Potential liabilities of online sellers, here’s how you can protect yourself!

Editor | Sep 10, 2020

No business is too small to have legal agreements and registrations in place. If you’ve been selling online without the right legal protection, find out what your potential liabilities are.

If you’re running a small business, you’re far from alone in avoiding or indiscriminately postponing them. Of course, it’s not a wise move. But if your excuse is that it can wait or if you think it will cost you too much money, remember that protecting any liabilities that may arise out of selling online will, in fact, save you much more money than you will spend.

Still not convinced? In this article we’ll consider the possible ways your customers, users of any information you provide, the e-commerce websites you are registered as a vendor with, and the government organisations that can take legal action against you. We will also recommend the preferable legal approach for each case.

Potential Liability: Penalties from Governing Authorities

Amazon and Flipkart won’t be inspecting your goods. They don’t need to because they’ve indemnified themselves from what you sell anway (you will find this in the Vendor Agreement you must sign with them). You need to ensure that what you’re selling is legal and meets specified quality standards or the authorities can take action. It may be that they simply seize your goods, but there may also be huge fines.

Legal Protection

Now, how can you protect yourself in this situation? Well, if your products or services contravene the law, you will end up facing the consequences. There’s no protecting yourself there. What you can do, however, is ensure that your personal possessions are safe should you fall into such trouble. You can do this by setting up an entity that has a separate legal existence – whether a private limited company, limited liability company or one-person company. When transactions are done by these business types, only what you’ve invested in the company or LLP is liable for the debts.

Potential Liability: Incorrect Claims

Particularly if you’re selling via your own website, but even on eBay and Quikr, you need to be accurate in what you claim. If you’re saying that you’re selling a new and original Rolex with the tags on it, that’s what should reach the customer. If you’re claiming that the customer may return it and get his money back if he is unhappy, you can’t revoke this right should he/she decide to exercise it. Even a bid on a product you’ve decided to put up in an auction is a contract between you and the bidder. If you aren’t able to fulfill the requirements, the customer can escalate the matter. If you still reject his demands, legal action can be taken, which, if found in the customer’s favour, would mean a full refund and perhaps compensation, too.

Legal Protection

If it’s your website, ensure that your shipment, returns and cancellation policies are clearly spelled out. This means clearly disclaiming your liability, which you should have a lawyer help you with. The reason is that we often don’t realise the ways in which we could be exposed to liability. For example, if you’re selling goods at a massive discount today, have you set a cap on how many pieces individuals can buy? Many of us fail to even properly define what condition we will take back goods in. A lawyer would ensure that you don’t expose yourself to any more liability than you need to. This would be done through a number of disclaimers throughout your website.

Potential Liability: Passing Off

If you’re running a website, particularly a marketplace, some of the products you list may be knock-offs or fakes. In this case, you will all too often find yourself in receipt of a legal notice. In fact, since the advent of ecommerce, this has been rampant. Most affected companies simply serve legal notices to the owner of the website, even though it has not sold the item itself.

Legal Protection

As you haven’t sold the product yourself, you need to ensure that you have indemnified yourself from all wrongdoing. To do this, you need what is known as a Vendor’s Agreement, which would shift all blame to the seller, rather than the owner of the website.

Potential Liability: Disclaiming Your Responsibility

Again this applies to those selling via their own websites. Let’s say you’re running a website that sells junk jewellery, for which you collect customer details and allow them to make payment via a gateway. If a customer finds that his details have been compromised (let’s say you sold them to a digital marketing agency), you could quickly find yourself in trouble. You would find yourself in much more trouble if you were handling payment and compromised the details (the liability is Rs.5 crore).

Legal Protection

A terms-of-service agreement and privacy policy should spell out what exactly you do (that you’re not collecting payment yourself and, therefore, aren’t responsible; if you’re a marketplace, then that you are just a facilitator) and what you do with customer data (that you may sell customer data to a marketing agency). These agreements tend to be one-sided, in that they protect businesses completely. For this reason, courts may set aside what is contained in them in case it involves a serious issue. But that is not the primary purpose of these agreements. Their main use is in deterring frivolous matters.

This is a guest post by Hrishikesh Datar, founder of Vakilsearch, India’s leading online legal services provider for businesses and individuals. Vakilsearch is a web portal that provides documentation services, business and intellectual property registrations, including copyright and trademark, tax filing and accounts-related services.

About Author



Editor team is specialized in introducing the marketplace content targeting the Indian online sellers. They plan and coordinate to bring the appealing content for the small businesses on how to partner with the e-commerce sites like Amazon and Flipkart and strategies for improving their online business. 

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