E-COMMERCE – LEGAL PERSPECTIVE*

INTRODUCTION
Electronic commerce and data are emerging as key enablers and critical determinants of
India’s growth and economic development. India is the fastest growing market for the e-commerce
sector.

Source: IBEF

E-commerce in India has attracted investors from across the world.

Within a short period in the recent past, the significance of economic activities in the digital
space has grown substantially, both globally and in India.
There is no universally accepted definition of e-commerce. Yet various definitions have been drawn
by different organizations. Few of such definition of e-commerce are as below:
Department for Promotion of Industry and Internal Trade (DPIIT), FDI Policy, 2017:“e-
Commerce” means buying and selling of goods and services, including digital products over digital
and electronic network.
Ministry of Electronics and Information Technology (MeitY):“e-Commerce” is a type of
business model, or segment of a larger business model, that enables a firm or individual to
conduct business over an electronic network, typically the internet. Electronic commerce
operates in all four of the major market segments: business to business, business to consumer,
consumer to consumer and consumer to business.
Consumer Protection Act, 2019: e-Commerce” means buying or selling of goods or services
including digital products over digital or electronic network.

* Chittaranjan Pal, Assistant Director, The ICSI.

Views expressed in the Article is the sole expression of the Author and it does not express the views of the Institute.
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Central GST Act, 2017: “electronic commerce” means the supply of goods or services or
both, including digital products over digital or electronic network .
World Trade Organisation(WTO): The term "electronic commerce" is understood to mean
the production, distribution, marketing, sale or delivery of goods and services by electronic
means. (Work Programme on Electronic Commerce, 1998)
DRAFT NATIONAL E-COMMERCE POLICY 2019
Draft National E-Commerce Policy prepared by Government of India addresses six broad areas of
the e-commerce ecosystem viz. data, infrastructure development, e-commerce marketplaces,
regulatory issues, stimulating domestic digital economy and export promotion through e-
commerce. The Policy takes into account interests of all stakeholders including investors,
manufacturers, MSMEs, traders, retailers, startups and consumers. The National e-Commerce
Policy has been formulated with a vision to provide a level-playing field to all stakeholders,
including the individual consumers and MSMEs and start-ups.
CCI: ‘MARKET STUDY ON E-COMMERCE IN INDIA: KEY FINDINGS AND OBSERVATIONS’
The Competition Commission of India (CCI) released a Report titled ‘Market Study on E-commerce
in India: Key Findings and Observations’ on 8th January, 2020.1 The Market Study on E-commerce
in India (‘the study’) was initiated by the CCI in April 2019 with a view to better understand the
functioning of e-commerce in India and its implications for markets and competition. The objective
was also to identify impediments to competition, if any, emerging from e-commerce and to
ascertain the Commission’s enforcement and advocacy priorities in light of the same.
The study, a combination of secondary research, questionnaire survey, focused group discussions,
one-on-one meetings, a multi-stakeholder workshop and written submissions of stakeholders,
covered the three broad categories of e-commerce in consumer goods (mobiles, lifestyle, electrical
& electronic appliances and grocery), accommodation services and food services. 16 online
platforms, 164 business entities [including sellers (manufacturers and retailers) and service
providers (hotels and restaurants)] and 7 payment system providers from across India
participated in the study. In addition, 11 industry associations, representing different stakeholder
groups, also participated.
The study has helped to gather useful insights and information on the key features of e-commerce
in India, the different business models of e-commerce players, and the various aspects of
commercial arrangements between market participants involved in e-commerce. The study has
also provided an opportunity to learn from business enterprises on how they are responding to
the advent of digital trade and has helped gauge the key parameters of competition in digital
commerce.
The study confirms that online commerce is gaining importance across the sectors studied. The
share of online distribution and its relative importance vis-à-vis traditional channels varies
significantly across products. This divergence constrains construction of a unified competition
narrative and points to the need for product-specific assessment of market and competition
dynamics. Online commerce, as the study shows, has increased price transparency and price
competition. The search and compare functionalities of online platforms have lowered search cost
for consumers and have provided them with a wide array of alternatives to choose from. For
businesses, e-commerce has helped expand market participation by aiding innovative business
models.

1 Available at: https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf

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The report released presents the key trends identified and also discusses the issues that may,
directly or indirectly, have a bearing on competition, or may hinder realisation of the full pro-
competitive potential of e-commerce. These include the issues of lack of platform neutrality, unfair
platform-to-business contract terms, exclusive contracts between online marketplace platforms
and sellers/service providers, platform price parity restrictions and deep discounts. The CCI is of
the view that many of these issues would lend themselves to a case-by-case examination by the CCI
under the relevant provisions of the Competition Act, 2002. The report outlines these issues and
presents the observations of the CCI on the same without assessing whether a conduct is anti-
competitive or is justified in a particular context.
On the basis of the market study findings, the enforcement and advocacy priorities for the CCI in
the e-commerce sector in India are, inter alia, the following:
i. Ensuring competition on the merits to harness efficiencies for consumers
ii. Increasing transparency to create incentive for competition and to reduce information
asymmetry
iii. Fostering sustainable business relationships between all stakeholders
The insights gained from the study will inform antitrust enforcement in these markets.
Nonetheless, bargaining power imbalance and information asymmetry between e-commerce
marketplace platforms and their business users are at the core of many issues that have come up
in the market study. Thus, without a formal determination of violation of competition law,
improving transparency over certain areas of the platforms’ functioning can reduce information
asymmetry and can have a positive influence on competition outcomes.
In view of the foregoing, the report enumerates certain areas for self-regulation by the e-commerce
marketplace platforms. These have been advocated with a view to reduce information asymmetry
and promote competition on the merits. The CCI under its advocacy mandate urges the e-
commerce platforms to put in place the following transparency measures.
Search ranking
i. Set out in the platforms’ terms and conditions a general description of the main search
ranking parameters, drafted in plain and intelligible language and keep that description up
to date.
ii. Where the main parameters include the possibility to influence ranking against any direct
or indirect remuneration paid by business users, set out a description of those possibilities
and of the effects of such remuneration on ranking.
iii. Introduction of the above-mentioned features, however, should not entail, disclosure of
algorithms or any such information that may enable or facilitate manipulation of search
results by third parties.
Collection, use and sharing of data
Set out a clear and transparent policy on data that is collected on the platform, the use of such data
by the platform and also the potential and actual sharing of such data with third parties or related
entities.
User review and rating mechanism
Adequate transparency over user review and rating mechanisms is necessary for ensuring
information symmetry, which is a prerequisite for fair competition. Adequate transparency to be
maintained in publishing and sharing user reviews and ratings with the business users. Reviews
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for only verified purchases to be published and mechanisms to be devised to prevent fraudulent
reviews/ratings.
Revision in contract terms
Notify the business users concerned of any proposed changes in terms and conditions. The
proposed changes not to be implemented before the expiry of a notice period, which is reasonable
and proportionate to the nature and extent of the envisaged changes and to their consequences for
the business user concerned.
Discount policy
i. Bring out clear and transparent policies on discounts, including inter alia the basis of
discount rates funded by platforms for different products/suppliers and the implications
of participation/non-participation in discount schemes.
GOVERNING RULES & REGULATIONS
E-commerce companies are subject to various extant rules and regulations. Owing to the cross
cutting nature of e-commerce, different laws and regulations across sectors govern the present e-
commerce activities, some of which are Income Tax Act, 1961, Consumer Protection Act,
1986/2019, Information Technology Act, 2000, Foreign Exchange Management Act, 1999,
Payment and Settlement Systems Act 2007, Companies Act, 2013 and laws related to Goods and
Services Tax.
FOREIGN DIRECT INVESTMENT ON E-COMMERCE SECTOR
100% FDI under automatic route is permitted in marketplace model of e-commerce. FDI is not
permitted in inventory based model of e-commerce. It may be noted that Inventory based model
of e-commerce means an e-commerce activity where inventory of goods and services is owned by
e-commerce entity and is sold to the consumers directly and Marketplace based model of e-
commerce means providing of an information technology platform by an e-commerce entity on a
digital & electronic network to act as a facilitator between buyer and seller.
Conditions for FDI in e commerce
 Digital & electronic network will include network of computers, television channels and
any other Internet application used in automated manner such as web pages, extranets,
mobiles etc.
 Marketplace e-commerce entity will be permitted to enter into transactions with sellers
registered on its platform on B2B basis.
 E-commerce marketplace may provide support services to sellers in respect of
warehousing, logistics, order fulfillment, call centre, payment collection and other services.
 E-commerce entity providing a marketplace will not exercise ownership or control over
the inventory i.e. goods purported to be sold. Such an ownership or control over the
inventory will render the business into inventory based model. Inventory of a vendor will
be deemed to be controlled by e-commerce marketplace entity if more than 25% of
purchases of such vendor are from the marketplace entity or its group companies.
 An entity having equity participation by e-commerce marketplace entity or its group
companies, or having control on its inventory by e-commerce marketplace entity or its
group companies, will not be permitted to sell its products on the platform run by such
marketplace entity.
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 In marketplace model goods/services made available for sale electronically on website

should clearly provide name, address and other contact details of the seller. Post sales,
delivery of goods to the customers and customer satisfaction will be responsibility of the
seller.
 In marketplace model, payments for sale may be facilitated by the e-commerce entity in
conformity with the guidelines of the Reserve Bank of India.
 In marketplace model, any warrantee/ guarantee of goods and services sold will be
responsibility of the seller.
 E-commerce entities providing marketplace will not directly or indirectly influence the
sale price of goods or services and shall maintain level playing field. Services should be
provided by e-commerce marketplace entity or other entities in which e-commerce
marketplace entity has direct or indirect equity participation or common control, to
vendors on the platform at arm's length and in a fair and nondiscriminatory manner. Such
services will include but not limited to fulfilment, logistics, warehousing, advertisement/
marketing, payments, financing etc. Cash back provided by group companies of
marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this
clause, provision of services to any vendor on such terms which are not made available to
other vendors in similar circumstances will be deemed unfair and discriminatory.
 E-commerce marketplace entity will not mandate any seller to sell any product exclusively
on its platform only.
 E-commerce marketplace entity will be required to furnish a certificate along with a report
of statutory auditor to Reserve Bank of India, confirming compliance of above guidelines,
by 30th of September of every year for the preceding financial year.
E-COMMERCE UNDER THE CONSUMER PROTECTION ACT, 2019
Section 94 of the Consumer Protection Act, 2019 deals with measures to prevent unfair trade
practices in e-commerce, direct selling, etc. it states that for the purposes of preventing unfair trade
practices in e-commerce, direct selling and also to protect the interest and rights of consumers, the
Central Government may take such measures in the prescribed manner.
CCI ORDER INVESTIGATION AGAINST FLIPKART AND AMAZON
In the case of Delhi Vyapar Mahasangh, Informant and Flipkart Internet Private Limited Opposite Party
No. 1 & Amazon Seller Services Private Limited and its affiliated entities Opposite Party No. 2(Opposite
Parties), Case No. 40 of 2019 Order dated 13th January, 2020 the informant alleges that there is a clear
violation of Section 3(4) read with Section 3(1) of the Competition Act. Allegedly, there is an existence
of various vertical arrangements between (i) Flipkart with their preferred sellers on the platforms;
and (ii) Amazon with their preferred sellers on the platforms, respectively which leads to a
foreclosure of other non-preferred sellers from the online marketplace. These preferred sellers are
also alleged to be affiliated with or controlled by Flipkart/Amazon either directly or indirectly. Further,
it is alleged that the e-commerce company provides deep discounts to a select few preferred sellers
on its platform which adversely impacts non-preferred sellers such as members of the Informant.
Besides receiving deep discounts, such assured sellers also receive preferential listing on the website.
It is alleged that Amazon and Flipkart are able to cross-subsidise because of the huge amount of
funding received from their investors, which has resulted in incentives that allow pricing below cost
on their platforms, through their sellers, resulting in creation of high entry barriers and high
capital costs for any new entrant in the market. Resultantly, the existing sellers find it difficult
to launch their own portals or marketplaces in order to compete with the OPs.
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The Commission has carefully perused the information, documents filed by the Informant and
relevant information available in the public domain and the Commission notes that the Informant has
levelled allegations against Flipkart and Amazon marketplaces under Section 4 of the Act on
account of joint dominance. The Commission notes that it is a settled position that the Act does not
provide for inquiry into or investigation into the cases of joint/collective dominance as the same is not
envisaged by the provisions of the Act. Therefore, the Commission need not deliberate further on
allegations on account of joint dominance as the same being untenable under the Act.
The Commission notes that Flipkart marketplace and Amazon marketplace are Ecommerce
entities, following a marketplace based model of e-commerce. They essentially provide online
intermediation services to sellers on one side and consumers on the other. These platforms / market
places and the sellers selling on these platforms operate at different stages of the vertical/supply chain.
Thus, any agreement between platforms and sellers selling through these platforms can be examined
under section 3(4) of the Act, which deals with agreements amongst enterprises or persons at
different stages or levels of the production chain in different markets, in respect of production, supply,
distribution, storage, sale or price of, or trade in goods or provision of services.
The issue of preferential listing should also be viewed in conjunction with the foregoing. Competition
on the platforms may get influenced in favour of the exclusive brands and sellers, through higher
discounts and preferential listing. Thus, the allegations are interconnected, and warrant a holistic
investigation to examine how the vertical agreements operate, what are the key provisions of such
agreements and what effects do they have on competition. Given that both the major platforms are
stated to follow the same mechanics in terms of their exclusive tie ups and preferential terms
with brands/sellers, competition between the platforms prima facie does not play a role in mitigating
the potential adverse effect on competition on the platforms.
Thus, the Commission observes that the exclusive arrangements between smartphone/mobile
phone brands and e-commerce platform/select sellers selling exclusively on either of the platforms,
as demonstrated in the information, coupled with the allegation of linkages between these preferred
sellers and OPs alleged by the Informant merits an investigation. It needs to be investigated
whether the alleged exclusive arrangements, deep-discounting and preferential listing by the OPs are
being used as an exclusionary tactic to foreclose competition and are resulting in an appreciable
adverse effect on competition contravening the provisions of Section 3 (1) read with Section 3(4) of
the Act.
In view of the foregoing, the Commission is of the opinion that there exists a prima facie case which
requires an investigation by the Director General (‘DG’), to determine whether the conduct of
the OPs have resulted in contravention of the provisions of Section 3(1) of the Act read with
Section 3(4) thereof, as detailed in this order. Accordingly, the Commission directs the DG to cause an
investigation to be made into the matter under the provisions of Section 26(1) of the Act. The
Commission also directs the DG to complete the investigation and submit the investigation report
within a period of 60 days from the receipt of this order.
Further, the Commission also made clear that nothing stated in this order shall tantamount to
a final expression of opinion on the merits of the case and the DG shall conduct the investigation
without being swayed in any manner whatsoever by the observations made therein.
INTERIM STAY BY KARNATAKA HIGH COURT
Amazon filed a petition before the Karnataka High Court challenging the order of Competition
Commission of India’s (CCI’s) investigation and argued that the investigation would cause
irreparable loss or injuries. The Karnataka High Court has granted an interim stay on investigation.
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CONCLUSION
The e-commerce sector is expected to keep growing in future. Better enforcement policy as well as
Rules and Regulations pertaining to e-commerce sector will contribute significantly to growth of
this sector in long run.
Source:
1. A Draft National e-Commerce policy
2. CCI: Market Study on E-Commerce In India, Key Findings and Observations
3. CCI Releases ‘Market Study on E-commerce in India: Key Findings and Observations.
Available at https://pib.gov.in/PressReleasePage.aspx?PRID=1598745
4. https://www.cci.gov.in/sites/default/files/40-of-2019.pdf

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