Jun 11,2021 | 15 min read

A Complete Guide for E-Commerce Law and Regulations in India

A Complete Guide for E-Commerce Law and Regulations in India 

Author - Drivya Jain

The emergence of globalisation has changed the outlook as well as the functioning of the markets in recent years. A dramatic shift has been witnessed from producer oriented market to customer-oriented ones. One has to keep pace with the customer’s requirement and has to bring in services and products as per global standards. The customers these days are more inclined in purchasing products or availing services while sitting in their pyjamas at the comfort of their home, so evolve the e-commerce industry which has provided to consumers what they need, that is,  innumerable options, click and buy, delivery at doorstep, easy return, etc. now the people can order food while sitting in the office, they can buy grocery over a tea break, clothes are bought while sitting in metro or bus. E-commerce has turned the tables 360 degrees. Today e-commerce has become an integral part of our lives. Accessibility to e-commerce platforms is not a privilege but rather a necessity for most people, particularly in urban areas. Moreover, the increase in Internet subscribers, smartphone users and cheap data rates, revised refund policies have boosted the confidence of consumers in these e-commerce platforms resulting in a surge of e-commerce business in India. India is the fastest-growing market for the e-commerce sector. In this article broad emphasis has been laid on what e-commerce is, why there was growth in the e-commerce industry and how this industry is regulated under various laws in India.

E-commerce or electronic commerce is a conglomerate of two words electronic and commerce and their conjoint meaning would be a business of buying and selling electronically using internet services rather than the traditional physical market. There is no single and universal definition of electronic commerce. Different definitions have been given by different institutions. One of the definitions through which meaning can be understood is:

“Department for Promotion of Industry and Internal Trade (DPIIT), FDI Policy, 2017 “eCommerce” means buying and selling of goods and services, including digital products over digital and electronic networks”.

“Consumer Protection Act, 2019, ‘e-Commerce' means buying or selling of goods or services including digital products over digital or electronic networks”. 

“According to OECD, ‘An e-commerce transaction is the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online”

It must be noted that e-commerce does not only include buying and selling of goods, but also the payment settlement, transaction, delivery, supply chain and management etc.

Reasons for the growth of the E-commerce sector in India

    1. Urbanisation - As more and more people are shifting to urban areas or urban culture is approaching rural areas, there has been a large increase in the number of users of these e-commerce platforms.

    2. Mobile/smartphone adoption - another reason for the growth in the business of e-commerce is the increase in the number of mobile phone users. Nowadays a ten-year-old can easily operate mobile and can shop for himself.

    3. Cheap data connectivity - India’s regime to spread broadband and internet connectivity to every household ( rural and urban ) has boosted the growth of e-commerce. People residing in remote or hilly areas who could not travel much can now easily sell and buy through these e-commerce sites. 

    4. Tapping unique ideas - the main reason for the overall growth of the e-commerce industry is ideas. Earlier only mail catalogue or clothes can be bought online but now essential, non-essential, perishable, non-perishable, branded, non branded, every item can be purchased and not just items, food, medicine, grocery, salon services can be availed using these platforms. One can now book appointments with doctors and lawyers through them. Amazon pay, Google pay, Paytm have made the payments secure and easy.

    5. Laws and regulation - The 100% FDI in the E-commerce marketplace and other regulatory benefits has made it easy for investors to invest in Indian e-commerce.

    6. Shopper Friendly experience -‘Click n Buy’ option, easy return, Full Refund of amount, availability of every size, easy to explore the website, huge discounts, etc are some of the features of e-commerce which has given it an edge over the physical market.

    7. Convenience - the e-commerce market works on a 24*7, 365 days a year model. The market is also not affected by riots, earthquakes or another natural calamity. As long as someone has a smart device and internet connectivity one can purchase what they want irrespective of time and day.

E-commerce business model

There are two types of e-commerce business models. These are:

a. Marketplace Model - in this type of business model, the seller sells their products on the website or online platform of the e-commerce operator. In other words e-commerce entities on a digital and electronic network act as a facilitator between buyer and seller. The instances can be Flipkart, Myntra.

b. Inventory based model - in this type of business model, the e-commerce entity maintains its own inventory of the goods and directly sells them to customers without the intervention of a third party. For example - Amazon, Alibaba, Nykaa.

Business Model facilitated by E-commerce

a. B2B - E-commerce has enabled various businesses to build new relationships with other businesses for efficiently managing several of their business functions. For instance IndiaMart

b. C2C-  This model of E-commerce has made it possible to bring together strangers/ consumers and provide a platform for them to trade on without including any broker. For instance OLX, Quikr, eBay

c. C2B-  In this model of e-commerce, consumers provide services/ goods to businesses and create value for the business. An example of this model is the latest trend of popular beauty vloggers, Youtuber reviewing the products and asking customers to try them.

d. B2C- In this model the manufacturer or the intermediary directly trades with the consumer without the middle person, thereby reducing the cost and increasing profits.

Regulatory aspect of E-commerce in India

The trend of e-commerce has been rapidly growing since the last five players. Ample players tapping new business ideas have entered the market be it Zomato or Swiggy delivering food from your favourite restaurant to your doorstep or Flipkart / Amazon delivering products interstate or Grofers delivering groceries. You name the service and there is an e-commerce platform for that. The rapid growth of the E-commerce industry has demanded the attention of the government towards regulatory and policy aspects. India has many laws that regulate e-commerce business in terms of data privacy, security of consumers, settlement transaction safety, quality of products etc. 

  1. Foreign Direct Investment 

Foreign direct investment means investment by the Foreign entities in the companies in India. This can be either by way of investing in Indian companies by the foreign company or secondly, the foreign company can incorporate its own subsidiary in India. The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government Of India makes policy pronouncements on FDI through Press Notes and Press Releases which are notified by the Reserve Bank of India. There are two routes to invest in India through FDI:

I. ‘Approval route’ in which the prior permission of the central government ( respective ministry ) is required before making foreign investment in India. Defence, atomic energy are examples of this.

II. ‘Automated route’ in which no prior permission is required and foreign entities can directly invest in Indian Entities. Healthcare, Education etc are some of the examples.

The FDI policy permits foreign direct investment in the marketplace model of e-commerce to the extent of 100%  under the automatic route (i.e. without prior government approval). Investment in the Inventory based model of E-commerce is not permitted through FDI. A single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce. However, there are many e-commerce entities that have disguised their inventory based model as a marketplace model through a complex structure. Therefore in order to curb these businesses' malpractices, the government has presented a new National  E-commerce Policy which is still in draft form. The major features of the policy are discussed herein:

  1. This national e-commerce policy would consolidate the various norms and regulations to cover all online retailers. Instead of Various regulators like RBI, Revenue department, It department, there will only be one regulator. 

  2. This national e-commerce policy will help in better negotiations on multilateral issues around the globe so as to ease down the complexities in business.  

  3. The Draft Policy prescribes that a business entity that collects or processes any sensitive data in India and stores it abroad, shall not make such data available to any other business entity / third party outside India or to any foreign government without prior permission from Indian authorities

  4. The policy has prescribed additional conditions for the e-commerce marketplace business model to be fulfilled by them.

This policy is a step in the direction towards consolidating the laws related to e-commerce in India and also towards ease of doing business in India. However, the policy still requires a lot of changes and perspectives of other stakeholders before the final draft can be prepared, passed and implemented.

B. Information Technologies Act, 2000

The e-commerce vendors conduct business in the same way as the physical vendors with the only difference of non-availability of flesh and blood to sell things. Through e-commerce also, the sellers are required to generate bills, pay taxes, file returns, prepare ledgers, and maintain records. They have to do all this online. The IT Act is the main and primary legislation that governs and regulates the use of the Internet, cybercrime, digital business in India. The IT Act governs online conduct and related aspects of e-commerce and recognises electronically concluded contracts and digital signatures. The Information Technology Act 2000 is based on the Model Law on e-commerce adopted by the United Nations Commission on International Trade Law (UNCITRAL) and pioneering e-commerce enabling legislation in India. The Act aims at regulating the use of the Internet by providing punishments for publication of obscene information or hacking or destroying or altering the data from devices.  The salient features of the act

  1. E-contracts - The Indian Contract act, 1872 governs the law related to contracts. For a contract to be valid and enforceable it should be offered and accepted in the same sense by the party within considerable time. Every transaction which involves consideration directly or indirectly is covered in the ambit of the Contracts act. The seller and buyer on an e-commerce platform enter into an electronic contract. You must have observed the “I have read and accepted all the terms and conditions” check box on every website or platform operating electronically. These are the terms of contracts offered by the seller and acceptance of which by the buyer will create a valid contract between the parties. Under the Information Technology Act, 2000 the offer or invitation to offer is made by the seller and accepted by the buyer by clicking on the “I agree” option. This is called the Click Wrap method.

  2. Transaction Security - Transaction security is a significant barrier to the development of e-commerce. The Parties must be ensured that business conducted over the networks is secure and reliable. The most reliable means is through cryptography.  The most popular and useful method of encryption for general messaging is public-key cryptography; that is, encryption and decryption techniques involve the use of two kinds of keys, public keys and private keys both of which are mathematically linked. One key is used for encryption and the other corresponding key is used for decryption. The Information Technology Act, 2000 regulates encryption in India through the Department of Telecommunication, which controls all aspects regarding telecommunications, including encryption. Every time permission is required from the DoT to send encrypted messages.

  3. Digital signature - These are e signatures that can be annexed to e-contracts by the parties and shall be treated equivalent to physical signatures. Section 3 of the Information Technology Act, 2000 establishes that a signature could be sent using public-key cryptography. In order to link the identity of the sender with the signature, it is necessary to attach a digital certificate which is issued by a so-called Certified authority that confirms the identity of the sender.

C. Payment and Settlements Systems Act, 2007

As per the act, the e-commerce entity shall qualify as a payment system through compliance with Rules specified by RBI for online payments. Further, it is mandatory for an intermediary that is receiving payments through electronic modes to have a Nodal Account in operation for settling the payments of the merchants on its online e-commerce platform.

D. Consumer Protection Act, 2019 

The e-commerce industry is also regulated by the Consumer Protection Act as it is ultimately working for the interest of consumers. “Section 94 of the Consumer Protection Act, 2019 provides that for the purposes of preventing unfair trade practices in e-commerce, direct selling and also to protect the interest and rights of consumers, the Central Government may take such measures in the prescribed manner”. To protect the consumers from unfair trade practices and to address their concerns, the Ministry of Consumer Affairs, Food and Public Distribution on July 23, 2020, notified the Consumer Protection (E-Commerce) Rules, 2020. The salient features of the new rules are as under

  1. The Rules are applicable to all goods and services bought or sold over digital or electronic networks including digital products; all models of e-commerce, including marketplace and inventory models of e-commerce; all e-commerce retail, including multi-channel. single-brand retailers and all forms of unfair trade practices across all models of E-commerce

  2. It is necessary for every e-commerce entity to appoint a nodal person of contact or an alternate senior designated functionary who is resident in India, to ensure compliance with the provisions of the Act or the rules made thereunder. 

  3. It is the responsibility of every e-commerce entity to provide the information in a clear and accessible manner on its platform to its users, that is, legal name of the e-commerce entity; principal geographic address of its headquarters and all branches; name and details of its website; and contact details like email address, fax, landline and mobile numbers of customer care as well as of grievance officer.

  4. The entity shall establish a grievance redressal mechanism and display the name of the officer on its website. The complaint shall be acknowledged within 48 hours of receipt and resolved within one month.

  5. The E-commerce entity shall not charge any cancellation fees from consumers unless the e-commerce entity borne similar charges.

  6. If an e-commerce entity is selling imported goods and services, it shall mention the name and details of any importer from whom it has purchased such goods or services, or who may be a seller on its platform. 

  7. Every e-commerce entity shall effect all payments towards accepted refund requests of the consumers as prescribed by the Reserve Bank of India or any other competent authority under any law for the time being in force, within a reasonable period of time, or as prescribed under applicable laws.

  8. No e-commerce entity shall manipulate the price of the goods or services offered on its platform to gain unreasonable profit. For justifying the price change, the factors like the essential nature of the good or service, any extraordinary circumstances under which the good or service is offered, and any other relevant consideration shall be taken into account.

  9. E-commerce entities shall require sellers through an undertaking to ensure that descriptions, images, and other content pertaining to goods or services on their platform is accurate and corresponds directly with the appearance, nature, quality, purpose and other general features of such goods or service.

How to incorporate e-commerce platform in India

The steps for the incorporation of an e-commerce platform are as follows

  1. Selecting the right business model - the applicant must decide which business model they want to incorporate ( B2B, B3C, C2C, C2B ). This step requires market research, players already existing, target customer base, products to offer, gather user data etc.

  2. One must get their company or LLP registered so that you can get the bank account opened in the company name and obtain GST registration documents easily.  The process of registering the company and LLP shall be the same as that of other companies.

  3. The next step is to open a bank account in the name of your business. You should have a GST certificate for opening a bank account. 

  4. After that, the entity shall have a payment gateway integrated with their website so that customers can make the payments through credit card, debit card, internet banking, etc. The payment will be automatically transferred to your bank account.

  5. The next step is to approach an eCommerce logistics company that will help you to deliver your sold products to your customers at their mentioned destination.

  6. To make the process orders flawless and without mistakes, it is important that the entity should have a fulfilment solution that can help you with the entire eCommerce fulfilment process. This includes warehouse management, inventory management, picking, packaging, shipping.

  7. In the case of a proprietary eCommerce website, the terms and conditions, disclaimer and privacy policy would have to be drafted by the business based on the nature of its activities and products sold online.

  8. The applicant shall move ahead to develop its website. One can either choose from a pre-pre-built platform or you can hire your own team and make your custom website. The prebuilt websites are cheap and less customised. For this, you have to explore different available platforms, their features, services, and support system and choose accordingly. Some of the instances are Shopify, magneto, Bigcommerce etc

  9. If you are making your own custom website, you should choose your Domain Name, hosting provider, Designing your e-commerce store, Secure Your Website with SSL Certificate, Set Up the Payment Gateway, Select your logistics partner for packaging and product shipping. The website should be attractive, unique enough, easier for people to understand, and also user-friendly for all.

  10. The vendors can list their products and start selling them.

The rapid increase in the growth of the e-commerce industry is an indication that e-commerce has become a necessity in our lives. Long gone were the days where people were afraid of online purchasing as they doubted the quality, non-delivery of the product, their money being stolen. The writer is not arguing that everyone trusts these sites completely however a huge fraction of the population does. Therefore nowadays most of the purchases are already paid compared to Cash on Delivery. This is an indication of the acceptance of e-commerce platforms by the public. The legal system has also constantly tried to come up with new rules and regulations to deal with this radical shift in the business model so that the interest of consumers can be protected. Therefore an in-depth understanding of the legal regime and the possible issues that an e-commerce business would face coupled with effective risk management strategies has been the need of the hour for e-commerce businesses to thrive in this industry.

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