fair competition, protect consumer interests, and promote the growth of the e-commerce industry. Here’s an overview of the key aspects of the e-commerce FDI policy in India

Marketplace Model vs. Inventory Model:

Marketplace Model:

Definition: In the marketplace model, e-commerce platforms act as intermediaries, connecting buyers and sellers. The platform facilitates transactions without owning the inventory of goods.

FDI Permitted: 100% FDI is allowed in the marketplace model under the automatic route, meaning no government approval is required.

Regulations: The platform must operate as a pure marketplace, and inventory ownership, direct sales, or influence over prices is prohibited.

Inventory Model:

Definition: In the inventory model, e-commerce platforms own and sell goods directly to consumers. This model involves holding inventory and managing order fulfillment.

FDI Restricted: FDI is not allowed in the inventory model. E-commerce platforms with an inventory model are considered as engaging in multi-brand retail trading, which has FDI restrictions.

FDI Restrictions in Multi-Brand Retail Trading:

FDI Cap: Multi-brand retail trading, including the inventory model of e-commerce, is subject to a cap of 51% FDI. Foreign retailers can have up to a 51% equity stake, and beyond this threshold, government approval is required.

Local Sourcing: FDI beyond 51% requires mandatory local sourcing of at least 30% from Indian suppliers. This local sourcing condition is aimed at promoting domestic industries.

FDI in Single-Brand Retail Trading:

FDI Cap: Single-brand retail trading allows 100% FDI under the automatic route, meaning no government approval is required.

Local Sourcing Requirements: Initially, single-brand retailers with more than 51% FDI had to meet mandatory local sourcing norms. However, in recent years, the government has relaxed these requirements for certain categories.

Cash-and-Carry Wholesale Trading:

Definition: Cash-and-carry wholesale trading involves wholesale trading of goods through a membership-based model.

FDI Permitted: 100% FDI is allowed in cash-and-carry wholesale trading under the automatic route.

Restrictions: Retail sales to end consumers are prohibited. The focus is on serving business customers such as retailers, traders, and other businesses.

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. 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

There is a dearth of Indian case law on the subject of the jurisdiction in the e-commerce industry. The occurrence of several transactions makes dispute resolution difficult, particularly in the B2C sector.   Many local statutes, in general, allow for a long-arm jurisdiction, which means that the execution of such local laws has extraterritorial application if an act or omission has certain illegal or unfavorable effects within the country’s territory.


What are the legal requirements for electronic contracts and digital signatures in the context of e-commerce in India?

Electronic contracts are legally recognized in India under the Information Technology Act. Digital signatures are essential for authentication, and compliance with the act ensures the validity of contracts entered into electronically.

How are disputes resolved in e-commerce transactions, and what mechanisms are in place for online dispute resolution in India?

Dispute resolution in e-commerce often involves alternative dispute resolution mechanisms, including online dispute resolution platforms. The Consumer Protection Act and other relevant statutes provide a framework for dispute resolution.

What are the regulations concerning online advertising and marketing practices for e-commerce businesses in India?

E-commerce businesses must adhere to consumer protection laws and advertising standards. The Consumer Protection Act, 2019, regulates misleading advertisements and ensures fair business practices.

Are there restrictions on foreign investment in Indian e-commerce companies, and what compliance requirements do foreign entities need to adhere to?

India has introduced FDI policies specific to e-commerce to balance the interests of domestic sellers. Understanding these policies, such as limitations on inventory-based models, is crucial for foreign entities.

How does Goods and Services Tax (GST) apply to e-commerce transactions, and what are the compliance obligations for e-commerce sellers?

E-commerce transactions are subject to GST in India. E-commerce operators and sellers must comply with GST registration, collection, and remittance obligations. Understanding the GST framework is vital for seamless operations.

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