online transactions

This article on jurisdictional challenges while doing online transactions is written by Anisha Kumar, a lawyer, currently working with DSK Legal, Mumbai.

The advancement in technology has brought with it a new wave of advanced communication, and transactions through virtual mediums have replaced face to face transactions. Today, e- commerce plays a vital role in nearly every sphere of life- with simply just a click of the mouse we can pay our electricity/telephone bills, do online shopping, transfer money to persons in different parts of the globe, conduct business deals etc. An online transaction may be explained as a way of conducting business by utilizing computer and telecommunication technology to exchange data or conduct business. However, this boom in internet transactions has brought a host of issues regarding jurisdiction of such transactions to the forefront. The primary question that needs to be addressed is “when a transaction takes place online, where is the contract concluded?” Justice S. Muralidhar has stated that the traditional approach to jurisdiction invites a court to ask whether it has the territorial, pecuniary, or subject matter jurisdiction to entertain the case brought before it. With the internet, the question of ‘territorial’ jurisdiction gets complicated largely on account of the fact that the internet is borderless.

U.S. Courts follow the “minimum contract rule” for determining territorial jurisdiction of online transactions as laid down in the leading judgment of International Shoe Co v. Washington. It is a requirement that must be satisfied before a defendant can be sued in a particular state. In order for the suit to go forward in the chosen state, the defendant must have some connections with that state. For example, advertising or having business offices within a state may provide minimum contacts between a company and the state. This test allows for jurisdiction over a non resident when such contract exists between the defendant and the forum state so long as maintenance of the suit does not offend the traditional; notions of fair play and substantial justice.

The Indian position theoretically matches with the US rule of minimum contracts. For civil matters, the Code of Civil Procedure, 1908 governs the jurisdiction aspect. Section 19 of the Act states that where a suit is instituted for compensation on account of wrong done, if such a wrong was committed within the local limits of the jurisdiction on one court and the defendant resides in or carries on business, within the local limits of the jurisdiction of another court, the suit may be instituted at the option of the plaintiff in either of the courts. Thus, for instance, if Mr. X residing in Bangalore publishes on his website in Chennai defamatory statements against Mr. Y. Mr. Y may sue Mr. X either in Bangalore or Chennai.

Section 20 of the CPC further provides that the suit shall be instituted within the local limits of whose jurisdiction the defendant resides or the cause of action arises. For example, A is a tradesman in Calcutta. B carries on business in Delhi. B buys goods of A online and requests A to deliver them to the East Indian Railway Company. A delivers the goods accordingly in Calcutta. A may sue B for the price of the goods either in Calcutta, where the cause of action has arisen, or in Delhi, where B carries on business.

Further, Section 13 of CPC provides that a foreign judgment is to be conclusive as to any matter which has been directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except under certain specified conditions. Talking about the presumption as to foreign judgments the provisions of the Act states that the Court shall presume upon the production of any document purporting to be a certified copy of a foreign judgment that such judgment was pronounced by a Court of competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction.
For instance: A is a tradesman who maintains his website from USA; B is a resident of India. B buys goods of A, online and requests A to deliver them to his address in India. A, fails to deliver the goods on time, B suffers a heavy loss. B sued A in an American Court, court decided in favor of B orders A to compensate B for the same. B filed a petition in Delhi HC for the enforcement of the same. The Delhi HC will consider the American Judgment as a conclusive as to any matter thereby.

In the case of Casio India Co. Ltd. vs Ashita Tele Systems Pvt. Ltd. [2003 (3) RAJ 506] there was a passing-off action where the Defendant was carrying on business from Bombay. The Defendant had managed to get a registration of domain name www.casioindia.com and Defendant no. 2 was the Registrar with whom the domain name had been registered. The Plaintiff, on the other hand, claimed to be a 100% subsidiary of Casio Computer Ltd., Japan (Casio Japan) which was the registered owner of the trade mark Casio in India used for a large number of electronic and other products. He had also obtained the registration of large number of domain names in India like CasioIndia Company.com, CasioIndia.org, CasioIndia.net as well as Casio India.info, CasioIndia.Biz. Defendant no. 1 had managed to get the registration of the these domain names during the time when it held a distributorship agreement with the Plaintiff. The H’ble Delhi High Court has observed that once access to the Defendants website could be had from anywhere else, jurisdiction could not be confined to the territorial limits of the place where the Defendant resided and the fact that the Defendants website could be accessed from Delhi was sufficient to invoke the territorial jurisdiction of a court in Delhi.

Another leading judgement is of (India TV) Independent News vs India Broadcast Live (2007 (35) PTC 177 Del). Here the Delhi High Court differed with its earlier judgment in Casio India. The Court holds that jurisdiction of the forum court does not get attracted merely on the basis of interactivity of the website which is accessible in the forum state but yet held that if the Defendants website is interactive, permitting browsers not only to access the contents thereof but also to subscribe to the services provided by the owners/operators, then courts jurisdiction at the place where the website is accessed from is permissible. The High Court of Delhi ruled that it did not have jurisdiction over the domain name www.indiatvlive.com, because the defendant was based in Arizona. The court relied on the US circuit case Compuserve Inc. v. Patterson, which referred to a three-part test for deciding jurisdiction:
• The defendant must purposefully avail itself of acting in the forum state or causing a consequence in the forum state
• The cause of action must arise from the defendant’s activities there
• The acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum to make exercise of jurisdiction over the defendant reasonable.

In Banyan Tree Holding (P) Ltd v. A. Murali Krishna Reddy and Anr, the Delhi High Court stated that in order to establish the jurisdiction in forum court, even when a long arm statute exits, the Plaintiff would have to show that the Defendant purposefully availed of the jurisdiction of the forum state by specifically targeting customers within the forum state. A mere hosting of an interactive website without any commercial activity being shown as having been conducted within the forum state would not enable the forum court to have jurisdiction. The law as laid down in the case may be summarised as follows:
• Some commercial transaction must have taken place as a result of the site
• The defendant must have specifically targeted the forum state
• Some injury must have resulted to the plaintiff due to the actions of the defendant
• The plaintiff must have a presence in the forum state, and not merely the possibility of a presence

A mere hosting of a website accessible in the forum state, or a posting of an advertisement or a passive website that does not result in a commercial transaction with a viewer in the forum state, cannot give rise to a cause of action and therefore the court does not have jurisdiction.

In India’s first case of cyber defamation, SMC Pneumatics (India) Private Limited v. Jogesh Kwatra, a Court of Delhiassumed jurisdiction over a matter where a corporate’s reputation was being defamed through emails and passed an injunction which restrained the employee from sending, publishing and transmitting emails which are defamatory or derogatory to the plaintiffs.

Another important legislation to be considered for online transactions is the Information Technology Act, 2000. This legislation was enacted to change outdated laws and deal with cyber crimes. A section which becomes relevant from the IT Act in terms of online transactions is Section 13 (3) which provides that:
“Save as otherwise agreed between the originator and the addressee, an electronic record is deemed to be dispatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his place of business.” To understand this let us take an illustration-if an air ticket is booked by a Complainant over the internet which is also sent by an Airline Company to the Complainant through email, then these would be dispatches of electronic records. The request for booking of the air ticket would be an offer and the emailing of the ticket to the consumer would be the acceptance. In terms of Sec. 13 (3) of the I.T. Act, the ticket or, in other words, the acceptance of the offer for its purchase, would be deemed to have been received at the Complainant’s place of business. Resultantly, the contract for purchase of the air ticket would be taken to have been made at the Complainant’s place of business. Acceptance of the contract would also be deemed to have been communicated there. Section 11 (2) of the Consumer Protection Act, 1986 and Section 13 (3) of the IT Act read together shows us that where online transactions are entered into, then, for the purposes of Consumer complaints, part of the cause of action arises inter alia at the Complainant’s place of business if acceptance of the contract is communicated to him through the internet, including the medium of email. Further, irrespective of the fact whether or not the contract is one made over the Internet, cause of action would also continue to arise at any of the places:
(a) Where the contract is performed or is to be performed or
(b) Where money under the contract is either payable or paid or
(c) Where repudiation of the contract is received, if any.
Territorial jurisdiction over a consumer complaint would lie with the Consumer Forum situated at any place where any of the above causes of action arises. A consumer would be legally entitled to pursue his remedy within the territorial jurisdiction of the Consumer Forum having appropriate pecuniary powers at any of the aforementioned places. This is in addition to the other places where a consumer may choose to file a complaint in accordance with the other provisions of Section 11 (2) of the C.P. Act.

Recently, the Delhi High Court in World Wrestling Entertainment, Inc. v. M/S Reshma Collection decided conclusively that jurisdiction in e-commerce cases involving trademark and copyright disputes would be determined by thebuyer’s place of residence. The essential issue which the Court sought to address in this case was “When a transaction takes place over the internet, where is the contract concluded?” The Court specifically interpreted the meaning of the phrase “carries on business” as set out in Section 134(2) of the Trademarks Act,1999 and Section 62(2) of the Copyright Act, 1957; both these sections deal with the institution of suits in case of violation of any provision of the aforementioned Acts. The Sections state that as suit for infringement under the said Acts is to be instituted in a District Court having jurisdiction to try the suit. Further, the Courts specify that “District Court having jurisdiction” would “include a District Court within the local limits of whose jurisdiction the person instituting the suit or proceeding carries on business or personally works for gain.”
The Division Bench of the HC examined the principles laid down in M/S. Dhodha House vs S.K. Maingi where the SC laid down a 3-pronged test to determine whether the plaintiff could be said to “carry on business”:
(i) The agent must be a special agent who attends exclusively to the business of the principal and carries it on in the name of the principal and not as a general agent who does business for any one that pays him;
(ii) the person acting as agent, must be an agent in the strict sense of the term and a manager of a Joint Hindu Family cannot be regarded as an ―agent within the meaning of this condition; and
(iii) To constitute ―carrying on business at a certain place, the essential part of the business must be performed at that place.
Since the plaintiff had no agent in Delhi, the Court proceeded to examine whether the 3rd condition was fulfilled in the instant case, i.e., ‘Was an essential part of the plaintiff’s business being performed at Delhi?’ To determine this issue, the Court was invariably led to the issue, ‘When a transaction takes place over the internet, where is the contract concluded?’
The Court then referred to the case of Bhagwan Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. [AIR 1966 SC 543] and stated: “The general rule is that the contract is complete when the offeror receives intimation that the offeree has accepted his offer. An exception to this has been carved out in respect of contracts negotiated by postal communications or telegrams. The exception being that the bargain in such cases (post or telegram) would be struck and the contract would be complete when the acceptance of the offeree is put into a course of transmission by him by posting a letter or dispatching a telegram.”
The Delhi HC observed that just as in the case of telephonic conversation, there is instantaneous communication where transactions take place online and applying the rule in Bhagwan Goverdhandas Kedia, the Court held that in case of e-commerce, “contracts would be completed at the place where the acceptance is communicated.”
The Court noted, “The website of the appellant/ plaintiff refers to various goods and services. It is not an offer but an invitation to an offer, just as a menu in a restaurant. The invitation, if accepted by a customer in Delhi, becomes an offer made by the customer in Delhi for purchasing the goods ―advertised on the website of the plaintiff. When, through the mode of the software and the browser, the transaction is confirmed and payment is made to the appellant/ plaintiff through its website, the plaintiff accepts the offer of the customer at Delhi. Since the transaction between the two takes place instantaneously, the acceptance by the appellant/ plaintiff is instantaneously communicated to its customer through the internet at Delhi. If the contracts and/ or transactions entered into between the plaintiff on the one hand and its customers are being concluded in Delhi, can it not be said that the essential part of the business of the appellant/ plaintiff, insofar as its transactions with customers in Delhi are concerned, takes place in Delhi? The offers are made by customers at Delhi. The offers are subject to confirmation/ acceptance of the appellant/ plaintiff through its website. The money would emanate or be paid from Delhi. Can it not then be considered that the plaintiff is, to a certain extent, carrying on business at Delhi?”

Conclusion:

At present although e- transactions are at the helm, we must realize that the laws governing these transactions are yet to emerge and develop. Although we have the IT Act in place, it is not sufficient to deal with online transactions in India. It is a step in the right direction as it lays down admissibility of electronic records, penalties for cyber-crimes etc. However, in the case of online transactions it can be regarded as an enabling statute which must be read in consonance with the Contract Act, 1872 in order to determine whether the online transaction does indeed constitute a valid contract. There is a dire need for a specific legislation to be enacted to determine issues involving jurisdiction for e-commerce disputes.

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