Legal Guidelines, Procedures, Rues & Regulations for E-Commerce Companies in India: Lawyers Advice
E-Commerce plays an integral role in everyone’s life. It is not a privilege but a necessity for a large part of the urban population. From cloths to electronics and from vegetables to books, people are using E-Commerce to buy and sell almost all products used by a any person. E-Commerce in most simple words refers to the buying and selling of goods through electronic medium using the internet.
With the increasing penetration of Internet and the increasing truth of people in online buying coupled with cheap phone and increasing technological knowledge amongst people, e-Commerce business is growing at a rapid rate in India. It is estimated that India’s eCommerce industry is expected to jump threefold to $84 billion by 2021. Therefore, this makes India a hotspot for people to invest in the e-Commerce industry.
FOREIGN DIRECT INVESTMENT (FDI) POLICIES THAT FOREIGNERS SHOULD KNOW BEFORE INVESTING IN INDIA
FDI Policies in India is regulated by the Department for Promotion of Industry and Internal Trade (DPIIT) and the Department of Industrial Policy and Promotion (DIPP) under the Foreign Exchange Management Act, 1999 (FEMA). The FDI Policies definition of ‘e-Commerce’ does not only include the products that are traded on the digital platform but also includes digital products and services. It has divided the E-Commerce into two categories:
Marketplace Model: When the E-Commerce entity only acts as a facilitator of the transaction between buyer and seller and has no control over inventories.
Inventory Based Model: When the E-Commerce platform owns the goods being sold on the platform.
Indian FDI Policy allows 100% foreign investment in E-Commerce platform engaged in B2B business only and not in B2C and also prohibits any foreign investment in E-Commerce platform engaged in inventory based model. (Press note 2 of 2018 by DIPP).
Other conditions laid down under the FDI Policy:
• E-Commerce entity involves as marketplace model shall not own or control of the inventory of goods being sold online. An entity would be deemed to have control over the inventory of the vendor if more than 25% of the sales of the vendor are through the E-Commerce entity.
• E-Commerce entity cannot enter into an exclusive seller agreement with vendor to sell a product exclusively on the platform.
• E-Commerce entity should ensure a level playing field and not directly or indirectly effect the sale price of goods and services.
• An entity having equity participation by E-Commerce marketplace entity or its group companies, or having control of its inventory by e-Commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.
The two easiest ways for a Foreign Nations & their Corporations can invest in Indian companies engaged in E-Commerce are:
1) Investing in business indulged in whole sale business (where 100% FDI is allowed via automatic route) which owns the inventory and is involved in B2B online business
2) Investing in business involved in technology services (where 100% FDI is allowed via automatic route) which provides technological services to E-Commerce platforms.
Even while following such models, a foreign investor has to ensure compliance with the FDI Policies.
OTHER LEGAL ASPECTS WHICH HAS TO BE KEPT IN MIND BY E-COMMERCE ENTITY, IRRESPECTIVE OF WHETHER THE BUSINESS HAS FDI OR NOT.
Indian Contract Act, 1872: In order to complete an online transaction by e-Commerce entity, the presence of binding contract is a must. E-contract like any other contract on paper is governed by the Indian Contract Act, 1872. Therefore, in order for it to be valid, the contract has to be entered into wilfully and should involve a lawful consideration as per section 23 of the Act.
Further, E-Commerce entity have to ensure that the contract is not unconscionable under section 16(3) of the Act. If the contract is opposed to public policy or extremely one sided favouring the dominant party, then the contract in itself would be deemed void.
Information Technology (IT)Act, 2000: Reasonable Practices and Procedures and Sensitive Personal Data Or Information Rules, 2011 laid down under section 43A of the IT Act, lays down the framework to be followed to ensure the privacy of Personal Information and Sensitive Personal Information. Further, it lays down a penalty of imprisonment up to 3 years or/and fine of Rs. 5 Lakhs for the unauthorised disclosure of such information.
Further, what would be the liability of an E-Commerce website which is only an intermediary for any action taken by third party? Section 79 of the Act exempts an intermediary, who acted a mere facilitator of a transaction from any liability if certain requirements are fulfilled. However, in case the intermediary fails to take action against the third party on being notified that any information or data residing or controlled by the intermediary’s site is being used for unlawful purposes, the intermediary shall not be entitled to the exemption.
Consumer Protection Act, 2019: As per the E-Commerce guidelines for Consumer Protection, 2019 released by the Department of Consumer Affairs and Ministry of Consumer Affairs, E-Commerce entity shall not indulge in false representation or not exaggerate the features and the quality of any product in any way whatsoever. Further, the e-Commerce is under an obligation to clearly lay down all the details of the product and their policies to enable the consumers to make an informed choice. Also, the website shall clearly state the name and details of grievance officer and any grievance shall be resolved within one month from the date of filing the complaint.
Intellectual Property Rights (IPR): As the internet today has minimum regulations governing it, it becomes important for e-businesses to protect their Intellectual Property. One of the most important thing to be protected is the design of the website. The website design is what attracts the people and help to create a friendly and interactive environment. The source code used to design the site can be protected under the Copyright Act, 1957 as a literary work. The second aspect that has to be protected is the domain name which is the identity of the business online and is the source for the people to reach out to the business. Domain names can be protected under the ambit of the Trademarks Act, 1999. Court in India have been very active in protecting domain names and have equated them to Trademarks and hence, entitled them to an equal protection as Trademarks.
Jurisdictional Issues: The use of Internet has created a virtual word with no territorial boundaries. A person in a foreign country can sell goods to a person in India, without actually having a physical office or even an employee in India. Therefore, in case of a dispute, the issue of the jurisdiction of the court arises. Section 75 of the IT Act extends the applicability of the Act to an offence committed outside India but the act constituting the offence involves a computer or computer network in India. Further, Section 3 of the Indian Penal Code, lays down that if a person is liable under Indian laws but act was committed beyond the territories of India, the person can still be tries in India as if the act was committed within India.
There is not much jurisprudence on the jurisdictional issue in E-Commerce cases however, the court have often taken a liberal stance as far as the jurisdiction is concerned. Like in the case of World Wrestling Entertainment vs M/S Reshma Collection & Ors FAO (OS) 506 of 2013 & CM Nos. 17627 of 2013, 18606/2013, the Hon’ble Delhi High Court laid down that the jurisdiction can assumed by the Court where the purchaser of the online goods resides.
Therefore, India has strong laws and regulations governing the business of E-Commerce. It tries to ensure the full protection of the buyer, seller as well as the E-Commerce platform. The Government of India is bringing in a change in regulations in order to ensure that the best potential of the e-Commerce and to make it a key market for the E-Commerce stakeholders across the world. E-Commerce industry it at a rapid growth in India and with the strong protective laws and a large market, it become a favourable option for a foreign investor to invest in. Though FDI policies in India have become stringent in order to protect the domestic market, an investor can opt for Indirect Investment into the Indian market. Therefore, investment by a foreigner in E-Commerce in India would be a tricky business but nevertheless would be worth a great fortune.
Authored By: Adv. Anant Sharma & Ananya Jain