Foreign Direct Investment (FDI) Regulations for Foreign Investors in E-Commerce in India: Lawyers Advice on Foreign Investments in India | | FDI Attorney in Delhi NCR | FDI Attorney in India | India Business Entry
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The buying and selling of products or services in exchange of consideration using Internet is called E-commerce. India has traded in the past for example silk route, spice route etc but the order of the new world has changed paving its way to becoming more technological friendly. India’s e-commerce industry is expected to become thrice as large by the end of 2021.
PROCEDURE TO SET UP E-COMMERCE IN INDIA
There are two ways by which an entity can become a market participant;
1) Creating your own Proprietary E-commerce website
This will require a website development team, payment gateway and an online marketing team. It takes time and funds for a long term initiative to make it a successful establishment.
2) Joining an already established Market
In this all the work has already been done by the existing platform like online marketing, payment gateway etc. Seller can be a part of more than one of such marketplaces. Some of the famous e-commerce market places are Flipkart, Amazon, Snap deal, Paytm etc.
LEGAL FORMALITIES TO SET UP
The following registration is compulsory;
1) Company or LLP Registration
It is best to have a company or a limited liability partnership to ease up the process of business. This would also help in getting GST registration and bank account in the name of business easily.
2) Goods & Services Tax GST Registration
It is a must to get GST registration both in proprietary as well as established e-commerce business
3) Payment Gateway
Only one payment gateway is required to process customer’s payment through credit card, debit card, net banking or internet banking in the case of proprietary e commerce website. However in case of online marketplace, there is no need for payment gateway but only bank account for payment.
4) Terms And Conditions
All the terms and conditions should be disclosed in the website for the purpose of clarity to the customer. In the case proprietary, all the terms and conditions are to be formulated. And in an online marketplace, the seller’s agreement has to be abided by the seller which has already been formulated by the platform.
FDI BARRIERS AND REGULATIONS
Under the FDI policy the term “e-commerce” includes both products and services sold digitally as well as digital products and services. In a B2C market, the ecommerce entity acts as a facilitator and does not keep inventory so it’s called Market based model, keeping inventory in India is not allowed. In B2B, the inventory is kept therefore its called inventory based model.
In case, an e-commerce entity is operating an ‘online marketplace’ then it is subject to further restrictions under the FDI Policy (Press Note 2 of 2018).
OTHER LAWS AND REGULATIONS RELEVANT TO E COMMERCE
• Indian Contracts Act, 1872 read along with Information Technology Act, 2000
• Information Technology Act, 2000 (IT Act)
• General Data Protection Regulations ( GDPR)
• Payment and Settlements Systems Act, 2007 and other RBI regulations for payment.
• Intellectual Property Issues
• Legal Metrology Act, 2009 read along with Legal Metrology (Packaged Commodity) Rules, 2011
• Sale of Goods Act, 1930.
• Consumer Protection Act, 1986,
• Competition Act, 2002
THE FUTURE OF E COMMERCE
E Commerce in India will change drastically by keeping in mind the “Draft E-commerce Policy” which was published in 2019. It is drafted with a paternalistic attitude of the state towards its users and the technological advancement that should be considered with the ever changing development in the field of science which will empower the e-commerce industry. It gives a visionary approach of India’s digital economy.
The issues that are dealt with in the Draft policy;
• Data
• Infrastructural development
• E commerce market places
• Export promotion
• Stimulating digital economy
• Regulatory issues
THE CASE OF PAYTM (2016)
The demonetization opened new horizons for many e commerce industries. It turned out to be beneficial for Paytm Application that is used for cashless transactions. To improve its business it diversified and launched Paytm payment banks at the end of 2017. People relied more on cashless transactions and linked their banks to Paytm for better and convenient transactions. It does not only act as a mini ATM for everyone but also is an E-commerce market place.
INTERMEDIARY’S LIABILITY
The relevant case of Amway India Enterprises Pvt. Ltd. V 1MG Technologies Pvt. Ltd & Another CS (OS) 480 of 2018 the market place to enjoy the status of the intermediary has to adhere to the guidelines mentioned in Intermediary Guidelines, 2011. Non compliance would take them out of the safe harbor. They would be held accountable for any loss that is suffered by the vendor.
In a similar findings in the judgment of Amazon seller Pvt. Ltd. v M/S Indusviva Health Science Pvt. Ltd. MFA 8411 Of 2019 The marketplace entity was advertising, selling, exploiting the goods of the concerned vendor which caused a loss. The entity pleaded that it just acted as an intermediary but the court held that it was not acting with due diligence. The e-commerce entity not only provides logistics support but also issues bills which makes it quite easy for the market place entity to exploit the vendor’s situation.
The E-commerce sector is ever evolving driven by technology advancement and data. So the National E-commerce policy aims at combining Make in India and Digital India for making it profitable for both buyers and sellers, in other words the market participants. The government is making regulatory changes so that India becomes one of the largest stakeholders by harnessing its true potential of the ecommerce industry.
Important Link https://dipp.gov.in/whats-new/press-note-2-2018
Authored By: Adv. Anant Sharma & Shivangi Ghosh