By Mahesh Chinnikar
Rudolf von Ihering, a German jurist, said in the 19th century that while states were fighting with one another, trade found and levelled the roads that lead from one nation to another and established a relation of exchange of goods and ideas. This statement is aptly relevant and true even today, with activities at the international level increasing at a record rate and the growth of E-commerce and computer networks expected to gather speed.
In today’s world, developing economies are opening their economies to Foreign Direct Investment, commonly referred to as FDI. In 1991, when the Union Government approved the New Economic Policy and adopted liberalization, trade and investment between various countries began to grow, resulting in the exchange of goods and services and the opening of manufacturing units by foreign entities in India.
E-commerce has benefited consumers by providing goods and services at competitive prices, more choices in products and more convenience in shopping from vendors located around the world. This new digital economy together with globalization is having a major impact on the global economy.
Rapid development in Information and Communication Technology has fueled the new paradigm in electronic commerce. Enterprises all over the globe have either created or are in the process of creating E-commerce front-ends to their traditional business. Thus, today E-commerce has become an integral part of everyday life.
What is E-commerce?
There is no standard definition for the term E-commerce. It is generally used in the sense of denoting a method of conducting business through electronic means rather than through conventional physical means.
Electronic means include click-and-buy methods using computers as well as M-commerce using various mobile devices or smart phones. The term takes into account not just purchasing goods and availing services through an online platform, but also activities associated with transactions such as delivery, payment facilitation, supply chain and service management.
Roger Clarke defines E-commerce as the conduct of commerce in goods and services with the assistance of telecommunication and telecommunication-based tools. A.R. Lodder defines E-commerce as commercial activities concerning goods and services, as well as any business where participants are not necessarily at the same physical locations and therefore apply telecommunication means.
Basically there are three types of E-commerce: Business to Business (B2B), in which participants are organizations; Business to Consumer (B2C), in which customers deal directly with organizations; and Consumer to Consumer (C2C), relating to dealings between consumers.
Legal and Policy Basis of FDI in E-commerce in India
The Foreign Direct Investment policy of India has gone through many changes after the liberalization policy adopted in 1991. The scope of FDI has been extended in sectors such as manufacturing, service and infrastructure. Almost all sectors are open for FDI with varying degrees of limits except a few prohibited sectors. In early 1997, FDI was allowed full ownership in wholesale trading, including resale, processing, bulk imports, export ex-bonded warehouse business sales and B2B commerce.
Legal basis of FDI
Foreign Direct Investment in India is regulated under the Foreign Exchange Management Act, 1999 (FEMA). The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, makes policy pronouncements on FDI through Press Notes and Press Releases, which are notified by the Reserve Bank of India as amendments to the relevant FEMA Regulations.
The consolidated FDI policy issued by DIPP lays down two entry routes: Automatic Route, where foreign investments do not require prior approval of the Government; and Government/Approval Route, where prior approval of the Government through the Foreign Investment Promotion Board (FIPB) is required.
Policy basis of FDI in E-commerce
- 100% FDI is allowed under the automatic route in companies engaged in B2B E-commerce. FDI in B2C E-commerce was permitted only in specified circumstances, such as where a manufacturer in India could sell through E-commerce or a single-brand retail entity could sell products online as a supplement to brick-and-mortar sales. Pure-play B2C trading activities were not permitted.
- 100% FDI is permitted under the automatic route in the marketplace model of E-commerce.
- No FDI is permitted in the inventory-based model of E-commerce, where inventory of goods and services is owned by the E-commerce entity and sold directly to consumers.
- No FDI is allowed in companies engaging in single-brand retail trading by means of E-commerce or multi-brand retail trading by means of E-commerce.
Other sectoral conditions laid down under Press Note 3/2016 for FDI in the marketplace model include:
- A marketplace E-commerce entity may enter into transactions with sellers registered on its platform on a B2B basis.
- It may provide support services to sellers such as warehousing, logistics and call centres.
- It shall not exercise ownership over inventory.
- Not more than 25% of its sales may be effected through one vendor or its group companies.
- Goods and services made available electronically must clearly provide the seller’s details on the website.
- Payment for sales in the marketplace model may be facilitated in conformity with RBI guidelines.
- Marketplace E-commerce entities shall not directly or indirectly influence the sale price of goods or services.
- Guidelines on cash-and-carry wholesale trading shall apply to B2B E-commerce.
- Subject to the conditions of the applicable FDI policy and other laws, sale of services by E-commerce entities shall be under the automatic route.
Legal Recognition to E-commerce Transactions
The Information Technology Act, 2000 gives legal recognition to E-commerce transactions. Section 4 provides that where any law requires information or a matter to be in writing, such requirement is deemed satisfied if the information is rendered or made available in electronic form and accessible for subsequent reference.
Section 10A states that where communication of proposals, acceptance, revocation of proposals and acceptance in contract formation are expressed in electronic form or by electronic record, the contract shall not be deemed unenforceable solely because electronic form or means was used.
The IT Act also gives legal recognition to authentication by electronic signature and provides the regulatory framework for electronic signatures, including issuance of electronic signature certificates.
The Evidence Act, 1872 also contains amended provisions giving legal recognition and validity to E-commerce transactions. Section 65B provides that information contained in an electronic record which is printed, stored, recorded or copied by a computer may be treated as a document and be admissible in proceedings, subject to the statutory requirements.
Issues in Protection of Online Consumers and Legal Response
E-commerce has become an integral part of consumer life, allowing goods to be purchased and services to be availed at any time. The growth of E-commerce has posed many issues and concerns to consumers.
Authentication and Identification
Though the Internet eliminates the need for a physical contract, transactions still have to be authenticated and, in certain instances, recorded. Concerns may arise regarding the person’s capacity, authority and legitimacy to enter the contract. Electronic signatures may be used to determine the authority and legitimacy of the person authenticating an electronic record.
The IT Act gives legal recognition to authentication by electronic signature and provides that a person’s identity may be deemed to have been stolen when a unique identification such as an electronic signature or password is fraudulently or dishonestly used. The Act prescribes imprisonment of up to three years and a fine. It also provides punishment for cheating by impersonation through communication devices or computer resources.
Privacy of Data
An online transaction is almost impossible to complete without collecting personal information such as identity details, financial information, personal choices and preferences. A user of an E-commerce platform therefore faces threats of unauthorized access to personal information and misuse of such information. Section 43A of the IT Act and the Sensitive Personal Data or Information Rules, 2011 provide a framework for protection of data in India.
Jurisdictional Issues
In any dispute, a court must have subject-matter and territorial jurisdiction. The increased use of the Internet has complicated determination of jurisdiction because, in E-commerce transactions, the location of a transaction may be difficult to trace.
Section 1(2) of the IT Act, read with the relevant territorial provision, extends the Act to contraventions committed outside India where the conduct involves a computer, computer system or computer network located in India. Section 3 of the IPC provides that a person liable under Indian law to be tried for an offence committed beyond India may be dealt with under the IPC as if the act had been committed within India.
Other Consumer Issues
E-commerce transactions are often considered not trustworthy because of misleading advertising, unfair trade practices, non-delivery of goods after advance payment and delivery of defective goods. There is no separate enactment specifically dealing with all E-commerce issues affecting e-consumers. The Consumer Protection Bill, 2015 was introduced in Lok Sabha to protect online consumers from unfair trade and unethical business practices.
Conclusion
The Internet has become part of every business transaction and represents a unique marketplace in terms of market penetration. E-commerce has made consumers’ lives simpler and facilitated traders in selling products worldwide, but its rapid growth has also brought legal issues and consumer concerns.
Consumer Protection Policy is indispensable in building consumer confidence and establishing a balanced relationship between business and consumers in E-commerce transactions. Permitting FDI in E-commerce is also a debatable issue: it may provide goods and services at competitive prices while raising concerns for the Indian business community.
The legal system should strive to balance promotion of E-commerce and protection of consumers so that the benefits of information technology can be absorbed to the fullest extent. Unless these legal consumer issues are dealt with, E-commerce cannot really take off in India.