E-Commerce Regulations and Online Marketplaces in India

Osheen Sharma

October 4, 2023

E-Commerce Regulations and Online Marketplaces in India

Over the past few years, the World has witnessed continuous demand and expansion of internet usage for networking, gaining knowledge access, and carrying out e-commerce activities. The constant growth of the internet and technology has led to increased demand and the development of facilities to purchase goods and services online. The increased demand has been led due to factors such as convenience, variety, and ease offered by e-commerce platforms to its consumers. During and post-COVID, the e-commerce segment saw exponential growth in its outreach and development, as the masses having internet access realized that e-commerce platforms not only allow convenience for the purchasers but also the sellers in their individual pursuits.

The active expansion and engagement of online markets, as well as e-commerce activities, have now made it easier for small businesses to have access to their target market as well as made accessibility and purchases easier, far, and wide for consumers. Therefore, keeping in mind the active need and expansion of e-commerce, the Indian government in order to regulate the e-commerce sector has adapted and evolved its legal framework. Through this article, we have briefly enunciated the major enactments which directly impact these platforms, in order to portray the legal landscape of e-commerce regulations in India.

Laws Governing Information Technology

The establishment of a legal framework surrounding e-commerce began around the early 2000s when the Information Technology Act, 2000 (“IT Act”), was introduced. This legislation creates a broad legal foundation for online transactions and electronic records, amongst other legal provisions concerning Internet usage. It covers cybersecurity and data protection within its ambit to ensure that the data of sellers and purchasers remains secure from data theft, breach of privacy, fraud, etc., during online exchanges. However, as the e-commerce ecosystem evolved, the need for more specific regulations became apparent, which was followed by the introduction of rules supplementary to the IT Act to govern e-commerce in India, such as the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, (“the Code”) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (“SPDI Rules”).

The Code specifies the mandatory guidelines for e-commerce websites, such as posting privacy policies, user agreements, returns, and refund policies, along with other supporting policies on their websites. In addition to other compliances, the entities must provide details of their registered name and address at a conspicuous place on their website to ensure that the consumers are aware of their rights and that they can have the means to seek grievance redressal or recourse in the event of any dispute. It formalizes and standardizes mechanisms for e-commerce entities within the industry, providing them with ease of doing business. Whereas the SPDI Rules provide for laws applicable to the recipient of personal data for the protection of the data and data providers through setting mandatory practices and compliances for the e-commerce entities. However, the SPDI Rules are set to be succeeded by the Digital Personal Data Protection Act of 2023.

Foreign Direct Investment (FDI) Policies

The FDI policy of India regulates the foreign entities aiming to enter and operate e-commerce segments in India. These regulations are formulated keeping in mind the security of Indian manufacturers, sellers, and e-commerce companies. As of the last updated FDI policy of 2020, foreign entities seeking to enter Indian markets are allowed to do so subject to a few restrictions and operational guidelines. As per the policy of 2020, entities of foreign origin may enter e-commerce markets in India through automatic routes, however, they can only undertake the business-to-business (B2B) e-commerce model which means to only make online purchases from and sales to Indian sellers directly and not to the customers. Hence, only marketplace e-commerce can be pursued by foreign entities in India. These guidelines have been intended to serve the benefit of the Indian e-commerce sector as well as to save the domestic markets from succumbing under the hands of foreign giants thereby ensuring organic growth of budding Indian sellers and e-sellers.

The Consumer Protection

The Consumer Protection Act of 2019, came into effect in July 2020, replacing the outdated Consumer Protection Act of 1986. This new enactment significantly impacted the Indian e-commerce market, as it introduced varied additional consumer-centric provisions that empower consumers and hold e-commerce platforms accountable. The Act ensures that the products or services being sold online are not deficient in their nature. Further, the Consumer Protection (E-Commerce) Rules, 2020, specifically lay separate duties and liabilities of a marketplace and inventory-based e-commerce entity. It also specifies the duties of the sellers making use of a marketplace e-commerce platform. To summarise these rules, they lay down provisions for mandatory disclosures by sellers and entities by providing timelines for refunds, setting up nodal officers, and employing other measures to safeguard consumers’ rights.

Other Legislation in Relation to Goods and Platforms

In India, the Legal Metrology Act, 2009, as well as its rules, regulate and provide guidelines concerning the manner of measuring and packaging of products in India, along with the specifications for labeling of goods. The Legal Metrology Act not only governs products sold through brick-and-mortar establishments, but it also governs goods sold through online platforms. Additionally, the Legal Metrology (Packed Commodities) Rules, 2011, specifically lays guidelines mandating disclosures by e-commerce entities with respect to products put up on display, such as disclosure on the website in relation to the name of the manufacturer, importer, packer, dimensions, constituents, place of origin, etc. These disclosures are mandated to enable consumers to make an informed purchase online.

As concerned food products are being sold online, there are additional safeguards applicable to manufacturers provided under the Food Safety and Standards Act, of 2006. It defines the liability of sellers through the compliances and regulations, by specifying how they shall be held liable in case any product covered under the act is found to be stored in unhygienic condition, or if it is found to be misbranded, sold after its expiry, or unidentified of its manufacturer or wholesaler. Notably, these rules are applicable to sellers selling through physical retail outlets, and e-commerce platforms.

Similarly, as concerned medicine as well as cosmetics the Drugs and Cosmetics Act, of 1940, is applicable. It not only regulates the manufacture, sale, and distribution of drugs and cosmetics in India but also specifies the requirements for the labeling of drugs and cosmetics products. These provisions thus have a direct impact on the sale of products through physical as well as online platforms.

The government of India is also committed to promoting fair competition within the e-commerce sector. The Competition Act, of 2002, aids the government in achieving this objective as it prohibits anti-competitive practices, such as price fixing and cartels also the Indian government ensures the fulfillment of goals through the means of regulating mergers and acquisitions. Further, the Competition Commission of India has over the years investigated a number of anti-competitive practices within the e-commerce sector.

In addition to these general regulations, the Reserve Bank of India has issued regulations governing online payments and the sale of financial products and services online. All entities within the e-commerce industry are covered under these regulations and they are mandated to comply with the same during all of their monetary transactions.

Online Marketplaces in India

Some of the popular online marketplaces in India are Amazon, Flipkart, Myntra, Snapdeal, Nykaa, etc. These marketplaces and their likes play a major role in the Indian e-commerce market, as they act as a platform for sellers to list and sell their products to their consumers far and wide within the country. It renders many options to purchasers, along with product feedback amongst other benefits. The sellers benefit from the wide pool of consumers, and these marketplaces provide additional facilities to the sellers such as delivery logistics, packing, payment handling, and other services, which assist sellers lacking infrastructure to achieve their sale targets with minimum investment.

Conclusion

Online marketplaces continue to grapple with the challenge of striking the right balance between facilitating e-commerce growth and ensuring accountability for issues such as counterfeit products and consumer disputes. As the e-commerce sector continues to expand, with the upsurge of smartphone and internet usage, regulatory authorities and industry stakeholders must work collaboratively to address emerging challenges and create a conducive environment for both businesses and consumers

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