Should there be governance for e-commerce?

June 22, 2013 By Mr. Suhaan Mukerji

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Potential for e-commerce in India

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India: Facts and figures (Opportunity)

Market valuation of USD $ 10 billion or 50,000 crores (2011)
Valuation expected to reach between USD $ 70 120 billion by 2015; or USD $ 260 billion by 2025

Expected growth rate 400 % (average)

40 million households to be ready for ecommerce by 2015

Ecommerce

Investments of USD $ 700 million last year, expected to receive 20 billion in next 10 years

Number of young internet users 110 million (indicates propensity to buy online)

Total internet users in India - 150 million (only 13 % of the population)

3,311 ecommerce hubs; 1,267 rural hubs

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Comparative figures around the world (Trends)

United States: USD $ 200 billion on 2012 Brazil: valued at USD $ 18.7 billion in 2012

European Union: UK USD $ 63 billion; Germany USD $ 51 billion; France USD $ 33 billion

China: valued at USD $ 121 billion in 2011, expected to reach USD $ 360 billion by 2015

E-commerce (valuation of market around the world)

Japan: USD $ 100 billion in 2012; South Korea: USD $ 88 billion in 2012

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Top e-commerce companies (Players)

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Types of e-commerce models (Options)

Business to Business (B2B)

Buyers and sellers are both business entities, comparable to a manufacturer supplying goods to the retailer or wholesaler. E.g. The Steel Exchange

Business to consumer (B2C)

Online businesses selling to individual consumers.

Consumer to consumer (C2C):

Online auction sites are an excellent example, e.g., E-bay, Quikr etc.
Utility model where personal transactions (banking, bill payments, insurance, tax returns) done electronically/telecommunication.

M-commerce

Other Models

Other types: Other variations such as business to employee (B2E), Government to business (G2B) and Government to citizen (G2C), which in essence is similar to the above mentioned types.

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What works for e-commerce in India (Drivers)

Demographic dividend
More than 75 % of internet users in India less than 30 years indicating a greater propensity to shop online

Social media

Access to social media promotes better communication (promotions, advertising, influence on brands'), key to driving e-commerce growth

Puts less demand on infrastructure

E-commerce platforms require considerably less physical infrastructure putting less demand on the increasingly cramped public spaces

Robust financial system

Institutionalized banking laws facilitate safe, secure and convenient payment transactions , increased use of e-money, greater spending power No shortage of human resource to establish supply chains critical to delivery and customer satisfaction

Human resource for supply chain

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Existing regulatory framework: Is it adequate?

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Current regulatory framework: IT Act

Coverage
Substantially incorporates UNCITRAL Model Law on e-commerce Legal recognition to electronic records and e- contracts (S 10A) Rules on attribution, acknowledgement and dispatch Public Key Infrastructure (PKI) for electronic authentication through digital signatures (S 5) Adjudicatory mechanism to govern disputes (Chapter IX, X) Rules for retention of records and admissibility of electronic evidence (S 67C, S 65B Evidence Act) Protection to online intermediaries from third party information, data made available/hosted (S 79)

Deficiencies
Recognition of all forms of commercial communications within the domain of e-commerce (see EU, UK) Recognition of right to modify, rescind e-contracts Facilitating establishment of a consultative mechanism for determining place of jurisdiction in online transactions, e.g., downloading music

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Contract Act and Sale of Goods Act

Coverage No requirement of a particular form of contract No requirements of written contracts for validity (S 10) Clear prescription on offer and acceptance
the communication of an acceptance is complete as against the offeror, when the electronic record is dispatched such that it enters a computer resource outside the control of the originator (acceptor); and as against the acceptor, when the electronic record enters any information system designated by the offeror for the purpose.

Deficiencies

Does not recognise instantaneous forms of communication such as click-wrap contracts Distinction between postal rules and receipt rules as elaborated in Bhagwandas v. Girdharilal (where the Court held that the traditional rule of offer and acceptance did not apply to contracts made over the telephone) Exemption/limitation of liability in respect of implied warranties for electronic transactions (on the basis that description of product is made upfront/in the contract)

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Consumer Protection
Coverage Deficiencies
Lacks a harmonized code for e-commerce platforms Necessary to establish a carve out for standards of performance for consumer protection, e.g., Electricity Act, 2003 Limitation of liability for 3rd party goods sold online (e.g., online auction sites) Standards of performance are distinct from ordinary consumer protection law Separate rules (e.g., code of conduct) for prescribing standards of performance for ecommerce Necessary to establish clear communication channels, e.g., identity of seller, promotionals, implied warranties etc. Determination of jurisdiction: COPRA recognises place of residence of seller and cause of action

COPRA provides protection to consumers from any defects in goods and services

Provides protection against unfair trade practices, e.g., misleading representation, false warranties
Settlement of consumer disputes through national/state forums Competition Act provides for protection against unfair trade practices, abuse of dominance, cartels etc.

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Data privacy
Coverage
SPDI Rules protects password, financial information as sensitive personal data and information Restrictions on collection, transfer, disclosure and protection of SPDI Legal recognition to an agreement between the provider of information (e.g., customer) and a body corporate handling information detailing reasonable security practices and procedures IT Act provides for penalties against tampering with computer systems, unauthorised access etc. Privacy also enforceable as a tort
Deficiencies
Widening of spectrum of personal information to protect proprietary information as between buyer and seller Separate information security rules for payment systems

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Payment systems, courier services

Payment and Settlement Systems Act Authorisation to payment system operators to facilitate e-payment. Provides duties and liabilities of the system provider operating the payment system (obligation to disclose terms/charges of payment system, maintain confidentiality).

Regulation of courier services

Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 Enables electronic filing and processing of customs declarations with regard to import/export by courier companies. For domestic couriers, the regulatory ecosystem is ambiguous with each state having separate requirements for declarations, forms, sales tax (inbound and outbound), entry tax etc.

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Taxation
Neutrality of taxation

Domestic ecommerce

Represents a fast growing base, and falls within the direct tax net

Place of effective management as determining factor in ascertaining tax liability Residence based taxation No single rule to determine place of effective management International ecommerce Provisions of the Income Tax Act and the DTAs do not require any revision.

Permanent establishment

International e-commerce

A server at the disposal of an enterprise and hosting could constitute PE, if it is kept at a fixed place for a sufficient period of time High Powered committee (Ministry of Finance) on ecommerce recommended moving beyond PE as does not ensure certainty of tax burden and maintenance of the existing equilibrium in sharing of tax revenues

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FDI in e-commerce
B2B (ecommerce) B2C (ecommerce)
Wholesale cash and carry
100 % FDI is permitted B2B means buying and selling by a company through the e-commerce platform

FDI in B2C is restricted as per existing policy on multi-brand retail

100 % FDI is permitted Yardstick to determine wholesale trade is the type of customer, not the size/volume of sales

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Comparative review of e-commerce legislations

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Review of e-commerce legislations

Emphasises on providing legal recognition to e-contracts, electronic signatures
UNCITRAL Model Law

Rules on attribution, acknowledgement, receipt , time of dispatch of electronic communications Legal admissibility and evidential weight of data messages IT Act 2000 substantially incorporates UNCITRAL Model Law
Prior disclosure by service providers (name, location, nature etc.) Positive obligation to enforce electronic contracts on member states Exclusion of liability of service providers on the principle of mere conduit

European Union

No liability for service providers for caching and hosting of information Obligation to frame code of conduct (trade associations) to ensure compliance Member states obliged to facilitate out of court dispute settlement in case of dispute between service provider and the recipient of the service

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Review of e-commerce legislations

UK E-commerce Regulations 2002 transpose the main requirements of the EC Directive Emphasis on by breaking jurisdictional barriers & boosting consumer confidence Regulations apply to persons who advertise goods/services online, sell goods/ services online or transmit or store electronic content or provide access to a communication network Obligations in respect of information an online service provider must give a consumer Limitations on service providers liability for unlawful information they unwittingly carry or store (mere conduit, caching, hosting etc.)

UK

Korea

Framework Act on Electronic Trade (FAET) and the Electronic Signature Act Legal recognition to online contracts Disclosure of name, address, contact by service provider Security and reliability is the obligation of service provider Also regulates website content to prevent unfair competition and trade

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Enhanced coverage of a new legislation

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New law on e-commerce

Effective communication with the end user

Protection from liability: web hosting, caching

Platform for emerging technologies

Recognition of ecommerce as a business sector

Mandatory disclosure of identity, place of business, contact of the seller

Ecommerce

Limitation of liability for 3rd party goods

Recognition of click wrap agreements

Harmonisation of laws regulating logistical services

Recognition of all forms of commercial communication

Determining place of jurisdiction for consumer protection

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Thank you

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