Category Archives: Legal Requirements For Undertaking E-Commerce In India

Legal Formalities Required For Starting E-Commerce Business In India

E-commerce laws and regulations in India are still evolving. This has created a sort of confusion and uncertainty among e-commerce entrepreneurs in India. While some have opened e-commerce outlets through websites others are exploring a more appropriate and legal way of running an e-commerce business in India.

Legal issues of e-commerce in India vary as per different business models. For instance, electronic trading of medical drugs in India requires more stringent e-commerce and legal compliances as compared to other e-commerce activities. Digital communication channels for drugs and healthcare products in India are scrutinised more aggressively than other e-commerce activities. In fact, regulatory and legislative measures to check online pharmacies trading in banned drugs in India are already in pipeline.

Besides there are many legal formalities that are required in order to start a company and e-commerce activity in India. A business can be operated as:

(1) Sole Proprietorship.

(2) Partnership.

(3) Company – Public/Private.

(4) Limited Liability Partnerships (LLP).

Mostly people decide to open a private company to substantiate an e-commerce activity and this article would cover that aspect alone. To incorporate a private limited company you must approve its name, registered office address, have at least 2 directors with director identification numbers (DINs), must have a minimum authorised capital of Rs. 1 Lakh, memorandum of association (MOA) and articles of association (AOA), digital signature certificates (DSCs) wherever applicable, etc. Once these conditions and requirements are fulfilled, a certificate of incorporation is sent by post to the registered office of the newly registered company.

The private limited company is also required to comply with income tax related compliances. These include obtaining permanent account number (PAN), tax deduction account number (TAN), value added tax (VAT) registration and obtaining of tax identification number (TIN), professional tax if applicable, service tax, etc.

In certain cases, compliance with labour laws is also required. For instance, the Shops and Establishment Act is a legislation implemented by various States in India. The Act lays down mutual statutory obligation and rights of employers and employees. Registration of shop/establishment is mandatory within 30 days of commencement of work. Other workmen and labour related legislations cover areas like employees provident fund, employees state insurance, etc.

However, e-commerce in India is also required to be conducted in a legally permissible manner. This is more so when the information technology act 2000 (IT Act 2000) prescribes stringent penal and pecuniary penalties for violation of its provisions during e-commerce transactions.

The e-commerce players must ensure cyber law due diligence in India. This is more so when the cyber law due diligence for companies in India has become very stringent and foreign companies and websites are frequently prosecuted in India for non exercise of cyber due diligence.

The legal requirements for undertaking e-commerce in India also involve compliance with other laws like contract law, Indian penal code, etc. Further, online shopping in India also involves compliance with the banking and financial norms applicable in India. For instance, take the example of PayPal in this regard. If PayPal has to allow online payments receipt and disbursements for its existing or proposed e-commerce activities, it has to take a license from Reserve Bank of India (RBI) in this regard. Further, cyber due diligence for Paypal and other online payment transferors in India is also required to be observed.

Perry4Law and Perry4Law Techno Legal Base (PTLB) wish all the best to all e-commerce players in India and abroad.

E-Commerce Regulations And Laws In India

Electronic commerce is an area whose legal formalities cannot be taken lightly. Electronic commerce involves multiple jurisdictions and at times multiple laws of different countries are applicable to a single electronic commerce website.

Further, the landscape for electronic commerce dispute resolution in India is also fast changing. With more and more stress upon online disputes resolution (ODR) in India electronic commerce disputants now prefer ODR as a mechanism for dispute resolution. Corporate disputes resolution through ODR in India is also being explored. E-courts and ODR have also added their own valued to electronic commerce and corporate dispute resolutions in India.

Electronic commerce in India is witnessing a good growth due to progressive policies and liberal foreign direct investments (FDIs). E-commerce uses information and communication technology (ICT) to operate. Although many technological aspects are also taken care of by an e-commerce platform, yet establishment and running of an e-commerce website is the most important requirement.

Internet is boundary less and a website hosted in a particular country can be accessed from any part of the world. Further, there may be cases where a websites located in a particular country may attract legal jurisdictions of multiple countries. Thus, compliance with the laws of the principal country as well as those countries where such e-commerce websites targets audience and customers is of prime importance.

There have been instances where e-commerce websites located in India failed to observe cyber law due diligence in India and e-commerce regulations and laws in India. Criminal trials and criminal liabilities have been imposed by Indian legal system upon such websites. The bazee.com case and the criminal and civil trials against companies like Google, Yahoo, Facebook, Microsoft, etc are few examples of the same. Such cases against e-commerce websites and foreign companies would further increase and e-commerce players must appoint nodal officers in India to comply with Indian laws.

Thus, not only legal requirements for undertaking e-commerce in India are stringent but even Internet intermediaries liability in India must be taken seriously by companies engaged in online transactions and businesses. We have no dedicated e-commerce laws in India but the information technology act 2000 (IT Act 2000) covers basic level e-commerce legal framework in India. The IT Act 2000 also prescribes cyber due diligence for foreign websites in India.

E-commerce due diligence in India is a much needed requirement that all e-commerce players, whether Indians or foreign, must undertake as soon as possible. Non observation of local and foreign laws can tarnish the image and brand of a company that cannot be regained again. It is better to err on the side of precaution rather than caught on the wrong side of the law.