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Legal Issues Pertaining to E-Commerce

Narendra Kumar

| Updated: Jul 12, 2018 | Category: Legal, Legal Law

E-Commerce Legal Issues

E-Commerce Legal Issues

Electronic commerce or e-commerce legal issues industry in India has come a long way since its early days and has been growing rapidly across the world. The industry has matured and has seen the entry of many new players in the market. India is considered as a profitable market for these e-commerce businesses.

E-commerce refers to a wide range of online business activities related to a variety of products and services. It is where in the business transactions, the parties interact electronically and not by physical exchanges or direct physical contact, which are more traditional methods of business.

A more detailed definition of e-commerce is, “The use of electronic communications and digital information processing technology in business transactions to create, transform, and redefine relationships for value creation between or among organizations, and between organizations and individuals.”

What are the Different types of E-Commerce?

  1. In India, there are primarily three types of e-commerce business model:
  • Inventory based,
  • A marketplace based, and
  • Hybrid model.
  1. There are six types of e-commerce as per the type of transactions:
  • Business to business (B2B)
  • Business to consumer (B2C)
  • Consumer to Business (C2B)
  • Consumer to consumer (C2C)
  • Consumer to Administration (C2A)
  • Business to Administration (B2A)

What are the FDI Guidelines for E-commerce Laid down by DIPP?

According to DIPP’s new guidelines on FDI in e-commerce, 100% FDI under automatic route is permitted in the marketplace based business model of e-commerce. However, FDI is not permitted in the inventory based business model of e-commerce.

What provision does the Indian Information Technology Act have for e-commerce?

The Indian Information Technology (IT) Act provides legal recognition to the e-records and e-signature, which are the foremost steps to facilitate e-commerce.

Under this Act, the Ministry of Electronics & Information Technology (MeitY) has proper rules laid down for reasonable security practices and procedures as well as for sensitive personal data and information.

What are the Legal Issues that May Possibly Arise for the E-Commerce Players in India?

1. E-Contracts

Both the Indian Contract Act and the IT Act must be read in conjunction to understand the legal validity of e-contracts. Thus, e-contracts are governed by the basic principles of a valid contract that mandates that the contract must be entered in with free consent and a lawful consideration between two competent parties.

Also, Section 10A of the Information Technology Act, 2000 (“IT Act”) provides the validity of the e-contracts.

On e-commerce websites that operate in an online environment, the possibility of minors entering into contracts is very high. Hence, it is crucial for an online business portal consider such possibility and provides a form on the website stating that the individual with whom it is trading or entering into the e-contract has attained the age of majority.

2. Data Protection

Security of the information provided during an online transaction is a major concern.

The Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 and the Section 43A of the IT Act together provide a structure and guidelines for the protection of data in India.

It is required of the Company to take all reasonable precautions to prevent any corruption, damage, loss or destruction of the private information and/ or data, even upon the termination of the contract between the parties.
The contracts often have specific clauses to deal with such privacy concerns and they bind all employees, agents, and subcontractors.

3. Intellectual Property Rights

E-commerce websites are designed and sometimes operated by other parties specializing in the field. Often the content is also managed by a third party. Thus, unless the agreement between the parties specifically provides the IP rights, there is a possibility of infringement subject to the trademark, copyright or patent on an online platform.

4. Competition

E-commerce legal issues have seen a generation of new players and the merging and acquisition between several old players. This has enabled development of new services, distribution channels and far greater efficiency in business activities than ever before. This development has the possibility of leading to certain competition issues with respect to the development of strategies for growing the network and maintaining their market power.

5. Other things to look out for

  1. Ensure proper online contracts
  2. Original documentation in relation to taxation
  3. Record retention obligations
  4. Exchange control regulation
  5. Import-export regulations
  6. Foreign data protection law
  7. Terms and conditions must be specific depending upon the nature of the goods & services offered and not generic.
  8. Reasonable efforts to prevent the unauthorized transaction


The frequent improvement in the laws and rules and regulations shall make the e-commerce legal issues marketplace a pleasant experience for the consumers. Though the laws are being made more stringent for the e-commerce players yet it shall ensure its growth and increased investments.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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