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BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY

GREATER NOIDA

Project Report

on

E Commerce

3rdTrimester PGDM 2014-16

Submitted To:

Dr. Jagdish Shettigar

(Ph.D., Professor in Economics & Chairperson

Center for Retail Management)

Submitted By:

Divya Sachdeva (14DM079)

Dwivhashyam Viswanadha Susruth (14DM080)

Gunjan Kapoor (14DM087)

Harihara Prabu (14DM088)

Jeevesh Mehta (14DM102)

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ACKNOWLEDGEMENT

We, the students of PGDM-14-16, Section-B, are extremely grateful to our mentors for

the confidence bestowed in us and entrusting our Business Law project

entitled Report on E-Commerce

At this juncture we feel deeply honored in expressing our sincere thanks to Dr. H.

Chaturvedi for making the resources available at right time and providing us valuable

insights leading to the successful completion of our project.We also extend our gratitude

to our Project Guide Dr. Jagdish Shettigar who helped us in compiling the project.

We would also like to thank all the faculty members of BIMTECH for their critical advice

and guidance without which this project would not have been possible. Last but not the

least we place a deep sense of gratitude to our family members and friends who have

been constant source of inspiration during the preparation of this project work.

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Table of Contents

Introduction to Ecommerce Page 5

Different types of Ecommerce Sites Page 9

Different Acts and Laws relating to Ecommerce Page 16

Various Cases Relating to Ecommerce Page 26

Challenges ahead of Ecommerce Page 31

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Table of Figures

The comparative Picture Fig-1 Pg 6

Total Retail Market Size Fig-2 Pg 7

Online Retail Market Size Fig-3 Pg 7

Indias Internet Penetration as

compared with Globe

Fig-4 Pg 7

Indian Online travel Gross

Booking

Fig-5 Pg 9

Ota Market Share by Players Fig-6 Pg 9

Indian Travel and Tourism

Industry

Fig-7 Pg 10

Market Share per 2013 Fig-8 Pg 12

Flipkart v/s Amazon v/s

Snapdeal

Fig-9 Pg 13

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Introduction to E-Commerce

The opportunity in Indian e-commerce is huge. Only 0.25 percent of Indias retail is e-

commerce, versus 4 percent in Latin America, 6 percent in China, 9 percent in the U.S.

and 13 percent in South Korea. The market here could grow to $1 trillion over the next

ten years, if e-commerce exists to the same level as in other emerging markets, of

around 4 to 5 percent of retail. Whereas brands account for a large chunk of consumer

buying elsewhere, like in the U.S., in India they only account for 5 percent of overall

sales. The rest of the market is long-tail manufacturers and distributors, selling great

products at great prices, but not necessarily with a national footprint. Consumers in

India are very value conscious. No single fashion or lifestyle brands commands more

than $200 million in sales, so that means there's huge fragmentation on the supply side.

India is almost 10 years behind China in the e-commerce space. Chinas inflection point

was reached in 2005 when its size was similar to Indias current market size. Thankfully

for India the dynamics currently are similar to what existed in China then growing

broadband penetration, acceptance of online marketplaces, and lack of physical retail

infrastructure in many places.

Forget the Flipkarts, Snapdeals and Amazons. Travel is where the real money in Indias

e-commerce is. Online travel accounts for nearly 71% of e-commerce business in India.

This business has grown at a compounded annual growth rate (CAGR) of 32% over

2009-13. E-tailing, on the other hand, accounts for only 8.7% of organized retail and a

minuscule 0.3% of total retail sales. Even within sales of physical goods, books are a

mere 7% of total book sales, mobile phones are 2% of all handsets sold, and fashion

goods sold online are just 1%. Online jewelry sales account for only 0.2 per cent of all

jewelry sold.

For every Rs 100 spent on e-tailing, Rs 35 is spent on supporting services like

warehousing, payment gateways, and logistics, among others. Delivery costs a platform

owner 8-10% implying significant burn. Though 50-60% of delivery logistics today are

handled by large e-tailers themselves, this proportion may reduce going forward as the

participation of lower tier cities picks up. Presently, aggressive pricing in India is leading

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to e-tailers making losses on every segment. For a Rs 100 sale of a book, the e-tailer

incurs a loss of Rs 24, a loss of Rs 13 in mobiles, and Rs 8 in apparel. Demand in India

exists across 4,000-5,000 towns and cities, but there is no significant presence of

physical retail in almost 95% of these. High real estate cost is one of the main reasons

why organised retail is unable to expand at speeds expected earlier. Real estate as a

percentage of sales is 14 times higher than in the US. For large retailers in India, it is

7% of sales as compared to 0.5% for Walmart

Our focus has really been on middle-class India. Middle India has started shopping for

some core products online. In many areas, you cant buy a refrigerator or TV where you

live. We want to bridge that gap. We cover over 90 percent of urban India, or over 4000

towns and cities.

For the longest time, no one took Indias Internet industry seriously. Thats changed in

the last blue-chip global investors. We were invited to the Goldman Sachs Private

Internet Company twelve months, thanks to high quality companies and good

management teams backed by conference in November 2013, the only Indian company

there.

Fig-1

http://techcrunch.com/2013/11/19/goldman-sachs-hot-tech-companies-2013-leaked-schedule/

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Fig - 2 Fig- 3

In a recent development for online retail space, Reliance Industries (RIL) has planned to

start online sales of mobile phones, laptops, televisions and home appliances next

quarter, significantly expanding its e-commerce business currently confined to only

grocery sales in Mumbai. Meanwhile, Japanese telecom and media group SoftBank

Corp setting its sights on Indian e-commerce in its aggressive expansion drive has

committed to invest about $10 billion in the booming sector as it took a strategic stake in

one of its rising stars, Snapdeal. The purchase comes as international investors hunt

deals in online retail in India, which has the world's third-largest Internet user base but

e-commerce in a relatively underdeveloped stage.

Fig-4

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Investments

Even as uncertainty looms around FDI in Multi-brand issue, India has received $259

million in foreign direct investment (FDI) in single brand-retail since April 2010. During

April-September 2014, the country received $167.52 million FDI in single-brand retail

sector. The FDI of $11.30 million was received in the last fiscal.Some of the notable

investments and developments in the Indian retail sector in the recent past are as

follows:

The combined entity of Flipkart and Myntra plans to launch a fashion incubator, a first-

of-its-kind move by an Indian startup, in its aggressive push to gain complete

dominance of the fast-growing online apparel category.

Presently the government is examining six proposals for bringing foreign direct

investment (FDI) in the single-brand retail sector.

Government Policy

FDI in Multi-brand hangs in balance

In one of the biggest concerns for the industry, FDI in Multi-Brand issue hangs in

uncertainty, with BJP government giving no clear indication on this stand, leaving

foreign investors pondering about the credibility of policy decisions of Indian

government. While the UPA government back in 2012, permitted 100% foreign direct

investment (FDI) in single brand retail, Previous government permitted foreign investors

to pick up only a 51% stake in the Indian multi-brand retailing company post

government approval after satisfying stringent norms of a minimum investment of $100

million, a 50% investment in backend infrastructure, and a 30% mandatory procurement

of products sourced from small industries. However, notably the present BJP

government has not initiated any move to scrap the policy of allowing FDI in multi-brand

retail approved by the previous UPA government. Further, if reports are to be believed

the government would leave the implementation of this policy on states.

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Different types of E-commerce websites

Online Travel Websites

1. Yatra,com ,2. Goibibo.com , 3. Makemytrip.com, 4. Expedia.co.in,

5.Travelguru.com, 6.Incredible India website , 7.Tripadvisor.com, 8.Cleartrip.com

9. Irctc.in .

All these websites have nearly 70% of the total cash flow in e-commerce. OTA industry

is low margin, high volume. Due to low internet penetration in India, their reach to tier II

and tier-III cities is limited which affects the volumes. Incompetence of hotels and tour

operators reflects badly on OTA for consumers who book through them. Controlling

their quality is a major challenge

Fig 5 Fig -6

MakeMytrip is valued at $ 1.1 billion for a traffic of 8.3 million unique visitors per month

in fiscal 2014. Cleartrip has a traffic of 6 million users on desktop and 2.5 million users

on mobile per month. Yatra has 5.5 million users per month.

Enablers for industry growth:

Internet users in India grew 2.5 times from 2006-2010 Number of credit cards in India

grew by 3 times between 2006-2010.

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International tourist arrivals in India has increased by 8% CAGR (2004-09), compared

to world average of 3%

OTAs are integrating their portals with online bus and train ticketing services and car

rental services

Airline industry in India has grown by 400% (2004-2010). By 2020, India will be third

largest aviation market after US and China

Fig-7

Online Recharge & DTH:

This is a big segment in e-commerce is mobile/DTH recharge with nearly 1 million transactions daily

by operator websites.

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Online line retailing

Flipkart.com:-

Flipkart is an e-commerce company founded in 2007, by Sachin and Binny Bansal. It is

registered in Singapore, and owned by a Singapore-based holding company and

majority of its shareholders are foreigners. Because foreign companies are not allowed

to do multi-brand e-retailing in India, Flipkart sells goods in India through a company

called WS Retail.

Singapore was chosen because of the reason that taxation is primarily the driving factor

behind deciding on the location for registering a company.

Flipkart must have compared the taxation clauses between India and Singapore on the

following fronts-

1. Corporate taxation rate - Singapore has a corporate taxation rate of only 17%,

whereas India has a rate of 34%.The opportunity in Indian e-commerce is huge. Only

0.25 percent of Indias retail is e-commerce, versus 4 percent in Latin America, 6

percent in China, 9 percent in the U.S. and 13 percent in South Korea. The market here

could grow to $1 trillion over the next ten years, if e-commerce exists to the same level

as in other emerging markets, of around 4 to 5 percent of retail.

Whereas brands account for a large chunk of consumer buying elsewhere, like in the

U.S., in India they only account for 5 percent of overall sales. The rest of the market is

long-tail manufacturers and distributors, selling great products at great prices, but not

necessarily with a national footprint. Consumers in India are very value conscious. No

single fashion or lifestyle brands commands more than $200 million in sales, so that

means there's huge framentation on the supply side. For the longest time, no one took

Indias Internet industry seriously. Thats changed in the last blue-chip global investors.

We were invited to the Goldman Sachs Private Internet Company Ctwelve months,

thanks to high quality companies and good management teams backed by onference in

November 2013, the only Indian company there.

http://techcrunch.com/2013/11/19/goldman-sachs-hot-tech-companies-2013-leaked-schedule/http://techcrunch.com/2013/11/19/goldman-sachs-hot-tech-companies-2013-leaked-schedule/

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2. Double taxation avoidance - Singapore has a one-tier corporate tax system whereby

tax at the corporate level (i.e. any underlying tax) is the final tax.

Accordingly, dividends paid by Singapore resident companies are exempt from further

Singaporean tax in the hands of investors. Now, considering the investor base of

Flipkart is currently comprising of Venture Capitalists & Private Equity investors it makes

sense for them to save the potential tax liability which might occur if the dividends are

distributed from Flipkart in India.

3. Cutoms duty - Singapore being a transit and trade hub has limited import duty on only

a few items like Petroleum products, tobacco etc, and No export duty. Compared to

India, that contributes to a lot of savings given that Flipkart will have a lot of foreign

vendors (for electronics, fashion apparels).

RECOGNISED AND AWARDED:

- Entrepreneur of the Year Award 2012-2013: Sachin Bansal

- Young Turk of the Year: Flipkart.com

- IndiaMART Leaders of Tomorrow Awards 2011 (Nominated): Flipkart.com

- Second position in the List of Cheapest Mobile Store 2013: Flipkart.com

GROWING FAST:

- Registered User : 22 million

- Daily Visits by users : 4 million daily visits

- Delivering Shipments : 5 million shipments delivered per month

- Market Share : 4.9 per cent market share in 2013 ( Amazon - 1.6 and eBay - 1.2)

Fig - 8

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Jabong.com:-

Jabong.com is an Indian fashion and lifestyle e-commerce portal, selling apparel,

footwear, fashion accessories, beauty products, fragrances, home accessories and

other fashion and lifestyle products.[2][3] The company is headquartered in Gurgaon,

NCR.

The site started operations in January 2012. It was co-founded by Arun Chandra

Mohan, Praveen Sinha, and Lakshmi Potluri after which Manu Jain, and Mukul Bafana

joined the organization. The managing officers are Arun Chandra Mohan and Praveen

Sinha.

In March 2013, Jabong was shipping 6000-7000 orders a day.[9] According to the The

Economist, Jabong clocked gross sales of around US $100150 mn in 2012.[10] As per

the Livemint article, during September 2013 Jabong was shipping 14,000 orders on a

daily basis out of which 60% were from small towns.[11]

Jabong was one of the most visited e-commerce sites during the Great Online Shopping

Festival 2013. Company representatives claimed that its revenues increased five to six

times compared to a usual day, and that Jabong set a record for sale in the male

fashion category.[12][13][14]

In 2014, Manu Jain left Jabong and joined Xiaomi India.

Jabong.com won the "Online Retailer of the Year" award in the first eTailing India e-

commerce industry awards.

Jabong.com received the award for the Most Impactful Launch of the year at Pitch

Brands 50 Awards 2013.

According to The Brand Trust Report India Study - 2013 by Trust Research Advisory,

Jabong ranked among the top 25 trusted Online brands in India.[55]

Jabong is among the top 3 ecommerce players in India when it comes to customer

satisfaction

http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Jabong.com#cite_note-Times_of_India-2http://en.wikipedia.org/wiki/Jabong.com#cite_note-Times_of_India-2http://en.wikipedia.org/wiki/Jabong.com#cite_note-Forbes-9http://en.wikipedia.org/wiki/Jabong.com#cite_note-The_Economist-10http://en.wikipedia.org/wiki/Jabong.com#cite_note-Livemint-11http://en.wikipedia.org/wiki/Great_Online_Shopping_Festivalhttp://en.wikipedia.org/wiki/Great_Online_Shopping_Festivalhttp://en.wikipedia.org/wiki/Jabong.com#cite_note-TimesofIndia-12http://en.wikipedia.org/wiki/Jabong.com#cite_note-TimesofIndia-12http://en.wikipedia.org/wiki/Jabong.com#cite_note-IndianExpress-14http://en.wikipedia.org/wiki/The_Brand_Trust_Reporthttp://en.wikipedia.org/wiki/Jabong.com#cite_note-exchange4media-55

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Myntra.com:-

The company was founded in 2007 by IITians Mukesh Bansal, Ashutosh Lawania and

Vineet Saxena with a focus on personalization of gift items

It is classified as Indian Non-Government Company and is registered at Registrar of

Companies, Bangalore. Its authorized share capital is Rs. 120,000,000 and its paid up

capital is Rs. 50,409,320.

In February 2014, Myntra raised additional $50 Million (Rs.310 crore) funding from

Premji Invest and few other Private Investors.[14]

2014 also saw the merging of Myntra with another e-commerce giant Flipkart. Myntra

continues to function and operate independently to increase its market share from 50 to

70 per cent of the market share

Snapdeal.com

Snapdeal.com is an online marketplace .Snapdeal.com was started in February 2010 as

a daily deals platform inspired byGroupon.com but expanded in September 2011 to

become an online marketplace. Snapdeal has grown to become the largest online

marketplace in India offering an assortment of 4 million+ products across diverse

categories from over 50,000 sellers, shipping to 4,000 towns and cities in India.

Homeshop18:

HomeShop18 is an online and on-air retail and distribution venture of Network 18

Group, India. HomeShop18 was launched on 9 April 2008 as India's first 24-hour Home

Shopping TV channel, where anchors performed live demonstration of products on sale

similar to HSN or QVC in USA. The television channel established HomeShop18's

foothold in Indian retail because of high television penetration. Later, as the internet

reach grew all over the country, HomeShop18 launched www.homeshop18.com which

was ranked as the No. 5 most trafficked Ecommerce portal in India by Comscore in July

2013.G S Home Shopping of Korea, the third largest home shopping company in the

world, has a 15% stake in the company. Network 18 has the controlling stake of 51%.

http://en.wikipedia.org/wiki/Myntra#cite_note-14http://en.wikipedia.org/wiki/Online_marketplacehttp://en.wikipedia.org/wiki/Groupon.comhttp://en.wikipedia.org/wiki/Network_18http://en.wikipedia.org/wiki/Network_18

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Fig- 9

Please note that the revenue figures above are not the price of products sold (GMV), as

these are all marketplaces, and their revenues come from commissions they get from

sellers or listing fees that they charge to list the products on their site.

GMV or Gross Merchandize Value represents the price of products sold and net

revenues is just a fraction of that!

Flipkart leads the race with net revenue of 179 crore followed by Amazon at 168.9 crore

and Snapdeal at 154.11 crore.

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Different acts and laws relating to E-commerce business

Consumer Protection act

In view of the new models of business in e-commerce, it is important to keep in mind

consumer protection issues. In India the Consumer Protection Act 1986 (CPA)

governs the relationship between consumers and service / goods providers. There is no

separate consumer protection law that is specific to and regulates online transactions.

Liability under the CPA arises when there is deficiency in service or defect in goods

or occurrence of unfair trade practice. The CPA specifically excludes from its ambit the

rendering of any service that is free of charge.

If an online platform is not charging the users, the CPA may not apply.

If actual sales are taking place on the online platform, the users will be

considered consumers under the CPA and its provision will apply to the sale of

products by the online platform. Depending upon who is actually selling the goods or

rendering services the liability may trigger. The distributor of goods also comes within

the purview of the CPA.

There is a special adjudicating forum (with appellate forums) which is constituted under

the CPA. Some of the various sanctions which may be imposed under the CPA are as

below:

i. Removal of defects / deficiencies

ii. Replacement of goods

iii. Return of price paid;

iv. Pay compensation as may be awarded;

v. discontinue the unfair trade practice or the restrictive trade practice or not to

repeat them;

CAG felt the need to actually focus on this issue to see if the websites were consumer

friendly and also to see if there were adequate laws and redressed mechanisms in

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India to protect consumers shopping online. CAG, therefore undertook a study, E-

commerce and Consumer Protection in India in 2002, to look at e-trading websites and

how consumer friendly they were. In 2006, CAG conducted a follow up study

Protecting consumer rights in e-commerce transactions to look at laws and redressal

mechanisms available to consumers. A detailed analysis of the laws prevailing in

different countries showed that Indian laws are grossly inadequate to deal with

problems in online shopping, issues such as phishing, spamming .

AMENDMENT IN THE CPA

In d proposed amendment ,2 (1)(d) "consumer means any person who,- (i) buys any

goods for a consideration which has been paid or promised or partly paid and partly

promised, or under any system of deferred payment and includes any user of such

goods other than the person who buys such goods for consideration paid or promised

or partly paid or partly promised, or under any system of deferred payment when such

use is made with the approval of such person, but does not include a person who

obtains such goods for resale or for any commercial purpose; or (ii) hires or avails of

any services for a consideration which has been paid or promised or partly paid and

partly promised, or under any system of deferred payment and includes any beneficiary

of such services other than the person who hires or avails of the services for

consideration paid or promised, or partly paid and partly promised, or under any system

of deferred payment, when such services are availed of with the approval of the first

mentioned person (but does not include a person who avails of such services of any

commercial purpose; Explanation.1-For the purposes of this clause, "commercial

purpose" does not include use by a consumer of goods bought and used by him

exclusively for the purpose of earning his livelihood, by means of self-employment;

Explanation 2: For the purposes of this clause buying of goods, hiring/availing of

services is inclusive of the transaction made through any mode, inclusive of but

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not limited to offline, online through electronic means, teleshopping, direct

selling etc. Explanation 2 has been added to clarify that e-commerce transactions are

also covered.

Also in UNFAIR TRADE PRACTICE, the practice of making any statement, whether

orally or in writing or by visible representation including by way of electronic record, this

is done to include e-commerce.

INTELLECTUAL PROPERTY RIGHTS

Intellectual property (or IP) is perhaps the most neglected, yet the highest value-bearing

component of ecommerce. That is either because it is less understood, or because the

important connections to ecommerce are not apparent.

How Is Intellectual Property Important to Ecommerce?

E-Commerce, more than other business systems, often involves selling products and

services that are based on IP and its licensing. Music, pictures, photos, software,

designs, training modules, systems, etc. can all be traded through E-Commerce, in

which case, IP is the main component of value in the transaction. IP is important

because the things of value that are traded on the Internet must be protected, using

technological security systems and IP laws, or else they can be stolen or pirated and

whole businesses can be destroyed. Also, IP is involved in making E-Commerce work.

The systems that allow the Internet to function - software, networks, designs, chips,

routers and switches, the user interface, and so on - are forms of IP and often protected

by IP rights. Trademarks are an essential part of ECommerce business, as branding,

customer recognition and good will, essential elements of Web-based business, are

protected by trademarks and unfair competition law.

The two primary areas that you should be concerned about are:

Safeguarding your own intellectual property

Violating someone else's intellectual property

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Safeguarding Your Own Intellectual Property

A common mistake is disclosing intellectual property prior to filing for protection of that

property. Likewise, in many countries making trade secrets public automatically

dissolves any protection. Consult with your legal adviser prior to disclosing anything

pertaining to your intellectual property

Violating Someone Else's Intellectual Property

Your ecommerce website contains product descriptions and images. Do you have the

legal right to publish those descriptions and images? What about all those logos,

videos, photos, clip art, icons, sound effects, and background music? They sure make

your site a more engaging. But, once again, do you have the right to be using them?

I know of many small ecommerce entrepreneurs who disregard intellectual property

issues using the dictum, "whatever is available on the Internet is free for use!" The fact

that they seem to get away with such IP violations makes the rest of us wonder whether

we are spending our money right.

The fact is that when you are really small, you might be able to fly under the radar. But

as you grow, your flagrant intellectual property violations will stand out. If you are not a

fly-by-night operation, you need to take intellectual property issues seriously. Any

content you place on your website must something that:

you own

you have the express permission to use

is in the public domain

is covered under fair use.

What elements of your website can be protected? Many parts of your website may be

protected by different types of intellectual property (IP) rights. For example:

E-commerce systems, search engines or other technical Internet tools may be

protected by patents or utility models;

Software, including the text-based HTML code used in websites, can be protected

by copyright and/or patents, depending on the national law;

http://ecommerce.about.com/od/Ecommerce-Website-Design/a/Ecommerce-Website.htmhttp://ecommerce.about.com/od/Ecommerce-Website-Design/a/Product-Description.htmhttp://ecommerce.about.com/od/Ecommerce-Website-Design/a/Ecommerce-Images.htmhttp://ecommerce.about.com/od/eCommerce-Marketing-Strategies/a/Customer-Engagement.htmhttp://inventors.about.com/od/fairuse/Fair_Use.htm

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Your website design is likely to be protected by copyright;

Creative website content, such as written material, photographs, graphics,

music and videos, may be protected by copyright;

Databases can be protected by copyright or by sui generis database laws;

Business names, logos, product names, domain names and other signs posted

on your website may be protected as trademarks;

Computer-generated graphic symbols, screen displays, graphic user interfaces

(GUIs) and even webpages may be protected by industrial design law;

Hidden aspects of your website (such as confidential graphics, source code, object

code, algorithms, programs or other technical descriptions, data flow charts, logic flow

charts, user manuals, data structures, and database contents) can be protected by

trade secret law, as long as they are not disclosed to the public and you have taken

reasonable steps to keep them secret.

IT ACT

Authentication & Identification

Transactions on the internet, particularly consumer-related transactions, often occur

between parties who have no pre-existing relationship. This may raise concerns of the

persons identity and authenticity with respect to issues of the persons capacity,

authority and legitimacy to enter the contract. Electronic signatures may be considered

as one of the methods used to determine the authority and legitimacy of the person to

authenticate an electronic record.

The IT Act gives legal recognition to the authentication of any information by affixing an

electronic signature as long as it is in compliance with the manner as prescribed under

the IT Act. Further, the IT Act also provides the regulatory framework with respect to

electronic signatures including issuance of electronic signature certificates.

In particular the IT Act provides that an electronic signature shall be deemed to be a

secure electronic signature if:

1. The signature creation data, at the time of affixing the signature, was under the

exclusive control of the signatory and no other party.

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2. The signature creation data was stored and affixed in such exclusive manner as

may be prescribed.

The IT Act provides that the identity of a person shall be deemed to have been stolen

when any unique identification of a person (such as her electronic signature or

password) is fraudulently or dishonestly used. The Act prescribes a penalty of

imprisonment of up to 3 years and fine up to INR 1 lakh.

The IT Act provides that whoever, by means of any communication device or computer

resource cheats by impersonation, shall be punished with imprisonment of up to 3 years

and with fine of up INR 1 lakh.

The IPC further provides that any person who cheats by personation shall be

punishable with imprisonment of up to three years and / or fine.

Privacy

For an e-commerce platform, it is almost difficult to complete any online transaction

without collecting some form of personal information of the users such as details about

their identity and financial information. Apart from the collection of primary data from the

users, e-commerce platforms may also collect a variety of other indirect information

such as users personal choices and preferences and patterns of search.

Historically, the concept of privacy and data protection were not addressed in any Indian

legislation. In the absence of a specific legislation, the Supreme Court of India in the

cases of Kharak Singh v State of UP 28 and People's Union of Civil Liberties v. the

Union of India 29 recognised the right to privacy as a subset of the larger right to life

and personal liberty under Article 21 of the Constitution of India.

The IT Act deals with the concept of violation of privacy in a limited sense; it provides

that the privacy of a person is deemed to be violated where images of her private body

areas are captured, published or transmitted without her consent in circumstances

where she would have had a reasonable expectation of privacy30 and prescribes a

punishment of imprisonment of up to 3 years and/or fine of up to INR 2 lakhs.

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Data Protection

India has in the year 2011 notified rules under Section 43A of the IT Act titled

Reasonable practices and procedures and sensitive personal data or information

Rules, 2011 which provide a framework for the protection of data in India.

Kinds of Information Covered Under the Data Protection Rules

1. Personal information (PI) which is defined as any information that relates to a

natural person, which, either directly or indirectly, in combination with other

information available or likely to be available with a body corporate, is capable of

identifying such person.

2. Sensitive personal data or information (SPDI) which is defined means such PI

of a person which consists of i. password ii. financial information such as Bank

account or credit card or debit card or other payment instrument details

iii.physical, physiological and mental health condition iv. sexual orientation v.

medical records and history vi. Biometric information.

Potential Liability under the Data Protection Rules

The IT Act prescribes penalties for wrongful disclosure of PI by way of imprisonment up

to three years and/ or a fine up to INR 5 lakhs. The IT Act also prescribes compensation

to be awarded by companies that are negligent in the protection of SPDI of any person.

Security of Systems

Since e-commerce companies keep sensitive information (including SPDI) on their

servers, e-commerce companies must ensure that they have adequate security

measures to safeguard their systems from any unauthorized intrusion. A company could

face security threats externally as well as internally. Externally, the company could face

problems from hackers, viruses and trojan horses. Internally, the company must ensure

security against its technical staff and employees.

Security Issues in Payment Mechanisms

There are numerous methods for an e-commerce company to receive payments from its

customers. These include the traditional credit, debit and charge card but also new

technologies such as digital wallets, e-cash, mobile payment and e-checks. In addition

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to the above, another option would be to take the assistance of a third party to complete

the online transaction.

RBI Second Level Authentication

The RBI has mandated a system of providing for additional authentication

/ validation based on information not visible on the cards for all on-line CNP (Cards are

not Present) transactions including IVR transactions.

Banks have to take steps to put in place a system of online alerts for cardholders for all

CNP) transactions irrespective of the amount, involving usage of cards at various

channels.

Bitcoins

Bitcoins are stated to be the currency of the internet. Launched in 2009 by an

unidentified person or group known as Satoshi Nakamoto, Bitcoins are encrypted sets

of digital data representing past transactions. The opensource currency is powered by a

peer-to-peer network similar to torrent file-sharing networks, and is in the public domain

both in terms of issue and valuation. Bitcoin are transferred like e-mail and can be used

to pay for goods and services on websites that accept them. Every time they change

hands, they are stamped with the transaction details and the identification key of the

new owner. All transactions are communicated to the public network and indexed for

future verification. Bitcoins can technically be converted into traditional currency.

The Foreign Exchange Management Act 1999 defines currency to mean all currency

notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit,

bills of exchange and promissory notes, credit cards or such other similar instruments

as may be notified by the Reserve Bank. As of now, there has not been any formal

notification by the Reserve Bank of India which would throw light on the acceptance or

rejection of bitcoins. There are a number of other issues which would need to be

clarified such as whether bitcoins should be included in the taxable income of their

owner.

24

Competition

E-commerce has already generated a lot of competition with ever increasing players

and acquisition of several old players in the market and has enabled development of

new services, new distribution channels, and greater efficiency in business activities.

Potential issues for e-commerce players would be price fixing or tacit collusion or anti-

competitive discrimination or refusal of access to third parties. E-commerce players

should refrain from collusion and excessive pricing. Options for parties to use same web

platform for different kinds of products/services can give rise to different intermediaries

and that can lead to collusive behavior. Market transparency should be encouraged.

So far, Indian competition laws do not recognize e-tail and retail as different markets;

these are recognised as different platforms for selling a product. The Competition

Commission of India, in an order issued on May 19 in a case (Ashish Ahuja vs Snap

Deal and others), said, "Both offline and online markets differ in terms of discounts and

shopping experience; buyers weigh the options available in both markets and decide

accordingly. If the price in the online market increases significantly, the consumer is

likely to shift towards the offline market and vice-versa. Therefore, the commission is of

the view these two markets are different channels of distribution of the same product,

not two different relevant markets."

Predatory Pricing & the Law

There have been complaints that e-commerce companies engage in predatory pricing

or below cost pricing. They have been faulted merely for offering discounts to

consumers. While there may have been problems with online sales, those pointing to

the need to invoke the Competition Act are missing a basic point: the importance of

freedom of pricing.

The Act only prohibits predatory pricing by companies with a dominant position in a

relevant market in India. If the company is not dominant, predatory pricing, as a matter

of law, is inapplicable. Determining whether a company has a dominant position

involves a complex blend of economic analysis, law, business realities, consumer

preferences, and so on.

http://www.business-standard.com/search?type=news&q=E-tail

25

Vertical Agreements

As a general rule of thumb, the Act is completely neutral on pricing by any company if it

is not dominant and doesnt agree on pricing, either horizontally with its competitors or

vertically with downstream entities in the distribution chain.

A manufacturer that requires sellers not to sell below a certain price, or not to offer

discounts, could actually be flirting with disaster under the Act as it could be engaging in

unlawful minimum resale price maintenance (RPM). Broadly speaking, RPM refers to

the practice of trying to fix the resale price of goods through any agreement,

arrangement or understanding to the effect that the price to be charged on the resale by

the purchaser shall be the price stipulated by the original seller. Minimum RPM can thus

be viewed as vertical price-fixing, and thats where the problem may be with respect to

manufacturers and e-commerce companies. Companies should keep in mind that the

concept of maximum retail price or MRP for pre-packaged commodities is very

different from minimum RPM. MRP is the maximum price that can be charged by the

retailer for a pre-packaged commodity.

By contrast, the Competition Acts prohibition on minimum RPM covers any agreement

that sets a minimum (or fixed) price if such agreement causes or is likely to cause an

appreciable adverse effect on competition in India. In addition, minimum RPM

provisions or practices raise the possibility of the Competition Commission of India

imposing significant fines. if a manufacturer tells retailers that you cannot sell our

product at less than 50 or that you must sell our product at 50 and you cannot offer

any discounts, serious issues under the Act can arise.

26

Breaking the Law

In jurisdictions such as the EU, minimum RPM is considered a hard-core breach of EU

competition laws and companies engaging in minimum RPM have been heavily fined.

Similarly, under the Act, companies can be fined up to 10 per cent of their average

turnover for the last three financial years, in addition to the minimum RPM arrangement

being deemed void if the companies are found to have breached the Act.

All companies doing business in India, whether online or bricks and mortar, need to

carefully examine their contracts and agreements, as well as their business practices, to

determine whether they involve minimum or fixed prices for onward sales of products. If

there are written contractual provisions to this effect, there must also be a clear

statement in the agreement that the retailer is free to charge a lower price than that

desired by the manufacturer.

It is also vital to remember that business practices that are not in writing could also

amount to prohibited minimum RPM. For example, if a manufacturer threatens to stop

supplying a retailer if the retailer does not adhere to the manufacturers desired pricing,

this may also raise serious minimum RPM issues.

27

Various cases relating to the ecommerce business

Consumer Protection Issues :

In view of the new models of business in e-commerce, it is important to keep in mind

consumer protection issues. In India the Consumer Protection Act 1986 (CPA)

governs the relationship between consumers and service / goods providers. There is no

separate consumer protection law that is specific to and regulates online transactions.

Liability under the CPA arises when there is deficiency in service or defect in goods

or occurrence of unfair trade practice. The CPA specifically excludes from its ambit the

rendering of any service that is free of charge.

If an online platform is not charging the users, the CPA may not apply.

If actual sales are taking place on the online platform, the users will be considered

consumers under the CPA and its provision will apply to the sale of products by the

online platform. Depending upon who is actually selling the goods or rendering services

the liability may trigger. The distributor of goods also comes within the purview of the

CPA.

There is a special adjudicating forum (with appellate forums) which is constituted under

the CPA. Some of the various sanctions which may be imposed under the CPA are as

below:

(i). Removal of defects / deficiencies

(ii). Replacement of goods

(iii).Return of price paid (iv). Pay compensation as may be awarded; (V). Discontinue

the unfair trade practice or the restrictive trade practice or not to repeat them;

28

Cases against E-Commerce

Only 9 fraud complaints against e-commerce firms in the last two years (Dec 15 , 2014)

The ministry of corporate affairs has said that the Competition Commission of

India(CCI) is going to look into the anticompetitive conduct of online retailers. The

retailers under scrutiny are Flipkart India, Amazon Seller Services, Vector e-commerce,

Jasper Infotech and Xerion Retails.The government has also asked the serious fraud

investigation office to file prosecution under the provisions of the Companies Act, 1956

and the Indian Penal Code against Goldquest International and its group company

Questnet Enterprises and Abcindya Networks. The statement added that investigation

reports with respect to Unipay2U group of companies and Speakasia Online are under

examination. The department of consumer affairs is also considering inclusion of

necessary safeguards for protection of rights of consumers of technology-based

marketing e-commerce, telemarketing etc as part of the proposed amendment in the

Consumer Protection Act, 1986

Cases against Online retail

Consumer protection Act

Case 1

Snapdeal has delivered two huge marble

stones instead of iPhone Apple 4S,

leaving another customer disappointed

and angry. Darshan Kabra from Pune had

ordered two Apple iPhone 4S on

December 7, but instead of the

smartphones, he received stones.

(Dec 12 , 2014)

http://www.dnaindia.com/topic/snapdealhttp://www.dnaindia.com/topic/apple-iphone

29

Case 2 Snapdeal

Sani recently discovered that a seller on Snapdeal was retailing counterfeit goods under

the JBL brand, for which his company has the exclusive distribution rights in India. The

issue came to Sani's attention when a Bengaluru-based offline retailer, Maneesh

Singhvi, ordered JBL Pulse bluetooth wireless speakers from Snapdeal. On discovering

that the product was neither sold or manufactured by JBL, Singhvi filed a complaint with

the city's Upparpet police station. According to the first information report (FIR), which

has been seen by ET, Snapdeal, the seller by the name Manisha Ashwin Kumar Farekh

and the delivery company have been named as accused."This is a clear case of

cheating and investigations are going on," said a senior officer investigating the case.

Case - 3

Case on Online recharge

30

Case 4

Case against OTA

Case- 5

Competition act on E-retailers

The Federation of Publishers and Booksellers Associations in India (FPBAI) has also

questioned the predatory pricing tactics adopted by various e-commerce websites in

India. The Confederation of All India Traders (CAIT) has also decided to approach the

Competition Commission of India to oppose the predatory pricing tactics of Indian e-

commerce websites

Fine & Action

Kerala Government slammed Flipkart, Jabong and other two E-commerce trade

organizations for doing illegal business in the state with a fine of INR 54 Cr. Flipkart

(INR 47.15 Cr) will pay the majority of fine followed by Jabong (INR 3.89 Cr), Myntra

(INR 2.23 Cr) and Zovi (INR 36 Lakh).

I unfortunately chosen this website - to book an international flight on 30th July 2010 from

Dubai to Chennai on 4th jul 2010 in Air India , After making the payment , I recieved a mail

from Makemytrip.com with a Booking Reference ID - FAEINT100010815975 stating that, due to

a communication error, we were unable to process your booking request .

I have sent several mails and made several calls to the international tollfree - 800- 01- 46342

and india office number - 00911244628747 and so far i havent recieved any mails/calls. since

my travel date is nearing, i have also sent mails and made calls for cancellation of the booking

process and to refund the money which debited from my credit card. for this also no one replied

back yet.

I am totally frustated and depressed with the customer service of Makemytrip.com , i want you

to resolve this issue and refund my ticket cost of 761 AED as soon as possible as i need to pay

back my dues before leaving this country. I dont want to be charged unnecessarily. pls keep this

in mind and process the cancellation and i dont want to follow up again again for this problem.

http://en.wikipedia.org/wiki/Predatory_pricing

31

Challenges ahead for E-commerce

Heavy investment on Infrastructure: Companies have to invest heavily on the

infrastructure front, where inventories can be placed safely. Presence of many players

in the E-commerce industry is creating unhealthy competition leading them to offer

lucrative schemes to customers in order to retain market share.

High Failure of Payment gateways: A high failure rate at payment gateway could well

hamper the growth of e-commerce industry. Although, most aspects of India have

grown exponentially, internet and e-commerce seemed to lag behind until recently. An

explosion of internet usage, especially mobile Internet, has caused many new

entrepreneurs to focus on technology startups instead of traditional businesses.

Lower Internet penetration: Indias e-commerce industry is still in its infancy. E-

commerce contributes only 0.6% of the countrys GDP against 1-3% for other countries,

with only 11% of Indias online population transacting online against 64% for the US and

over 40% for China. Postal address is not standardized in India. There are many

logistical problems associated with the online purchases, which can hamper the growth

of an industry.