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E-Commerce Companies and Legal Compliances

E-Commerce Companies and Legal Compliances


E-Commerce Companies  and Legal Compliances

What is E-Commerce?

WTO defines e-commerce as “production, distribution, marketing, sale or delivery of goods and services by electronic means.” When it comes to the Indian context, the term E-commerce has several definitions under different legislations.

The Consumer Protection Act, 2019 defines e-commerce U/S/2(16) as “buying or selling of goods or services including digital products over digital or electronic network;”

Section 2(44) of The Central Goods and Services Tax Act, 2017 defines e-commerce as “the supply of goods or services or both, including digital products over digital or electronic network”.

In simpler terms, an individual or a company conducting business over any electronic means, usually through internet amounts to e-commerce. With the advent of internet and technology, the e-commerce sector around the world is experiencing a boom period. Just like doing offline commercial transactions, there are certain requirements to be followed by the entities who carry out ecommerce.

According to the Indian FDI policy, there are two models of e-commerce Market place model and inventory model. Marketplace based model of e-commerce means providing an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller. Inventory based model of e-commerce means an e-commerce activity where an inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly.

E-COMMERCE ENTITY: STATUS OF AN INDIVIDUAL

An e-commerce entity can either be an individual, who owns, operates or manages any digital or electronic facility. This does not include a seller who is offering or selling his product or service in a market place e-commerce entity under Rule 3(1) (b) of the Consumer Protection (E-Commerce) Rules, 2020. As per the proviso to Rule 2(1) of the 2020 Rules, these rules shall not be applicable to activities of a natural person carried out in a personal capacity not being part of any professional or commercial activity undertaken on a regular or systematic basis. For example selling of goods through OLX, eBay will not come under the purview of the Consumer Protection (E-Commerce) Rules, or the CPA, 2019.

Until and unless a person owns, operates or manages a digital or electronic facility, he won’t come under the ambit of these rules.

LEGAL OBLIGATIONS TO BE FOLLOWED BY ECOMMERCE ENTITIES

  • COMPANY /LLP REGISTRATION/SOLE PROPREITORSHIP REGISTRATION

Every business shall be registered with the Ministry of Corporate Affairs under the applicable laws, whether it be Companies Act, 2013 or Limited Liability Partnership Act, 2008. This registration shall make the process of GST registration quicker and easier. But for Sole Proprietorship, registration is not mandatory. If one decides to register the sle proprietorship, he can do it under:

  • Register under the Shop and Establishment Act, 1960
  • Through Udyog Aadhaar under Ministry of MSME.
  • Registration through GST Registration.

 

  • GST REGISTRATON

For a successful establishment of an E-commerce business, GST registration is mandatory. Every E-commerce business irrespective of its turnover is required to be compulsorily registered under the Central Goods & Service Tax (CGST) Act.

  • BANK ACCOUNT

Any business entity shall have a bank account in its name so as to make the transactions easier and avoid confusions. The first step in order to have GST registration is to open a bank account. An active bank account is the bare minimum to obtain a payment gateway for conducting tractions from e-commerce websites.

  • PAYMENT GATEWAYS

A payment gateway is mandatory for an E-commerce entity to process the payments. It allows the website to accept payments through credit card(s), debit card(s), net banking, and internet banking from multiple banks. Therefore, one payment gateway is sufficient to accept various forms of online payments. Further, once the payment is received by the customer by the website, such payment is sent to that respective business’s bank account through the payment gateway. In the event, where the business runs through the online marketplaces, the marketplace would accept the payment through their payment gateway and directly credit such an amount to the bank account of the seller.

  • LEGAL DOCUMENTS

Just like conducting business in the offline world requires legal documents and agreements, ecommerce transactions too require legal documents and agreements such as ‘Website Term User Agreement’, Employment Agreement, Memorandum of Association, Articles of Association, Website Privacy Policy, and other related documents.

  • CYBER LAW DUE DILIGENCE

All ecommerce companies in India must ensure cyber law due diligence while conducting business online. They have to make sure that the customers are well protected in their website from scamming, data theft and other related cybercrimes.

  • DATA PROTECTION

E-commerce companies in India must ensure maintenance, privacy protection, data security, cyber security, confidentiality etc. And must comply with laws related to data protection.

  • COMPLIANCE WITH THE COMPETITION ACT, 2002

E-commerce companies shall be in harmony with the Competition Act, 2002 while entering into agreement with any parties or while entering relevant market.

  • APPOINTMENT OF A NODAL OFFICER

Any e-commerce entity outside India shall appoint a nodal officer in India so as to make sure the transactions are done smoothly and to ensure the entity is in compliance with the existing laws in India.

 

COMPLIANCES FOR AN ECOMMERCE ENTITY

  • The Information Technology Act, 2000

The IT Act of 2000 is the primary legislation in India which deals with cybercrimes and offences, the dos and don’ts in the cyberspace and also the recognition of e-contracts and digital signatures. In fact the true purpose of the IT Act, 2000 was to recognise e-contracts and digital signatures. The Act also deals with the guidelines to be followed by business conducted online.

Just like conducting transactions in the physical world requires contracts, agreements, filing taxes, generation of bills etc. business conducted in the virtual world too needs all these processes.

The IT Act of 2000 was enacted on the basis of UNCITRAL model on E-commerce. Through this Act we ensure the recognition of digital and e signatures which are essential for any ecommerce business transactions also that of e-contracts. All the commercial activities done in the cyber world while conducting business online shall be in conformity with the IT Act, 2000.

E-commerce entities must comply with the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. Intermediary websites and the content they display will govern by the Intermediary Rules 2011, under the IT Act. On 25 February 2021, the Ministry of Electronics and Information Technology notified the Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021 in consultation with the Ministry of Information and Broadcasting. The Rules have been issued pursuant to the government's rule making powers under Section 87 of IT Act which includes rules in relation to the guidelines to be followed by intermediaries and blocking of access to content under the IT Act.

  • Payment and Settlements Systems Act, 2007

As per the Payment and Settlements Systems Act, the E-commerce business shall succeed as a payment system if it follows the Rules specified by RBI for online transactions and payments. It has made compulsory for an intermediary who is receiving payments through online mode to have a nodal account for settling the payments of the sellers in the online platform.

  • Consumer Protection Act, 2019 and Consumer Protection (E-Commerce) Rules, 2020

The recent amendment to the Consumer Protection Act in 2019 made significant changes to the 1986 Act by addressing the issues arising in the e-commerce world. The e-commerce rules, 2020 also provides a framework in regulating the marketing, sales and purchases of goods and services online.

The rules applies to:

  • All goods and services purchased online including digital products.
  • All models of e-commerce, including marketplace and inventory models.
  • All e-commerce retail (including multi-brand and single brand retail trading)
  • All forms of unfair trade practices across all e-commerce models.

These rules are not applicable for a natural person and are only applicable for ecommerce companies/LLP. Natural persons engaged in occasional transactions entailing consumer to consumer or business to consumer interface may be excluded.

E-Commerce Rules have extra-territorial application on those e-commerce entities which may not be established in India, but systemically offers goods and services to consumers in India.

  • Foreign exchange management (non - debt instruments) rules, 2019

The FDI policy of India allows Foreign Direct Investment to the extent of 100% in the marketplace model of E-commerce by the way of the Automatic Route, where no prior permission is needed for foreign entities to invest in Indian market.

E-Commerce entities/platforms with Foreign Direct Investment (FDI) are presently regulated by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. E-commerce entity as per the aforementioned rules, means a company incorporated under Companies Act 1956 or the Companies Act, 2013.

  • Legal Metrology Act, 2009

Any e-commerce entity must comply with and meet the standards relating to labelling and packaging set by the Legal Metrology Act, 2009 read with Legal Metrology (Packaged Commodity) Rules, and 2011 that state that the online platform must display such mandatory information about the goods on the network, as is required to be displayed on physical packages as well.

The product manufacturer/seller/dealer/importer is responsible for the correctness of statements made on marketplace model e-commerce portals, whereas e-commerce corporations are responsible for making the declaration.

While the manufacturer, seller, dealer, or importer will be held responsible and punished under the Legal Metrology Act, 2009 and rules for false information declared on a marketplace model e-commerce portal, the e-commerce institution will be held ‘liable and punished’ for failing to make relevant pronouncements as required by the Legal Metrology Act (Chapter V).

Display of mandatory information includes:

  • Net quantity
  • MRP
  • Dimensions of the product
  • Manufacturer details
  • Country of origin
  • Best before/use by date
  • Common/generic name of the product
  • The Contract Act,1872

In ecommerce transactions the agreements actually made shall be in conformity with the provisions mentioned in the Contract Act, 1872. Even though the contracts are not in a tangible form, the parties to the contract shall make sure that the e-contracts have the essentials of a valid contract.

  • The Sale of Goods Act,1930

The Sale of Goods Act, 1930 covers what the sales and shipping policy of the entity must contain. Additionally, terms such as the warranties, conditions, and the transfer of property in goods are also outlined for regulating the sale of goods. Further, the policy must also contain the fact of existence or non-existence of return/refund options. Any ecommerce entity shall be in compliance with the Sale of Goods Act just like any other physical entity does.

  • NEW RULES FOR E-COMMERCE

The new Consumer Protection (E-Commerce) Rules were introduced in 2020 by the Ministry of Consumer Affairs, Food and Public Distribution, parallel to the new CPA of 2019.

Rules 4-7 of the consumer rules, intent to regulate the transactions done by e-commerce entities and to grant certain duties and liabilities on them and to persons who offer and sell their products online. This rules are not applicable to any natural person who conducts online transactions on personal capacity and not being the part of any commercial activity.

The new consumer rules under Rule 4(1)(b)  also requires the e-commerce entity outside India who conducts e-commerce in India to assign a nodal officer, who is a resident of India to conduct the transactions smoothly and to make sure that the entity is in compliance with the laws in India.

Any non-compliance to these rules are subjected to penal action U/S/88 of the Consumer Protection Act, 2019 with imprisonment for a term which may extend to six months or with fine which may extend to twenty lakh rupees, or with both.

  • MANDATORY DISCLOSURES FOR E-COMMERCE COMPANIES

Rule 4(2) of the Consumer Rules, 2020 mentions the mandatory disclosures that are to be made by an e-commerce company in their website/portal in a clear and accessible manner, they are:

  • Legal name of the entity
  • Geographical address of all branches of the entity and the headquarters of the entity
  • Name and details of its websites
  • Customer care number
  • Contact information of the entity
  • Email address
  • Information about grievance officer if any.

Similar to the ones made in the label of the product, e-commerce entities are mandatorily required to make declarations, specifically for pre-packed commodities.

The mandatory declarations to be made by the ecommerce entity for their product are as follows:

  • Name and address of the manufacturer
  • Country of origin of the product
  • Common/generic name of the product
  • Net quantity
  • Best before/use by date
  • Maximum retail price
  • Dimensions of the commodity/product

The responsibility to declare the correct information lies with the manufacturer/seller/dealer/importer not the e-commerce entity, provided:

 

  • The e-commerce entity is a mere intermediary for the transactions of importer/seller/manufacturer.
  • The transmission is not initiated by the entity nor does it selects the receiver for the transmission or alter or select the information in the transmission.
  • The entity observes due diligence while conducting e-commerce as an intermediary under the IT Act, 2000 and the guidelines issued by the central government.

 

  • GUIDELINES FOR OPERATION UNDER FSSAI

Guidelines for operation dated February 2nd 2017 by Food Safety and Standards Authority of India (FSSAI) imposed similar duties. Food delivery stores whether it be online or physical are required to make certain mandatory declarations in their websites/portals. Since the goods are packed in the absence of the consumer it will fall under ‘pre-packed goods’ therefore physical shops too will have to follow these guidelines. In short, while conducting a business, at any point an online medium is involved, the seller/manufacturer/dealer/importer has to follow these guidelines.

  • CONCLUSION

The pandemic has actually paved way to a boom in the e-commerce sector. Since the rush in the online platforms are so high, it has to be regulated in such a way that no consumer rights are violated while conducting online business.

Currently we have laws and rules which regulate and maintain the order in the online platforms. Then too there are many cases of consumer right violations especially offences like scamming, false advertisements, substandard products, lack of proper customer support and grievance issues etc.

There has to be a codified law in India which will regulate and penalize the crimes happening in the e-commerce. The lack of a codified law makes it harder for the entities to be in compliance with all the related laws of e-commerce. They have to be updated to all the amendments happening in the related laws which might be hectic and hard to comply with.