In this blogpost, Hari Manasa Mudunuri, Student of  University College Of Law, Osmania University and Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about what is e-commerce, steps needed to start an e-commerce business and the legal procedure to structure an e-commerce busines in India.

With the technological advancement in the information technology, it’s user friendliness, along with reduced broadband prices, westernization, modern lifestyles have increased the dependence and use of internet in day to day life in some form or the other. With the prolific innovations happening in the digital arena, the world too has adopted, the use of the internet as a medium for business.

What is E-commerce

In the traditional sense, trade is the exchange of  goods and services between the buyer and seller at a common place for consideration. The buying and selling of goods and services through the internet is called Electronic commerce or E-commerce.  There is no standard definition for e-commerce. It is a process where trade in goods and services will be done through online medium. E-commerce  has been classified by some authors into:

• Consumer-to-consumer (C2C)
• Business-to-consumer (B2C)
• Business-to-business (B2B)

E-commerce includes both retail and wholesale trade and a wide range of services. Though it has impacted the traditional modes of trade and business, allied businesses of e-commerce like the banking, investments, Warehousing, logistics, information technology, advertisements, etc. have expanded. It contributes to the growth of the economy and helps bring in new talent and entrepreneurs. India too adapted to this change and E-commerce is now a multi-billion dollar industry in India. According to one study, as of 2011, India’s e-commerce market was worth Rs.50,000 crores out of which 80% was contributed by travel-related transactions, 15% by online retailing, with electronics and apparel the biggest contributors to sales.

For starting e-commerce business the following steps are needed:

• Registration as per the extant laws
• The IT architecture for doing business
• Access to the source of goods
• Storage, quality control and delivery mechanisms
• Payment mode, safe payment gateways to ensure reliability.

               With increased E-commerce business  law is needed to regulate it in order to protect the interests of consumer and trader, the UN adopted the United Nations Commission on International Trade and Law (UNCITRAL),  passed by a resolution by the General assembly in 1997. India became a signatory to the UNCITRAL and to comply with its provisions, India modified its existing laws and also enacted the Information Technology Act,2000 (IT Act).  Therefore for structuring e-commerce the statutory filing and following requisite laws relevant to the model are to be followed. First and foremost the provisions of the Indian Contract Act,1872 need to be complied with to make the transactions lawful and binding on the parties.

Any type of business can step up e-commerce platforms. Like :

• Sole Proprietorship.
• Partnership
• Company- private and public
• Limited liability Partnership

Legal requirements for an E-commerce business

To ensure limited liability, it’s advisable for companies to engage in online business to get registered as required under the Companies Act, 2013. Similarly, the Consumer Protection Act, Laws relating to intellectual property, taxation, RBI rules, Evidence Act, CPC ,IPC etc. are also applicable to the online transactions. E-commerce players are also required to comply with cyber laws, Labour laws, various state laws as applicable.

The E-commerce business needs to obtain a tax ID number from tax authorities,  a Permanent account number, Tax deduction account number, Value Added Tax, Registration and Tax Identification number, professional tax if applicable, Service tax, etc .

The rules laid down by the RBI need to be followed when payments are made to sellers outside India and when investment is made by foreigners.  The business must also comply with the Payments and Settlements Systems Act,2007.

The typical modes of payment for the online transactions are:

• Cash on delivery (COD).
• Credit and debit cards
• Online wallets
• Smart cards
• Net banking/ electronic fund transfers
• Encashing Reward points, etc.

Another requirement the business needs to fulfill before starting its trade is to create a secure payment gateway. In India business can choose from two types of gateways that will be applicable to their websites:

• Payment gateways with no setup fees– where a third party service that has tie-ups with many banks will provide a gateway. Example the PayPal, Payumaney, which will charge a higher transaction fee.
• Payment gateways with setup fees- which are faster in processing. It’s where a Bank of the business’s choice will provide a payment getaway.

It’s also crucial to ensure that the mode method used is in accordance with RBI rules and the Gateway has acquired licenses from RBI.

The IT Act, uphold and strengthens the provisions of the Contract Act with respect to E-contracts. The act provides for penalties for the wrongful disclosure of personal information and financial information.

The Indian Contract Act, 1872 is applicable to all oral and written contracts entered into within the territory of India. Therefore it’s applicable to the Electronic transactions also. The Act provides for certain essentials to make the contracts legal, they are:

1. there must be free consent of the contracting parties;
2. There should be a lawful consideration for the contract
3. The parties should be competent to execute contract;
4. The object of the contract should be lawful

E-Commerce is based on electronically made contracts, which are executed through a software and known as E-Contracts.  E-contracts are very similar to traditional commercial contracts. The seller presents his goods and services at certain prices and terms to prospective buyers and the buyers consider and negotiate prices and terms, place orders and make payments, upon which the seller delivers the products.

However, there are certain new challenges that arise with E-contracts.

• Contract with a minor excluding exceptions given in the Act are not binding. But it becomes very difficult to verify if the person who wants to buy the goods and services by entering into a contract is a major.
• The terms and conditions provided in the E-contracts must be fair, and the customers need to be given an opportunity to understand them.
• The contracts are also in relation to data security, privacy, data regulation and electronic payment security. Right to Privacy is recognized by the Supreme Court as a fundamental right and hence the website must be careful to prevent unauthorized access to personal information of the consumer and also refrain from misuse of such information themselves, the maximum penalty for failing to protect customers’ data is Rs. 5crore.

The buyer will accept the conditions and terms to contract by clicking on the option only when he is satisfied and want to go ahead with the contract. The businesses must also have a contract with the sellers listed on their websites if the business is not selling its own goods. Such contracts will define the roles of the contracting parties, their responsibility, liability and remedies upon infringement of such contracts. Contracts must also be clear about the return policy of goods by the consumer and replacement of goods by the business in case of damage to goods.

The purchased goods need to be delivered to the consumer by the E-commerce business within the agreed time, upon the completion of the sale. Business will  usually enter into specific contracts with logistic companies to deliver their goods to the consumer. Recently the Indian Post declared Rs.1000 cr revenue for the 2015-16 financial year for the delivery of consignments for the online sellers. In India cash on delivery option is  popular therefore an agreement with the delivery company must be specific about such requirements

The CONSUMER PROTECTION ACT,1986 (CPA) will be applicable in the case of online transactions only when actual sales take place and the person buying or rendering the service will be called a consumer within the definition the Act. However, the act isn’t applicable when the customer isn’t charged by the online platform. The liability arises under the CPA when there is a deficiency in service or defect in goods or occurrence of unfair trade practice. The CPA provides for redresses of disputes by:

1. Removal of defects
2. Replacement of goods.
3.  Return of price paid.
4. Compensation.
5. Discontinue the unfair trade practice

Issues related to IT architecture

For a business to use online platform for trade, they must use licensed technology or their own technology.  The license must be taken from the rightful owner, and if the technology is self-developed, then the business must patent it.

The business must register it’s domain name by completing the required formalities with the National Registrar. A domain name is an internet address, example Google.com. A domain name is a form of trademark. The domain names must be distinct and can’t be similar only then will they be registered. Apart from the trademarks other intellectual property laws of India like the Copyright Act, Patent Act, Geographical indications need to be complied with.

Care should be taken to ensure that the merchandise sold the website is authentic, in order to prevent infringement of the brand’s rights.

Tax regime

Sales tax- Central sale tax is payable when the sale of goods is interstate to the central government at 2%. VAT is payable to the respective state government for intra-state trade, and the rate differs from state to state.

Service Tax– for the purpose of levying this tax its assumed that the location of the buyer is where the service is provided, and the tax rate is 12.36% on value of the service provided

CUSTOMS ACT, 1962 is applicable on imports and export, and the duty is calculated as a percentage of value

Income Tax is payable by the business website in accordance with the Income-tax act,1961

Jurisdiction

The Delhi High Court , in the case of WWE Inc V. M/S Reshma Collection held that a company is deemed to carry on business in a place where the people purchase the goods from a website. Meaning that in E-commerce cases jurisdictions is the buyer’s place of residence

REFERENCE:

1. www.firstdata.com
2. hhtp://corporatelawsforindia.blogspot.in
3. http://blog.qburst.com
4. nishitdesai.com
5. ey.com
6. theresolveguru.com