The regulatory framework governing e-commerce in India needs to be thoroughly overhauled in order to avoid legal and procedural pitfalls that could inevitably spell chaos in the sector The Department of Industrial Policy & Promotion (DIPP) issued its Press Note No. 3 (2016 series), on 29 March 2016, prescribing guidelines for FDI in e-commerce. Significantly, these guidelines have come in...
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The regulatory framework governing e-commerce in India needs to be thoroughly overhauled in order to avoid legal and procedural pitfalls that could inevitably spell chaos in the sector The Department of Industrial Policy & Promotion (DIPP) issued its Press Note No. 3 (2016 series), on 29 March 2016, prescribing guidelines for FDI in e-commerce. Significantly, these guidelines have come in the wake of a notice issued to the Central Government, on 23 September 2015, by the Hon’ble High Court of Delhi in a writ petition filed by the All India Footwear Manufacturers & Retailers Association wherein it was alleged that despite FDI being prohibited in retail, the entities retailing goods through the Internet were not being restrained from accepting foreign investment and thereby, the FDI policy was being violated and prejudice being caused to the petitioners.Apparently, DIPP’s Press Note No. 3 is an attempt to infuse some clarity into a vexed situation but, unfortunately, the contents of the Note raise more questions than they answer in terms of the legality and practicability of the provisions aimed at regulating foreign investment in e-commerce. The following analysis of the guidelines reveals the inherent contradictions and their implications:
Hypothetically, if Cloudtail be regarded as the “SECONDARY” company in regard to Amazon, which is the E-COMMERCE CO., then Cloudtail would be able to account for 25% of the online sales made by Amazon. Similarly, WS Retail which may be regarded as the SECONDARY for Flipkart that is the E-COMMERCE Co. could effectively vouch for 25% of Flipkart sales. Moreover, if Amazon and Flipkart could reach an understanding, Flipkart could source a further 25% of its sales from Cloudtail and Amazon could do likewise with WS Retail. In sum, both these e-commerce giants could ensure that their group companies would be able to corner, collectively, 50% of the sales made by Amazon and Flipkart taken together.
Another area, where the DIPP guidelines are poised to cause significant legal ramifications, pertains to jurisdiction in the event of legal disputes. As the e-commerce entity is no longer a contracting party but merely a “facilitator” between buyer and seller, the question as to which court, located where, would exercise jurisdiction, in case of a dispute between buyer and seller, could deter either the seller from selling or the buyer from buying depending on how the matter of jurisdiction is settled.Going by recent judgements, the court where the buyer is situated has jurisdiction over disputes in regard to e-commerce contracts. A Division Bench of the Hon’ble High Court of Delhi considered the issue of jurisdiction in relation to “carrying on business” in the context of business transacted over the Internet in World Wrestling Entertainment Inc. v. M/s. Reshma Collection, FAO(OS) No. 506 of 2013. Their lordships relied on the leading case of Bhagwan Goverdhandas Kedia v. Girdharilal Parshottamdas & Co.: AIR 1966 SC 543, which would, mutatis mutandis, entail that:
The DIPP guidelines, having put the e-commerce entity out of the contractual relationship entirely, a seller located in say Kochi, whose goods are sold through the marketplace platform in towns as widely dispersed as say, Patna, Nashik and Kanpur could well be faced with the perilous situation of having to contest lawsuits in all three locations. Most small and medium sellers of goods and services would be incapable of fighting legal battles in distant places and would rather not engage in e-commerce than incur such a risk.
In the light of what has been enumerated above, the regulatory framework governing e-commerce in India needs to be thoroughly overhauled in order to avoid legal and procedural pitfalls that could inevitably spell chaos in the sector.
Disclaimer - The views expressed in this article are the personal views of the author and are purely informative in nature.