Legal Issues Pertaining to E-Commerce Ventures

E-commerce includes any transaction of business made through an electronic medium, including transactions made through mobile devices. Some of the popular e-commerce models are given below:

  • business to business (B2B) such as the one used by Indiamart.
  • business to consumer (B2C) or business to business to consumer (B2B2C)-this is a very popular model. Most e-commerce companies use a B2B2C model, where they facilitate transactions of customers with specific sellers. This structure is also preferable to a direct B2B model to comply with the FDI regulations (relevant for e-commerce business with foreign investment). Most e-commerce companies such as Flipkart, Amazon uses the B2C model.
  • Consumer to consumer (C2C) models such as eBay, which allows buyers and sellers to enter into transactions through its platform.

Consumer to business (C2B) transactions-such as Elance or Freelancer. These models, however, are typically used for services.

Indian e-commerce companies have come up with innovative strategies to overcome the challenges which are specific to India.

One of the earliest companies sites in India was Bazee, which was acquired by eBay. Since then, e-commerce has flourished in India, with the recent sites like Flipkart has developed unique strategies like Cash on Delivery (COD) and Payment on Delivery (POD) system and development of their own logistics chain to increase their customer base. Rapid urbanization and increase in the number of internet users and permeability of cellphones in different parts of the country have contributed to the rapid development of e-commerce.

With the maturity of the market and the complexities of the regulatory mechanisms, an e-commerce company will have to implement a legal strategy to deal with regulatory issues and possible litigation from customers, suppliers and other partners.

Online contracts and terms of service

Online contracts in India are governed under the Indian Contract Act and validated under the Section 10A of the Information Technology Act. The relationship between the customers and the e-commerce entities are governed by the Terms of Service(TOS) for websites and End-User License Agreement (EULA) for downloadable or packaged software. In India, we do not have case laws pertaining to the enforceability of online contracts but in other countries, typical problem areas pertaining to the terms of service have surrounded the following:

  1. Arbitration clause which exclusively determines the arbitration forum and the courts which have jurisdiction in case of any dispute. This can place an undue cost on other parties. Courts may reject this choice and allow the customers to sue in another location also.
  2. A choice of law clause which decides the law of the country that will apply. For example, a clause which states laws of Singapore will be applicable.
  3. Limitation of liability clause which absolves or limits liability to an artificially low extent. On this point, Indian courts have case law with respect to the provision of goods and services on a brick-and-mortar based model. As long as 1966, the Madras High Court had struck down a clause in a laundry service contract which restricted the liability of the service provider to 50% of the cost of the goods.

An e-commerce site may be liable for the defects in the product sold on the platform-depending on how it represents itself to the customers. Even though they may merely provide a platform, e-commerce stores tend to place their brand name on the product packages. Therefore, they will respond under consumer protection law to repair or replace products-they should ideally have necessary contractual arrangements with suppliers which permit that.

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