By Ajita Dash & Devansh Malhotra
The surge in digitization in India has given rise to a plethora of online businesses and marketplaces, transforming the way consumers access goods and services. In the not-so-distant past, the traditional method of purchasing necessitated a visit to physical stores for everything from clothing to basic groceries. However, the contemporary landscape allows us to order these items with a simple click, underscoring the evolving demand for convenient and efficient delivery services. This shift has spurred the growth of numerous e-commerce stores in India, marking a substantial change in consumer behaviour.
Recognizing the impact of this digital revolution and the need to regulate this burgeoning sector, the government has enacted crucial laws to safeguard the rights of both sellers and consumers. These laws play a pivotal role in ensuring fair business practices, consumer protection, and maintaining the integrity of the e-commerce ecosystem. Key aspects covered by these regulations include transparency in product information, anti-competitive practices, and the establishment of grievance redressal mechanisms.
Moving forward, it is crucial to explore the various e-commerce models that have emerged in response to this digital transformation. These models encompass a diverse range, including Business to Consumer (B2C), Consumer to Consumer (C2C), and Business to Business (B2B) models. B2C models involve transactions between businesses and individual consumers, representing the most common form of e-commerce. C2C models facilitate transactions between individual consumers through online platforms, and B2B models focus on transactions between businesses. Additionally, there are variations such as Direct-to-Consumer (D2C) and Peer-to-Peer (P2P) models that cater to specific market needs.
Understanding these e-commerce models is essential for both businesses and consumers to navigate the digital marketplace effectively. As the e-commerce landscape continues to evolve, staying informed about the diverse models and their implications is crucial for making informed decisions in this dynamic and rapidly changing sector.
Types of eCommerce Models
- Inventory Model: In the Inventory Model, the business owner takes full control of the entire inventory. This entails purchasing products in bulk directly from manufacturers or distributors. Customers, in turn, make their purchases directly from the business. An example illustrating this model is the Souled Store, where the business centrally manages the entire inventory to streamline the customer buying process.
- Marketplace Model: Contrasting the Inventory Model, the Marketplace Model functions as an intermediary platform connecting buyers and sellers. In this model, sellers autonomously manage their own inventory and handle order fulfilment directly for customers. Notable e-commerce platforms like Myntra, Amazon, Nykaa, Walmart, and others operate under the Marketplace Model. Here, the platform earns revenue by charging a commission for each transaction facilitated. This model encourages a diverse range of sellers to showcase their products, fostering a dynamic and competitive online marketplace.
Compliances Required On Part of the eCommerce Entities
Ecommerce stores are required to take care of certain compliances in India in order to operate. Most of these compliances have been mentioned under 3 major laws:
- Information Technology Act, 2000
- The Information Technology (Intermediary Guidelines and Digital Media Ethics Codes) Rules, 2021
- Consumer Protection Act (E-commerce) Rules, 2020
- Digital Personal Data Protection Act, 2023
Compliances Explained
Registration
Inventory Model: When establishing an Inventory Model, entrepreneurs have the flexibility to commence operations as a sole proprietorship or a partnership. However, to avail specific advantages like a separate legal entity and perpetual succession, registering under the Companies Act, 2013, or the Limited Liability Partnership (LLP) Act, 2008 is advisable. This legal framework provides a structured foundation and brings added credibility to the business.
Marketplace Model: Similar registration considerations apply to the Marketplace Model. The owner can choose to proceed with the business operations as a Sole Proprietor or engaging in a partnership. However, when opting for a more complex business structure such as a Private Limited Company or a Limited Liability Partnership, registration under the Companies Act, 2013, or the LLP Act, 2008 is required. Proper registration not only ensures legal compliance but also extends the benefits associated with a formal business structure, contributing to the overall stability and legitimacy of the marketplace platform.
Ensuring compliance with the legal frameworks specified under the Companies Act, 2013, and the LLP Act, 2008 is crucial for the smooth functioning and long-term viability of both Inventory and Marketplace models in the dynamic landscape of e-commerce. By aligning with these registration requirements, businesses can foster a solid legal foundation, which is integral to navigating the complexities of the industry and building trust among stakeholders.
Intermediary Liability
Inventory Model: No compliances are required under the Information Technology Act, 2000 since an e-commerce under the inventory model cannot be considered as an intermediary. However, the store still needs to practise content moderation to prevent infringing or misleading content posted by way of advertisements, comments and reviews.
Marketplace Model: As per the Section 79 of the Information Technology Act, 2000, an intermediary shall not be liable for any third-party information, data, or communication link made hosted by them, provided they follow the guidelines mentioned in the provision. An e-commerce entity based on the marketplace model shall be considered an intermediary, however, this shall not apply to an inventory model e-commerce entity. In order to be exempt from any liability under this provision an intermediary;
- Must only be limited to conveying or temporarily storing the information made by a third party;
- And the intermediary must not:
- Initiate such transmission;
- Select the receiver of the transmission;
- Select or modify the information considered in the transmission
However, an intermediary shall not be exempt from such liability if,
- It has conspired with/aided/abetted the third party in such transmission being made public on their website;
- It does not immediately remove or disable access to such information upon gaining the knowledge of its existence or receiving communications from the government or its agency.
Product Information
Inventory Model: As per the E-commerce rules, 2020, in this model, the owner must provide accurate description of the products sold including size, weight, country of origin, warranty, etc. The proprietor must also provide easy access to T&C, delivery charges, payment methods, etc., and comply with sector specific guidelines for food, drugs, cosmetics, packaging and labelling requirements, among other requirements.
Marketplace Model: A marketplace-based e-commerce must ensure that their sellers provide accurate description of the products and take down any inappropriate or misleading descriptions. The store must see to it that the sellers on the platform comply with the rules. All the sellers are required to provide clear information on return, refund, exchange, warranty, and guarantee policies.
Seller Information
Inventory Model: No compliances are required under the E-commerce rules, 2020 for an inventory model e-commerce store.
Marketplace Model: Under the E-commerce rules, 2020, a marketplace model e-commerce store must display sellers’ information including name, address and contact details, must ensure that all the sellers have completed their KYC requirements. The store is also required to hold the sellers accountable for delivering incorrect products, causing late deliveries, and delivering lower quality products.
Returns, Refund and Shipping Policy
Inventory Model: The E-commerce Rules, 2020, states that proprietors in an inventory model e-commerce store must provide an easy to access return, refund and shipping policy clearly stating the mode of shipping as well as timelines within which the products may be returned for a refund or exchange in cases of incorrect deliveries, mis-deliveries and late deliveries. The owner shall be solely responsible for ensuring proper delivery to consumers.
Marketplace Model: Under the marketplace model the owner must have a clear policy facilitating easy returns between sellers and consumers. Moreover, as an intermediary the owner must ensure that the sellers are complying with the return, refund and shipping policies in totality.
Consumer Grievance Redressal
Inventory Model: The E-commerce must have an effective consumer grievance redressal system as per the E-commerce Rules, 2020 (for consumer disputes) as well as the Digital Personal Data Protection Act, 2023 (for privacy-related disputes). The store must appoint a grievance officer and provide their name and contact information on the website. They must ensure that the issues raised by their consumers have been solved within a certain period of time, and maintain records for future improvements.
Marketplace Model: The Marketplace model e-commerce stores must adhere to the same legal compliances as the inventory model by setting up a fully functional grievance redressal mechanism.
Content Moderation
Inventory Model: E-commerce stores following the inventory model must prohibit posting of misleading or deceptive advertisements, fake reviews, and other harmful content by third parties on their platform, and implement mechanisms to report and address inappropriate content.
Marketplace Model: A marketplace model has more responsibility than inventory model when it comes to content moderation as per the E-commerce Rules, 2020 as well as the Information Technology Act, 2000. Along with following the guidelines mentioned in the inventory model, a marketplace e-commerce entity must also ensure that no seller is involved in unfair trade practices or unhealthy competition. They must also actively be on the look-out for misleading advertisements or deceptive pricing fluctuations on their website. Lastly, they must remove any infringing or misleading content posted on their website by a third party and prohibit their sellers from engaging in unfair trade practices, including manipulating prices, deceptive advertising, or unfairly influencing the sale of goods and services. The E-commerce Rules also disallow e-commerce marketplace companies from selling private labels that are brands they directly or indirectly own, on their platforms. Any service provided on an e-commerce platform, whether it’s related to logistics, warehousing, or easy financing options, must be made available to all sellers and not limited to a select few in order to prevent unhealthy competition.
Data Protection and Security
Inventory Model: Under the Digital Personal Data Protection Act, 2023, every e-commerce platform must have a clear Privacy Notice on the website along with a consent management framework equipped to record explicit and informed consent of the consumers. The Privacy Notice must entail the purpose of collection and processing of the customer data and provide the consumers with the option to choose what to do with their data. The platform must have proper reporting requirements to be able to inform the consumers in cases of a data breach.
Marketplace Model: Apart from the requirements mentioned for inventory model e-commerce platforms, more responsibility falls on the Marketplace e-commerce entities since they must clearly mention in the privacy notices the details of the third parties with whom they are sharing the information and the sellers that they’re partnering up with for the purpose of their business activities.
Other Compliances
Inventory Model: Other compliances may include GST registrations and compliances, licenses and permits for regulated goods, compliances for cross border trades under the Foreign Exchange Management Act, 1999, Foreign Direct Investments, etc. as and when applicable. Moreover, setting up a full functional payment gateway, mentioning a clear terms and conditions document on the website and appointing a nodal officer to handle all issues related to the platform are also crucial for an e-commerce platform.
Marketplace Model: Similar rules apply to e-commerce entities based on the marketplace model when it comes to other compliances.
Get Compliant Today!
E-commerce stores are subject to a multitude of legal provisions and must adhere to various compliances to operate within the legal framework. Ensuring compliance is crucial for these platforms, as the penalties for non-compliance can be exceptionally high. It is imperative for e-commerce businesses to stay informed about the applicable laws and regulations to make informed choices in their operations.
Consumer trust is paramount in the e-commerce sector, and compliance with regulations reinforces this trust. Furthermore, it promotes fair competition and a level playing field among businesses. To navigate the complex landscape of e-commerce regulations, businesses are advised to seek legal counsel, stay updated on evolving laws, and adopt robust compliance mechanisms. Ultimately, making informed choices and prioritizing legal compliance not only mitigates the risk of penalties but also establishes a foundation for sustainable and ethical business practices in the e-commerce industry.
Our team at Advoke Law offers profound expertise in handling legal compliances mandated for eCommerce entities. We work closely with eCommerce Brands and assist them with customised plans adjusted to their business processes in order to help them achieve outstanding compliance ratings. Feel free to contact us to schedule a free consultation and get your e-commerce business compliant today!
