E-commerce is booming in India but the regulatory environment is not in a position to match its progress. Indian government tried to use the existing provisions of Information Technology Act, 2000 (IT Act 2000) and other Indian laws to regulate e-commerce in India but this exercise has failed. This happened because issues like cyber law due diligence (pdf), internet intermediary liability, e-commerce dispute resolutions, etc were neither appreciated nor made applicable by Indian government to e-commerce entities operating in India.
Even the recent clarification on Foreign Direct Investment (FDI) in E-Commerce Sector of India 2016 has failed to satisfy the doubts of e-commerce businesses in India. We at Perry4Law Organisation (P4LO) has recommended to the government that a dedicated e-commerce law of India is need of the hour and e-commerce websites must be regulated in India by a suitable techno legal framework.
We have also launched two dedicated blogs to help Indian government in general and e-commerce stakeholders in particular. These blogs are titled e-retailing laws in India and e-commerce laws in India. A good techno legal guidance can be taken from these blogs but they are in no situation substitute for a well reasoned and techno legal e-commerce legal consultancy.
Meanwhile, the brick and mortar business community has taken the e-commerce entrepreneurs to Indian courts for violation of Indian laws. They have also complained to the Department of Industrial Policy and Promotion (DIPP) to ensure a level playing field. Commerce and Industry Minister Nirmala Sitharaman has recently told the media that the government has ensured a level playing field between online and offline retail. She informed that what applies to brick and mortar applies to e-commerce too.
We at Perry4Law Organisation (P4LO) believe that this assurance and approach of the DIPP is the “starting point” and not the “end solution” This is so because e-commerce businesses are required to comply with “additional” techno legal compliances that brick and mortar businesses are not required to comply with. In short, e-commerce businesses in India are required to comply with many more techno legal compliances that are presently flouted by them.
Perry4Law Law Firm predicted in the year 2012 that cyber litigations against foreign websites would increase in India. Almost all the famous e-commerce websites in India are presently facing legal actions against them for violating Indian taxation, foreign exchange and cyber laws. This trend is going to increase in near future as India has decided to widen the tax net for foreign companies like Google, Amazon, etc. A software for calculating e-commerce exports has also been developed by Indian government. Nevertheless, legal violations by big e-commerce platforms of India still continues especially for online pharmacies, telemedicine, online gambling, e-health, m-health, internet of things (IoT), etc. Indian government in general and DIPP in particular must take e-commerce related violations very seriously while allowing them to grow as much as possible.
Now other legal experts have endorsed the view point of Perry4Law and they have agreed that it could be a bumpy ride ahead for online e-commerce companies in India, as litigation in this space could go up.They are blaming the recent FDI guidelines for the same but this is just part of the picture. They have missed the techno legal compliance part completely that is more troublesome than the FDI guidelines.
There is a rise in the number of cases where offline retailers, trade associations and even e-commerce entrepreneurs are approaching the courts, asking for intervention of agencies such as Competition Commission of India (CCI) and the Enforcement Directorate (ED). Sp serious is the situation that e-commerce companies have started strengthening their legal departments in the backdrop of the current volatile e-commerce business environment. Many are not conformable with the expression “indirectly influencing the price” under the recent FDI guidelines. The guidelines have prescribed that no e-commerce marketplace platform must directly or indirectly influence the price of products sold on the platform. This has made the e-commerce companies in India nervous. Another area of concern pertains to interpretation of the two business models i.e. marketplace model and inventory based model .
A few weeks earlier, traders’ body CAIT filed a complaint with DIPP, alleging violation of FDI norms for e-commerce by online retail major Flipkart. The complaint was in reference to an advertisement in newspapers announcing the sale of an item, together with its discounted price, to be available on the e-commerce platform of Flipkart, a marketplace. CAIT says the advertisement violates the guidelines for FDI in e-commerce. Organisations such as the All India Vendors Association (AIOVA) has also taken on companies such as Paytm using micro blogging social media network Twitter.
It asked DIPP to clarify if the practice of giving cash-backs by Paytm above the seller-funded discount was within the purview of the FDI guidelines on the segment. DIPP replied, through a tweet, that the choice was with the seller. “Giving a discount or not is a prerogative of the seller owning inventory. FDI is permitted in marketplace, not in inventory-based model,” it said.
There is also fear of increased scrutiny from agencies such as CCI and ED, given the increased regulatory push on the e-commerce sector. Chances are that these agencies would work closely with their counterparts monitoring tax and exchange control aspects to check companies flouting the norms while conducting e-commerce business.