Laws of Indian ecommerce or the Lack of It!

2007 is regarded as the birth year of the Indian ecommerce industry. There were online businesses before that too like eBay, but 2007 is regarded as the beginning of the ecommerce wave in India. Despite this fact, in the last 9 years India still doesn’t have a set of laws for the online industry.

In the absence of ecommerce specific laws, Indian Online Seller wanted to explore, where does the industry stand right now in the eyes of the law? So we got in touch with Rakhi Jindal, ‎Senior Associate (TMT) at Nishith Desai Associates, a research based international law firm to understand the legal identity of Indian ecommerce industry.

Here’s what IOS discovered with the help of legal expert Rakhi Jindal.

Set of Acts, Rules & Regulations applied to online marketplaces/ecommerce companies

It is important to identify the difference between a marketplace and ecommerce. While there is no specific legal definition for these terms, they have certain differences, which are important to keep in mind.

E-commerce is simply a method of conducting business through electronic means rather than through conventional physical means. For instance, a company, which has physical stores for selling goods to consumers, may also decide to operate a website through which its customers may place orders for the goods sold by the company.

On the other hand, an online marketplace is a portal, which connects buyers and sellers. The marketplace itself does not undertake the activity of buying and selling – the sale transactions happen between the actual third party buyers and sellers.

Apart from FDI Policy, which regulates foreign investment into the e-commerce industry, all other Indian laws, which would apply to any online business, would apply to e-commerce businesses as well. Such as:

• The Indian Contract Act 1872 would apply to determine whether the arrangements between different stakeholders (i.e. the buyers, the sellers and the e-commerce / marketplace platform itself) has been structured as valid enforceable contracts

• The laws relating to intellectual property (such as the Copyright Act 1957 and the Trademark Act 1999) would be referred to determine the intellectual property rights of the stakeholders. For instance if a seller is selling fake goods of a well-known brand via a marketplace platform, the seller may be prosecuted by the lawful brand owner under the Copyright Act 1957 and the Trademark Act 1999

• The entity, which operates an e-commerce business, would also need to comply with applicable local laws such as the Shops and Establishments Act which are specific to different states, in relation to their physical offices.

• Apart from these general laws, the Information Technology Act 2000 (“IT Act”) contains specific provisions, which regulate online transactions. For instance, the IT Act provides for the validity of contracts entered into via online media such as ‘click’ accept methods

Legalities and formalities one needs to be aware about before entering the ecommerce space

If the Indian company contemplating e-commerce already has or is contemplating foreign investment then they should be aware of the restrictions on foreign investments into the e-commerce sector placed by the Government. For instance 100% FDI is permitted in entities involved in B2B e-commerce and not in retail trading.

Apart from the foreign investment restrictions, e-commerce entities need to be mindful of various other legal issues such as:

• Data protection

• Safe harbours available to intermediaries

• Laws relating to online payments

• Consumer protection issues

• Laws relating to content such as laws on defamation and obscenity

What actions can attract penalties?

• “Any violation of the foreign investment laws can attract investigation from the Directorate of Enforcement under the Ministry of Finance. Violation of the foreign investment laws may lead to penalty up to thrice the sum involved in such contraventions where such amount is quantifiable, or up to two lakh Rupees where the amount is not quantifiable. Further, officers who are in charge of the business of the company may also be proceeded again,” revealed Jindal to IOS

Apart from foreign investment laws, it is important for online businesses to be conscious of the safe harbours, which the IT Act provides to intermediaries. Intermediaries are entities who receive, store or transmit electronic records on behalf of third parties or provide services with respect to such electronic records. Online market places may be treated as intermediaries.

Other penalties are:

• In case of e-commerce portals, that themselves buy and sell goods, the consumer protection laws, the sales of goods law etc. equally applies

• In case of counterfeit or adulterated goods penalties under specific laws such as the Copyright Act and Food Safety and Standards Act, 2006 will also apply

• In case of sale of prohibited items such as drugs, the penalties under Drugs and Cosmetics Act 1940 may also get attracted

Attention Sellers

IOS asked if selling on marketplaces gives sellers immunity from being punished for wrongful practice because there is no ecommerce centric law.

Jindal asserted, “No, if a seller is selling counterfeit goods on an e-commerce platform, the seller will not face immunity due to the fact of transacting on a marketplace. The general laws in relation to counterfeit products, copyright law etc. equally applies to e-commerce space.”

So any Indian seller associated with any online marketplace or an ecommerce company has to take care of the following points:

• Spelling out Shipping & Delivery policy in clear words

• Spelling out Refunds Policy in clear words

• Spelling out the condition of the product (new, used, refurbished etc.)

• Not infringing the Copyright Act

• Sell only original products

• Adhering to Consumer Data Protection and Privacy guidelines

Indian Ecommerce Law needed ASAP

Lawlessness leads to a chaotic situation. And we see that happening in the ecommerce industry. IOS has tons of articles about offline retailers’ body filing cases every now and then, various Indian State Tax officials opening new probe for some violations, ecommerce leaders defining & redefining their business model as per their convenience and insisting that they are not breaking any rules.

This is why the industry needs precise legal framework so that each party involved is protected and doesn’t indulge in unfair business practices.

We asked Jindal, as a legal expert what does she think is the need of the hour for the Indian ecommerce industry.

• “Indian law currently does not define marketplace and the foreign investment laws do not specifically refer to marketplaces. There is a requirement to provide certainty to stakeholders on the status of marketplaces with respect to foreign investments,” she replied.

IOS hopes that uniform and fair tax policies become a reality soon that:

• Provides definition of an online marketplace

• Clear FDI norms and restrictions

• Lists all State taxes applied

• Proclaims an online player like Flipkart, Amazon’s liabilities

• Right business ethics for online business that doesn’t hamper offline retailers’ business

• Seller Protection Act to solve their grievances