E-Commerce

This article has been written by Aditya Das pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

The evolution of technology has had a major impact on our lives. We live a life where we are surrounded by a series of technologies and are accommodated by such never stopping advancement, which is created with the objective of making our lives effortless. We live a life where we are supported by such technological advancements that, from waking up in the morning till night, we are accompanied by electronic mediums, from staying updated with current news headlines to handling our finances or making travel arrangements online, all at  ease with the help of a small device that  we refer to as a smartphone. Electronic commerce, also known as e-commerce has created a plethora of opportunities for not only the big shot commerce sectors but also for independent sellers and small businesses. The e-commerce platforms, namely Amazon and Flipkart in India, have generated a fair ground of opportunities for independent sellers and small businesses to go global, which has helped them generate revenues beyond their traditional means. Ideally, such platforms having accessibility 24*7 and the ability to perform even in areas where there is an absence of proper infrastructure would have helped them grow at a faster pace. 

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History of e-commerce

During the mid-1960s, a race against time for establishing paperless offices took place and in that race, all major firms participated with the objective of evolving from the traditional  method of paper usage, or, to be more precise, the offline method for retaining data and to replace the same with such a medium which will eventually help them go paperless. And it was then the terminology of Electronic Data Interchange (EDI) was coined. Back then, it was the pinnacle of electronic presence without the intervention of traditional methods of paper-based data transactions. The development of EDI marked a significant development in the commercial sector and acted as a ladder for the introduction of the e-commerce sector. The invention of EDI was passed through various checks and improvements from the mid–1970s to the 1980s. With time, businesses and corporate houses began to be dependent on EDI for a swift route of transactions, which included the processing of orders and electronic methods of transferring funds. Taking that into account, the system had to be modified to accommodate the increasing requirements. In reality, by 1990, only a percent of the companies based in the USA and Europe could actually utilise the EDI in its true sense because of the high cost and maintenance associated with an EDI network. With the evolution of the e-commerce sector, it was established that the second generation of the e-commerce sector is all about online transactions of goods and services. The EDI technology, once used as a research-based tool, has now been used for commercial purposes.

The mankind, been a subject for observation of various discoveries that let them walk down a path marked with various milestones; the invention of the internet was one of those milestones that turned upside down human history. Being termed one of the greatest inventions, the internet proved to be the key to the successful establishment of the e-commerce sector. But the keys that unlock the door to the successful establishment of internet services are the uniform resource locators (URLs), the World Wide Web (WWW) and the graphical user interfaces (GUIs). These are the elements that let the user experience a user-friendly interface. However, there were certain limitations imposed by NSFNET as to how the internet had to function back then. The NSFNET was clear in its objective that the internet had to be used for non – commercial purposes.  But in 1991, the NSFNET implemented a restriction that let users use the internet for commercial purposes.

The golden era for the e–commerce sector started with the commercialization of the internet in the mid–1990s, it was then that today’s e–commerce giant ‘Amazon’ laid its foundation stone.  During those days’ amazon was in the business of books. It was the largest online bookstore established back then. It was then that the first e-auction website was established, which now goes by the name of ‘eBay’. Both of these e-sites were the first of their kind and hammering the iron of the internet at the right time helped them establish a successful e-commerce model with the largest customer base.

Origin of e-commerce in india

The interception of the e-commerce in the Indian market can be traced back to 1995, when the country experienced its low tide wave in the e-commerce sector. The Indian markets witnessed the introduction of internet services in 1995 and from then on, the path to establishing an online business was way ahead. In 1996, the online B2B (Business to Business) directory was established. The cost of sustaining with an internet service was so high during that period that only a handful of Indians were able to undertake it. The title of ‘Developing Nation’ that had been given to India back then had helped the commerce sector in India grow rapidly. The instant economic expansion did facilitate the liberalisation of industries in India. And India’s active participation in international trade related conferences had helped the Indian economic sector boom, which eventually paved the way for the growth of e-commerce platforms in India and helped numerous sellers and small businesses grow not only in India but also globally.

Regulation in e-commerce

The regulations in relation to e-commerce sector vary across different geographical locations. Each nation and state have a different set of regulations that are different from one another. Like in the US, e-commerce activities are governed by the Federal Trade Commission (FTC). The FTC is the one that devises the policies for proper regulation of the e–commerce sector in the US. The policies formulated by the FTC are very rigid in nature, as such regulations were devised with the objective of safeguarding the rights of consumers and keeping a close check on the fact that customers are not duped by any of the e-commerce  platforms.

Whereas, in India, we have the Information Technology Act 2000, which is adopted to keep a check on the e-commerce sector and to promote cybersecurity. The IT Act mainly governs the domestic operations of the e-commerce sector. India, being a signatory to the UNCITRAL Model, had adopted a new set of international regulations. The UNCITRAL model is based on promoting a set of provisions and guidelines that can be widely accepted by all nations and act as a guide for reference. The model is prepared with the objective of bringing uniformity to international trade guidelines and policies vis a vis provision. The model posits the mere existence of both developed and underdeveloped nations.  In terms of developed nations, the e–commerce infrastructure is well devised and formulated. The developed nations had already been in possession of widely accepted policies related to trade and commerce and had well equipped mechanisms to enter into various types of commercial contracts and arrangements. The developed nations are readily prepared to handle electronic commercial transactions and have developed provisions and guidelines for the execution of contracts. Argumentatively, the underdeveloped nations might have different sets of rules and regulations and are not well equipped with uniform guidelines that are commonly accepted during the execution of contracts in international trade and e-commerce. Having a different set of rules and regulations makes the execution of contracts difficult for one nation or another. Thus, the UNCITRAL Model was developed with the objective of building a uniform atmosphere around trade and commerce and to keep that tab open, the articles associated with UNCITRAL seek to provide for a standardised language that will eventually eliminate ambiguity present in contractual language.  

Contractual language in e-commerce

Depending upon the context of expression, the modern-day English language has various tones and methods of writing. There is formal writing in English, which is followed on for official purposes and on the other hand, in order to have a persuasive tone, the language has to be poetic, which is referred to as informal writing in English, which is way different from formal English. In contracts, the language of English is referred to as ‘Legal English,’ which follows a formal tone as well. Legal English is equipped with legal dialects and legal jargon, making it difficult for laypeople to understand. The usage of legal English in a contract qualifies the legal document to have an approach that is clear and specific in its intentions. The use of legal dialects makes a document partially complicated for laypeople, but it does assure that whatever it describes in the contract has a very clear impression and an approach that is free from ambiguities and contradictory statements.

The contractual language has to be precise with respect to what it has to offer and under what conditions the contract has been executed. The parties to the contract must have a clear picture of the obligations enlisted in the contract. The language and the terminologies used in a contract are applied within the scope to make the contract more viable and to erase any future chances for misinterpretation. The majority of commercial contracts are equipped with a ‘definition clause’; the objective of the definition clause is to define all the peculiar words as well as the terms used in that contract and under what essence they have been used. All such is done to maintain the true spirit of the contract and to remove the varied and obscure meanings if derived.

In laypeople’s language, a contract is an arrangement between two or any number . of parties that carries a legal binding effect upon execution and establishes a legal relationship between the parties. Commercial contracts do come with certain obligations and warranties and in order to ensure the specific performance of a contract. Two essential elements of a contract are clarity and precision and these assure that the contract is fair and transparent in nature. The prime objective of a contract is to maintain its neutral nature, as the contract must not have an incline towards one party or another. The legal language is complicated in nature and the executor must not hide any adverse clause that is only favourable to one party and might affect the other. The language of the contract must be balanced and free from any bias towards any specific party.

Types of e-commerce contracts

Terms of service agreement

In e-commerce the terms of the service agreement are one of the most crucial agreements because they establish a relationship between the user and the e-commerce platform. Depending upon the nature of services a company provides, the very essence of terms of service agreements also changes as they vary in nature concerning the provisions of one company and the other. It specifies the grounds upon which users are to utilise the services and what the obligations are against such services. The clauses of the terms of service agreement in depth hold the permissible and prohibited use of the e-commerce platform and also enlist the intellectual property rights and prohibited use of it, as well as clauses that give a clear impression of what will lead to an infringement of such rights, including a list of disclaimers and user warranties.

Non–disclosure agreement

Non–Disclosure Agreements (NDAs) are contractual arrangements that bind the parties to an obligation to maintain the confidentiality of certain information. In e-commerce the performance of a seller or business is not limited to one particular area or jurisdiction but extends to multilateral relations as it holds the capacity to operate without the presence of traditional infrastructure. In that case, most e-commerce companies outsource to third – party developers, vendors or independent contractors, who are initially provided with certain ideas and layouts, such as blueprints, specimens or samples of a product that are yet to be commercialised. In commercial terms, NDA has established an embargo to protect the very essence of that business. In e-commerce non-disclosure agreements help the business owner and its stakeholders safeguard intellectual property rights and preserve the value of the product by prohibiting the contracting parties from divulging confidential information that can significantly lead to a loss.  

Subscription agreement

The subscription agreement can rightly be termed as a legal document which illustrates an engagement between the seller and user for a defined period. In e-commerce subscription agreements act as a bridge to ensure smooth and uninterrupted delivery of products or services on a recurring basis. The clauses in the subscription agreement outline the terms and conditions upon which the services are based. The subscription model also includes the frequency of product delivery, payment terms and duration of the agreement. In order to remove any ambiguity and to be precise in nature, the subscription model is equipped with a reminder clause that acts as a notification for the users as to when the deductions have to be made or to inform them as to when they are eligible to stop the services to which they have subscribed.

Shrink wrap and click wrap contracts

In e – commerce shrink wrap contracts are a type of licencing agreement that is clubbed up with the product and sold. Mere purchasing of the product and using it leads to acceptance of the terms and conditions enlisted with it. Whereas, click wrap contracts are typically digital in nature and come preloaded within the e-commerce application. After the installation of the application, the users are first greeted with a digital contract containing the user terms and conditions. Upon clicking that check box and submitting it, the user is able to view the content of that platform.

Escrow agreement

In e – commerce an escrow acts as an intermediary body that is entitled to hold funds for a user and is obligated to release the funds upon completion of work. An escrow agreement is a tri party arrangement which is executed between the buyer, the seller and an institution. Here, the institution acts as an intermediary body to undertake the responsibility of securing monetary compensation for the seller upon successful completion of the assigned project. The institution’s involvement in this arrangement serves as a supervisory mechanism, thereby creating a sense of trust among the parties involved in the contract.

Legal aspect of e-commerce on contractual language

The Information Technology Act 2000 was enacted with the objective of addressing the unattended section of e-commerce and electronic agreements and providing legal recognition to contracts executed electronically. The Act does not explicitly enforce electronic contracts but through Section 10A of the IT Act 2000 confers a degree of validity upon execution of contracts electronically. This section was introduced by amendment of 2008. It enumerates electronic proposals of a contract to electronically accept the contract and enlists revocation of contract through electronic medium. The section in itself says that mere performance of a contract electronically or the contract being in digital form will not invalidate the contract. But in essence, it also highlights that an electronic contract must fulfil the valid conditions of being a contract, irrespective of its nature.

The Information Technology Act 2000 remains the soul of electronic contracts, but the tone and language of the contract are influenced by the Indian Contract Act 1872. Section 81 of the IT Act 2000 states that ‘the Act shall have overriding effect’ which means the provisions of the IT Act shall have effect until they are inconsistent with any provisions of other laws in force. The Indian Contract Act is applicable to all contracts and they are not inconsistent with the provisions of the IT Act, which governs the status of electronic contracts in India, unless the elements of a valid contract are met. The Indian Contract Act does not supplement the execution of e-contracts over electronic platforms; thus, to accompany the legality of e-contracts the amendment of 2008 was made in the IT Act.

Challenges attached with e-commerce complimenting the contractual language

Length of terms and conditions agreement

The terms and conditions attached to any contract, be it physical or digital in nature, are affected by its vague and lengthy language. The terms and conditions (T&C) agreement is one of the first agreements a user is greeted with while logging in to any platform. The agreement’s length and the contractual language being legal in nature can make it challenging for users to understand its meaning in detail and in most cases, users finding it complex in nature usually skip reading the terms and conditions associated with the platform and sign in without adhering to them.

Complexity and consent

In contract law, obtaining valid legal consent is of utmost importance to establishing the binding nature of a contract. However, the language associated with drafting of a contract can often be intricate and perplexing for laypeople and it can result in ambiguity and can serve as a ground for raising a legal dispute. It is highly imperative for a draftsman to ensure that the contractual language is simple in nature to promote its understandability.

Jurisdictional issue

The e-commerce platforms are not limited by any jurisdiction and have the capability to perform across borders to fulfil certain obligations. Thus, the contract must be well equipped with proper cross – border jurisdictional laws so that it complements the contract and does help to reduce any future disputes with respect to jurisdiction. The case of Satyam Computer Services Ltd. vs. Upaid Systems Ltd. (2008) is a classic example of a cross – border dispute between two well-known IT firms. The issue associated with this case is that Satyam and Upaid entered into multiple contracts with different objectives but due to deficiencies and improper drafting of contracts, both of them were pushed into a pit of never-ending disputes. The mismanagement resulted in formal negotiations that ended up as litigation before a commercial court.

Both Satyam and Upaid initially entered into a service contract and then entered into an assignment agreement, which illustrates the intellectual property rights over the software’s so designed contract with Satyam. Both of the IT firms eventually executed a Memorandum of Understanding (MoU) to resolve any disputes that may arise in the future. But due to a lack of clarity in the clauses of the settlement agreement, the matter ended up as a dispute before the Commercial Court of England and Wales.

As per the clauses of the settlement agreement, all future disputes were subjected to English Court. However, Upaid performed beyond its jurisdictional limit. Upon which it was highlighted by the court that there is ambiguity in the clauses of the settlement agreement and the mentioned agreement lacks clarity on jurisdiction in case of a dispute.

Investments in the e-commerce space in India

The e-commerce sector in India has witnessed tremendous growth in recent years, driven by factors such as increasing internet penetration, rising disposable incomes, and the convenience of online shopping. This growth has attracted significant investments from both domestic and global players.

Some of the key areas where investments have been made in the e-commerce space in India include:

  1. Online marketplaces: Investments in online marketplaces, such as Flipkart, Amazon, and Snapdeal, have been significant. These platforms provide a wide range of products and services, enabling customers to compare prices and make informed purchases.
  2. Logistics and supply chain: Investments have also been made in logistics and supply chain infrastructure to improve the efficiency and speed of delivery. Companies such as Delhivery, Ecom Express, and Xpressbees have raised funds to expand their operations and meet the growing demand for e-commerce deliveries.
  3. Payment gateways and digital wallets: Investments in payment gateways and digital wallets have also been significant. These platforms enable secure and convenient online transactions, making it easier for customers to make purchases. Paytm, PhonePe, and Google Pay are some of the leading players in this space.
  4. Social commerce: Investments have been made in social commerce platforms, which allow users to buy and sell products directly through social media platforms such as Instagram and Facebook. Meesho, GlowRoad, and Shop101 are some of the key players in this space.
  5. Direct-to-consumer (D2C) brands: Investments have been made in direct-to-consumer (D2C) brands that sell their products directly to consumers through their own websites or e-commerce platforms. These brands offer unique and differentiated products, often catering to specific niches.
  6. Technology and innovation: Investments have also been made in technology and innovation to improve the customer experience and drive growth. This includes investments in artificial intelligence, machine learning, and data analytics to personalise recommendations, enhance search functionality, and provide a seamless shopping experience.

The e-commerce sector in India is expected to continue to grow in the coming years, driven by factors such as the increasing adoption of smartphones, the growth of rural internet penetration, and the government’s initiatives to promote digital payments and e-commerce. This growth is likely to attract even more investments in various segments of the e-commerce space, leading to further innovation and competition.

Legal validity of electronic transactions in  e-commerce in India

The Information Technology Act, 2000 (IT Act) governs the legal validity of electronic transactions in e-commerce in India. The IT Act recognises electronic contracts and digital signatures as legally valid and enforceable.

Key provisions of the IT Act relating to e-commerce:

  1. Electronic contracts: Section 10A of the IT Act provides that a contract formed through electronic means is as legally valid and enforceable as a contract formed in writing.
  2. Digital signatures: Section 3 of the IT Act defines a digital signature as an electronic signature that is unique to the signatory and is capable of identifying the signatory. Digital signatures are considered legally valid and enforceable under the IT Act.
  3. Electronic records: Section 4 of the IT Act recognises electronic records as legal evidence. Electronic records include e-mails, text messages, and other electronically stored information.
  4. Cyber Regulations Appellate Tribunal (Cyber Appellate Tribunal): The Cyber Appellate Tribunal is an appellate tribunal established under the IT Act to adjudicate disputes related to electronic commerce and other cyber-related issues.

Case law on electronic transactions in e-commerce

Shankarlal Purohit vs. State of Maharashtra (2011)

In the landmark case of Shankarlal Purohit vs. State of Maharashtra (2011), the Supreme Court of India established a significant precedent by recognising the legal validity and enforceability of electronic contracts in India. This ruling marked a crucial step forward in aligning the country’s legal framework with the evolving digital landscape.

The case involved a dispute between Shankarlal Purohit, a businessman, and the State of Maharashtra. Purohit had entered into an online agreement with a company to purchase goods, but the company failed to deliver the products or refund his payment. Purohit then filed a complaint with the authorities, arguing that the electronic contract was legally binding and that the company should be held accountable for its actions.

The Bombay High Court initially dismissed Purohit’s complaint, ruling that electronic contracts were not legally valid in India. However, Purohit appealed to the Supreme Court, which overturned the lower court’s decision.

The Supreme Court’s ruling in Shankarlal Purohit vs. State of Maharashtra had far-reaching implications for e-commerce and digital transactions in India. It provided a clear legal framework for conducting business online, instilling confidence in consumers and businesses alike.

The judgement also recognised the potential of electronic contracts to promote economic growth and innovation. By removing legal barriers to e-commerce, the Supreme Court paved the way for increased investment and development in the digital economy.

Furthermore, the ruling aligned India with international standards on electronic contracts. Several countries, including the United States, the United Kingdom, and the European Union, had already adopted laws recognising the validity of electronic contracts. The Supreme Court’s decision brought India in line with these global trends, facilitating cross-border trade and commerce.

The Shankarlal Purohit vs. State of Maharashtra judgement not only revolutionised e-commerce in India but also set a precedent for recognising the legal validity of various types of electronic transactions, such as online banking, digital signatures, and e-governance initiatives.

Overall, the Supreme Court’s ruling in Shankarlal Purohit vs. State of Maharashtra marked a significant milestone in India’s legal and technological landscape, enabling the country to embrace the digital age with confidence and fostering a more robust and inclusive economy.

Tata Consultancy Services vs. State of Andhra Pradesh (2014)

Facts of the case

Tata Consultancy Services (TCS), the appellant, was an IT services provider to various clients. The respondent, the State of Andhra Pradesh, had contracted TCS to provide IT services. A dispute arose between TCS and the State of Andhra Pradesh over the validity of digital signatures used in the contract’s execution. The state challenged the digital signatures, asserting they were invalid and thus the contract lacked legal force.

Issues involved  in the case

The central legal question in this case was whether digital signatures hold validity under the Information Technology Act, 2000 (IT Act).

Judgement of the Court

The Supreme Court of India ruled in favour of Tata Consultancy Services, affirming the validity of digital signatures under the Information Technology Act, 2000. The Court’s decision was based on several key observations and interpretations of the IT Act:

  1. Legal recognition of electronic transactions: The IT Act was enacted to provide a legal framework and recognition for electronic transactions, promoting the adoption and use of electronic signatures.
  2. Definition of digital signature: The IT Act defines a digital signature as “a cryptographic transformation of a message using an asymmetric cryptosystem such that a person having the initial message and the initial digital signature can verify the source and integrity of the initial message.” The Court’s interpretation of this definition was broad, encompassing all types of digital signatures, including those used in contract execution.
  3. Validity of digital signatures: The Court held that digital signatures satisfy the legal requirements for authentication and non-repudiation as outlined in the IT Act. The Court reasoned that digital signatures provide a secure and reliable means of authenticating electronic documents, preventing unauthorised alterations, and ensuring the integrity and authenticity of electronic transactions.

Significance of the judgement

  1. Landmark judgement: The Tata Consultancy Services vs. State of Andhra Pradesh case represents a landmark judgement in India’s legal landscape concerning electronic transactions. The Supreme Court’s decision provided much-needed clarity on the legal status of digital signatures, giving a boost to the growth of e-commerce and electronic transactions in the country.
  2. Wider adoption of digital signatures: The judgement paved the way for the broader adoption of digital signatures in various sectors, including banking, finance, healthcare, and government services. Digital signatures enhance the security and efficiency of electronic transactions, reducing the reliance on paper-based processes and manual signatures.
  3. Legal framework for electronic transactions: The Supreme Court’s decision established a solid legal framework for electronic transactions in India. It emphasised the importance of digital signatures in ensuring the authenticity, integrity, and non-repudiation of electronic records and transactions.

Conclusion

The e-commerce sector is flourishing like never before in India, from food delivery to groceries, medicines to consulting doctors online, from getting educated online to stationery items; even electronic gadgets can be ordered online and not only the goods but essential housekeeping services can be booked online at the convenience of the user. Such conveniences do come at the cost of ignorance. Ignorance as to making efforts to understand the terms and clauses so associated with the contracts tagged along with such goods and services. It is true that the usage of technical and legal jargon makes a simple document complicated in nature and makes it difficult for laypeople to understand it in its true sense but such is done to prevent any loopholes in the contract. Normally, the users of such platforms are highly reluctant to understand the complexities of a contract because of its lengthy nature. Therefore, it falls on the draftsman to formulate a simple language that can be understood by people of any age and such a contract is devoid of any contradictory elements.

References

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