E-commerce Entity

What is an E-commerce entity?

E-commerce entity can be understood to mean 'Any person/entity that owns, operates, or manages a digital or electronic facility or platform for electronic commerce, but does not include any entity or business notified otherwise by the Government for the said purpose from time to time.' Popular e-stores like Amazon, AliExpress, and Walmart, streaming platforms like Netflix, Spotify, and YouTube.

Official Definition of E-commerce entity

The Consumer Protection Act,2019

According to section 2(16) of The Consumer Protection Act,2019

"e-commerce" means buying or selling of goods or services including digital products ,over digital or electronic network;

Rule 3 of Consumer Protection (E-Commerce) Rules 2020

Rule 3(b) of Consumer Protection (E-Commerce) Rules, 2020 define "e-commerce entities" as any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity;Therefore, only those entities that run or supervise digital or electronic platforms fall under the category of "e-commerce entities," not the sellers utilszing a marketplace platform to sell their products.

Further the rules, also define inventory e-commerce entity and marketplace e-commerce entity as

• “inventory e-commerce entity” means an e-commerce entity which owns the inventory of goods or services and sells such goods or services directly to the consumers and shall include single brand retailers and multi-channel single brand retailers; The inventory-based E-commerce model involves marketplaces storing merchandise from various sources such as brands, merchants, and sellers, and selling these products directly to consumers. Marketplaces that adopt this model oversee the inventory of their sellers, thereby assisting them in fulfilling orders. Sellers who choose to sell on marketplaces following an inventory-led approach benefit from comprehensive fulfillment services. These benefits include expedited delivery, stringent quality control, efficient inventory management, and order fulfilment by the marketplaces. Nevertheless, sellers must meet specific criteria when sending their stocks to the marketplace's warehouses.
• “marketplace e-commerce entity” means an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers; The E-commerce marketplace model involves platforms where multiple sellers can offer their products to potential customers online. This model allows online retailers to expand their product range, sales channels, and profitability with reduced risk, enabling them to focus on providing customers with valuable products. Marketplaces using this model do not handle stock or order fulfillment; instead, sellers have control over the entire fulfillment process, from inventory management and pricing to packaging and shipping goods to customers.

'E-commerce' as defined in official document(s)

Foreign Direct Investment Policy, 2017

Department for Promotion of Industry and Internal Trade (DPIIT), FDI Policy, 2017 define E-commerce entity as "a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.”

100% Foreign Direct Investment (FDI) is allowed under the automatic route for e-commerce activities, specifically the marketplace model, as per the Consolidated FDI Policy Circular 2017

E-commerce is defined as the online buying and selling of goods or services, with an e-commerce entity being a company incorporated under Indian or foreign law and controlled by a non-resident. Marketplace entities act as intermediaries between buyers and sellers in B2B transactions, whereas inventory-based models involve direct sales to consumers and are not eligible for FDI. These marketplace platforms can offer services like warehousing, logistics, and payments to sellers, but are prohibited from owning inventory, setting prices, enforcing exclusivity, or selling products sourced more than 25% from them or their affiliates. Additionally, they must treat all vendors equally, provide services on a non-discriminatory basis, and ensure transparency in any cashback or incentives offered. Marketplaces must present a compliance certificate and the statutory auditor's report to the RBI every 30th of September for the previous financial year. Furthermore, FDI is also permissible for the sale of services through e-commerce platforms under the automatic route, subject to relevant sectoral and regulatory guidelines.

Foreign Direct Investment Policy, 2020

Under the 2020 FDI Policy, foreign investors can fully own e-commerce businesses operating as marketplaces, not as inventory-based stores. These foreign-owned e-commerce companies can only sell to other businesses, not directly to consumers, and they can't own the products they sell. Vendors are not allowed to sell on platforms where more than a quarter of their products come from the marketplace itself. The foreign-owned e-commerce companies can provide services like storage and payment processing but cannot dictate prices or demand exclusivity. Vendors are responsible for product warranties, delivery, and customer issues, and their contact details must be visible on product listings. Additionally, these e-commerce companies need to report their compliance annually to the Reserve Bank of India by September 30th, certified by an auditor. Wholesale e-commerce businesses must have licenses, maintain sales records, and ensure that sales within the company don't exceed 25% of total sales. If a company does both wholesale and retail, they need separate audited accounts for each. These regulations are in place to promote fair competition, prevent monopolies, and protect independent sellers.

Legal Provisions related to E-commerce Entity

Legal Restrictions on E-Commerce Entities

i) directly or indirectly influence the price of the goods or services and shall maintain a level playing field;

ii) adopt any trade practice which for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, or composite supply, adopts any unfair methods or unfair or deceptive practice that may influence transactional decisions of consumers in relation to products and services;

iii) falsely represent themselves as consumers or post reviews about goods and services in their name; or misrepresent or exaggerate the quality or the features of goods and services.

Obligations of an E-Commerce Entity

i) display terms of contract between e-Commerce entity and the seller relating to return, refund, exchange, warranty / guarantee, delivery / shipment, mode of payments, grievance redressal mechanism etc. to enable consumers to make informed decisions.

ii) ensure that the advertisements for marketing of goods or services are consistent with the actual characteristics, access and usage conditions of such of goods or services;

iii)  mention safety and health care information of the goods and service advertised for sale;

iv)  provide information on available payment methods; the security of those payment methods, how to use those methods; how to cancel regular payments under those methods; charge back options and any costs applicable to those payment methods; details, including clarification of their business identity, the products they sell, and how they can be contacted by customers shall be displayed in the web site.

vi) Ensure that personally identifiable information of customers are protected, and that such data collection and storage and use comply with provisions of the Information Technology (Amendment) Act, 2008.

vii)  Accept return of goods if delivered late from the stated delivery schedule or delivery of defective, wrong or spurious products, and/or not of the characteristics/features as advertised;

viii)  Effect all payments towards accepted refund requests of the customers within a period of maximum of 14 days.

ix)  if the consumer informs the consumer or comes to know by itself or through another source about any counterfeit product being sold on its platform, and is satisfied after due diligence, it shall notify the seller and if the seller is unable to provide any evidence that the product is genuine, it shall take down the said listing and notify the consumers of the same

x)  be held guilty of contributory or secondary liability if it makes an assurance vouching for the authenticity of the goods sold on its marketplace, or if it guarantees that the goods are authentic.

Key Areas That May Need Reassessment Under the CP Act and E-Commerce Rules

The CP Act and E Commerce Rules bring forth necessary changes, the following important areas may require reconsideration:

• The duties prescribed for Marketplace E-Commerce entities specify that such entities must comply with Section 79 of the IT Act and the Intermediaries Guidelines of 2011, in order to claim exemption from liability for any third-party content published on their platform. However, all E-Commerce Entities (including but not limited to Marketplace E-Commerce entities) by the mode and manner of their operation fall within the definition of ‘intermediary', as defined under the IT Act, and would by default, have to satisfy the conditions of Section 79, in order to claim the aforementioned exemption. Hence, there did not exist a requirement to make a specific reference only qua Marketplace E-Commerce entities. Such an erroneous inclusion may provide a ground for other kinds of e-commerce platforms to argue that they have been specifically excluded from the definition of ‘intermediaries', in order to avoid requisite compliances and liability pertaining to intermediaries under the IT Act.

• A specific time period for effecting refunds or returns for defective/spurious products ought to be specified in the Rules in order to prevent unnecessary delays on part of the e-commerce entities or sellers.

• A schedule or template of a proposed grievance redressal system may be added to the Rules to provide direction to e-commerce entities on the general structure which may be appointed for their internal grievance redressal mechanisms. The same would assist in streamlining such internal mechanisms and improving their effectiveness.

• Appointment of a nodal officer, who shall ensure compliance with provisions of the CP Act and Rules, has been mandated for all E-Commerce Entities. However, no provisions have been introduced for personal liability of the nodal officer, in the event of any breach of compliance. The appointment of a nodal officer for ensuring compliance on part of the E-Commerce Entity may not provide its due benefit, unless some personal liability is attached to such appointment.

The CP Act and its provisions will certainly boost the drive for increased protection of consumer rights, especially on the e-commerce platform. As jurisprudence develops on the New Act and its associated Rules, the Parliament may consider future amendments to introduce improvements to the New Act.  

Critical Observations on the Proposed Amendments to the E-Commerce Rules, 2020

Submission made to the Ministry of Consumer Affairs, Food & Public Distribution. In July 2020, the Ministry of Consumer Affairs notified the Consumer Protection (E-Commerce) Rules, 2020 under the Consumer Protection Act, 2019, to regulate e-commerce and safeguard consumers. These rules impose specific obligations on both e-commerce platforms and sellers, especially marketplace models. In June 2021, Draft Amendmentswere introduced to increase transparency and accountability. Key proposals include mandatory appointment of a Chief Compliance Officer, Resident Grievance Officer, Nodal Contact Person, and setting up a Grievance Redressal Mechanism. The draft also proposes platform liability for consumer losses caused by defaulting sellers and misleading ads, bans certain types of flash sales, and introduces personal liability for compliance failures. The Vidhi Centre for Legal Policy raised several concerns in its submission:

1. Uniform compliance burdens could harm small businesses and startups; a threshold-based approach was recommended.
2. Holding platforms liable for seller advertisements is excessive; instead, due diligence duties (as under the IT Rules, 2021) should apply.
3. There's regulatory overlap with the Competition Commission of India (CCI), risking conflicting enforcement and forum shopping; Vidhi suggested clearer jurisdiction and inter-agency cooperation.
4. Drafting issues include the need to clarify which flash sales are banned and to allow due diligence defenses for compliance officers.

Jurisdictional Challenges and Compliance Obligations Under the Consumer Protection Framework for E-Commerce

The Legal Compliances of E-Commerce Entities under The Consumer Protection Act, 2019 analyzes the Consumer Protection (E-Commerce) Rules, 2020 framed under the Consumer Protection Act, 2019, which extend to all digital goods and services, including those offered by foreign e-commerce entities. The Rules impose duties on sellers and mandate foreign entities to appoint a resident nodal officer for compliance. It highlights concerns around enforcement, especially regarding whether redressal agencies can effectively assert jurisdiction over foreign platforms and whether nodal officers can be held vicariously liable or compelled to participate in mediation.