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E-Commerce Contracts and the clauses covered under it

By: Alok Rao

Introduction: –
E-commerce is a form of business model, or segments of a larger business model, enabling a company or person to conduct business on an electronic network, typically the Internet. However, there is no specific meaning of the term e-commerce, which is usually used to denote a form of doing business by electronic means rather than by conventional physical means. E-commerce questioned companies’ traditional system trading with customers, putting together diverse business models that empowered consumers.

The most popular business models facilitated by e-commerce are:

  1. B2B: Business to Business (B2B) explains trade transactions between different companies, allowing foreign companies to develop new partnerships with other companies. As between the manufacturer and the wholesaler, or between the wholesaler and the retailer.
  2. B2C: Business to Consumer (B2C) defines companies’ operations providing end customers with goods and/or services. There has always been a direct interaction between companies and customers, but with e-commerce, the traction has been gained in such transactions.
  3. C2C: Business to Consumer (C2C) includes electronically facilitated transactions between consumers through third parties. Traditionally, customers have had interactions with other consumers, but only a handful of these practises have been of a commercial sort.
  4. C2B: Customer to Business (C2B) involves customers supplying goods/services to businesses and generating value for the company.
  5. B2B2C: This is an alternative to the B2C model, and there is an external intermediary sector in this form of the model to assist the first business transaction with the end customer. For example, Flipkart is one of the popular e-commerce portals and offers a stage for customers to buy a wide variety of items, such as books, music, CDs, etc.

As a result, the e-commerce world may appear uncomplicated and economical; there are several legal considerations that an e-commerce company must seriously consider and bear in mind before beginning and while carrying out its operations.

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E-commerce law in India: –

Information Technology Act, 2000
The first ever e-commerce legislation passed by India’s Government was the Information Technology (IT) Act 2000. It was an act to give effect to the UNCITRAL Model Law on Electronic Commerce, 1996. On 30 January 1997, the General Assembly of the United Nations adopted a resolution commending the Model Law on Electronic Commerce for favourable consideration by the Member States as a Model Law as they pass or amend their rules, given the need for uniformity of the law applicable to alternatives to paper-based methods of communication and storage of information.

The IT Act’s primary purpose was to include legal recognition of transactions carried out through electronic data exchange and other electronic means of communication, generally referred to as electronic commerce (e-commerce). The IT Act 2000 facilitates e-commerce and e-government in the region. It includes guidelines on the legal recognition of electronic records and digital signatures rules for the allocation of e-records, the process and manner of reception, the time and place of dispatch and the receipt of electronic documents. The Act also sets out a legal system which sets out penalties for various cyber offences and crimes. Significantly, under the Act, the Certification Authority is the focal point around which this Act revolves, as most of the provisions relate to the Regulation of Certification Authorities, i.e., the appointment of a CA Controller, the licensing of CAs and the recognition of international CAs. It has also punished crimes such as hacking, damage to the source code of the machine, publication of information that is obscene in electronic form, violation of confidentiality and privacy, and fraudulent granting and use of digital signatures. It also provides civil liability, i.e., cyber contraventions and criminal infringements, fines, the establishment of the Adjudicating Authority and the Cyber Regulatory Appeal Tribunals.

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The relevant provisions of the Indian Panel Code, 1860, the Indian Evidence Act, 1872, the Banker’s Book Evidence Act, 1891 and the Reserve Bank of India Act, 1934 were also amended to resolve the related issues.

Information Technology (Amendment) Act, 2008
India incorporated the Information Technology (Amendment) Act, 2008 to apply the UNCITRAL Model Law on Electronic Signatures, 2001 in India. The IT Act of 2000 was modified to make it technologically neutral and accepted electronic signatures over-restrictive digital signatures. The Act incorporated several amendments, such as implementing the principle of e-signature, the modification of the definition of intermediary, etc. Also, the State asserted unique powers to monitor websites in order, on the one hand, to protect the privacy and, on the other hand, to control potential misuse leading to tax evasion. It is important to note that this Act acknowledged the legal validity and enforceability of digital signatures and electronic records for the first time in India and concentrated on protected digital signatures and secure electronic documents. These reforms were implemented to reduce the occurrence of electronic forgeries and promote e-commerce transactions.

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Legal Validity of Electronic Transactions in India: –
There are numerous legal concerns related to the formation and legality of electronic transactions, such as online contracts and compliance issues, which are dealt with below.
Formation of an E-Contract
The most popular types of e-contracts are clickwrap, search wrap and shrink wrap contracts. The terms and conditions of such agreements shall be made available to the contracting party in a manner which is substantially different from the standard paper contracts. By clicking on the wrap contract, the party’s affirmative approval is made by checking the ‘I agree’ tab with a scroll box that allows the acceptance party to access the terms and conditions.
In the case of a browser wrap arrangement, the website’s mere use (or browsing) makes the terms binding on the contracting party.
In a Shrink-wrap agreement, the contracting party can read the terms and conditions only after opening the box inside which the product (usually a licence) is packed. Such contracts are important in the context of e-commerce, primarily because of the form of products associated with shrink-wrap agreements.

Online Contract Validity
The Indian Contract Act, 1872, regulates all e-contracts in India, inter alia, mandate specific pre-requisites for a valid contract, such as free consent and legal consideration. The concern to be considered is how the Indian Contract Act’s specifications can be met with e-contracts. Also, the Information Technology Act, 2000 (‘IT Act’) enhances the legitimacy of e-contracts.
According to the Indian Contract Act, 1872, some of the essential specifications of a legal contract are as follows:

  • The agreement should be entered into with the free consent of the parties.
  • The agreement should be considered lawfully.
  • The parties should have the authority to enter into contracts.
  • The purpose of the contract is to be lawful.
  • Terms and conditions associated with the e-commerce platform are of the utmost importance in ensuring that the e-commerce agreement meets a legal contract’s specifications.

Unless expressly forbidden, clickwrap agreements would be enforceable and legal if the provisions of a valid contract set out in the Indian Contract Act of 1872 were met.

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There is no provision under the Indian Contract Act that written contracts be physically signed. However, the unique statuses do include the criteria for signature. Furthermore, the very essence of e-commerce is that it is virtually impossible to verify the age of someone who is trading online and who presents problems and liabilities to e-commerce platforms because the situation under Indian law is that a minor is not qualified to enter into a contract and that such an agreement is not enforceable against a minor.
In India, any instrument under which rights are produced or transferred must be stamped. The stamping of the instrument also depends on relevant stamp duty legislation passed by different states in India.

Standard Type of Online Contracts is not appropriate.
There is no well-developed case law in India as to whether the traditional type of online agreements is unwise. However, Indian courts have previously dealt with cases where contract terms, including common form contracts, have been negotiated between parties in unequal negotiating positions. Specific provisions of the Contract Act deal with unenforceable agreements, such as when public policy is opposed to considering the contract or subject-matter of the contract. The agreement itself cannot be valid in such situations.
The courts may place the individual’s responsibility in the leading position to show that the contract was not caused by undue influence.
In the case of ‘LIC India Vs. Consumer Education & Research Centre’
L.I.C. Of India & Anr vs Consumer Education & Research Centre & Ors. Etc. 1995 SCC (5) 482, the Hon’ble Apex Court of India interpreted the insurance policy issued by India’s Life Insurance Corporation by adding certain public interest elements. The court observed that ” in dotted line contracts there would be no occasion for the weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever.”

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It is essential to provide well-thought-out terms that shape online contracts to ensure that there is an ample opportunity for consumers to familiarise themselves with the terms of such agreements. In addition to the above, there is also a range of other legal, tax and regulatory concerns, in particular Security Issues, Consumer Protection Issues, Intellectual Property Issues, Content Control, Intermediate Liability, Jurisdictional Issues and Tax Issues, which need to be taken into account when dealing with e-commerce transactions.

Conclusion: –
Rapid growth in e-commerce has generated the need for vibrant and efficient regulatory frameworks to reinforce the legal framework crucial to the success of e-commerce in India. It has always been argued that poor cybersecurity laws in India and the lack of a proper regulatory system for e-commerce are why both Indians and the e-commerce industry face so many challenges in enjoying a consumer-friendly and business-friendly e-commerce climate in India. India does not have any dedicated e-commerce regulatory legislation other than the IT Act that governs India’s e-commerce and transactions. Therefore, the government should create a legal structure for e-commerce so that domestic and foreign trade in India will flourish so that fundamental rights such as privacy, intellectual property, the prevention of fraud, consumer protection, and so on are taken care of. The legal community in India needs the required expertise to direct entrepreneurs, customers, and even courts. The rapidly evolving market module can comply with existing legislation usually applicable to business transactions in standard modules. Simultaneously, it should ensure that the benefits of technology are unhindered by the judicious evolution of law by the learned interpretation of the court, and there is still a consensus that specialized law governing and controlling some aspects of e-commerce is an obligation and an exclusive requirement.

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Impact Of Covid-19 on Insolvency and Bankruptcy Laws of India and the World at Large

By: Anjan Bhandari 

INTRODUCTION:

In the past few months, India has witnessed unprecedent changes being made in almost every sphere; whether it be something as simple as a lifestyle change or something as complex as amending various legislations to safeguard and protect the interests of both the parties. To give you a better perspective, the Central Government on 24th March declared a nationwide lockdown as a preventive step to limit the spread of the infectious coronavirus. In doing so, everyone was required to restrict themselves to their homes thereby bringing our economic structure to a standstill. Nobody knew for how long the lockdown would ensue when it began, but now we do have adequate data that informs us about the manner in which the lockdown was imposed and in how many phases –

  • PHASE 1 : 25th March – 14th April [Nationwide lockdown]
  • PHASE 2 : 15th April – 3rd May [Further extended]
  • PHASE 3 : 4th May – 17th May [Further extended]
  • PHASE 4 : 18th May – 31st May [Further extended]
  • PHASE 5 : 1st June – 30th June [Considerable relaxations from 8th June]

According to the above-mentioned data, it is clear that COVID-19 is the primary reason for all business uncertainties and the economic stabilities at large since the lockdown was continued for so long. All industrial activities came to a standstill because of which the Companies suffered huge losses which either resulted in salary reduction or laying off a major chunk of their employees in order to manage their sustainability. And not just the industrial sector, the outbreak of COVID-19 has caused massive difficulties for all sectors globally, such as the Micro Small Medium Enterprises (MSME’s), healthcare, tourism, automobile, etc. Courts all across the country has prohibited physical hearing to maintain social distancing except a few important cases and has instead resorted to virtual court proceedings. The only thing that can be said with absolute surety is that the brunt of this economic meltdown will be faced by all the financial institutions since its difficult to comment on the overall impact of the lockdown.

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IMPACT OF COVID-19 ON IBC LAWS IN INDIA:

The All India Association of Industries estimated a loss of 2lakh crore by 31st March due to the nationwide lockdown. The Central government has been trying to minimise such drastic blows by bringing in numerous reforms. The virus has indisputably disrupted the performance of contracts and payments consequently creating problems for the financial and operational creditors. It will have a devastating impact on economy if the creditors wish to initiate insolvency proceeding against the corporate debtors at a mass scale amidst this pandemic.

What’s important to notice is that the value of the stocks is declining at a startling rate since the demand has decreased at a global level. It wouldn’t be too far-fetched to suspect that at this point, the financial and operational creditors would move to the National Company Law Tribunal (NCLT) to avail remedies available to them under the Insolvency and Bankruptcy Code, 2016. After approaching the NCLT, initiation of the insolvency proceeding will have a negative impact because then the management of the company would shift from the hands of the corporate debtor to the insolvency resolution professional and as a result, the value adding mechanism by the corporate to the economy gets highly stunted.

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It is imperative to safeguard the interests of the MSME’s because if insolvency proceedings are initiated against them, it would further lead to rise in unemployment in the country. Pre-empting such an impact, our Finance Minister Nirmala Sitaraman had announced that if the current state of affairs continued beyond 30th April, the Central government may suspend a few relevant sections of the IBC for 6 months in order to protect companies from being forced into insolvency proceedings in such force majeure causes of default. Due to these reasons, the Government of India decided that they need to adopt a pragmatic approach in dealing with this problem and came up with the following amendments to the IBC, 2016 –

  • Application under Sections 7, 9 and 10 can only be filed when the default is of Rs. 1 crore or more.[1] Earlier U/S 4(1) of IBC, the minimum amount of default was Rs. 1 lakh which has now been officially increased by the Ministry of Corporate Affairs (MCA).
  • Section 7 : Initiation of insolvency proceedings by financial creditor

Section 9 : Initiation of insolvency proceedings by operational creditor

Section 10 : Initiation of insolvency proceedings by corporate applicant

According to the MCA Notification No. S.O. 1205(E) dated 24th March 2020 the Finance Minister as a relief to the affected industry announced that no petitions would be entertained unless the minimum amount of default is Rs. 1 crore or more.

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  • The Supreme Court on 23.03.2020 opined that the lockdown period should be excludedfor the purpose of counting the timeline. Even the NCLAT ordered the same on 30.03.2020. The order states that “the period of lockdown imposed by the central government in the wake of Covid-19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”[2]
  • The government may even consider scrapping Section 7, 9 and 10 of the IBC, 2016 so that no insolvency proceedings be initiated by the promoter, operational or financial creditor if the situation continues beyond 30th April, 2020 and if it does, it would be scrapped for a period of 6 months.

The first amendment that came in on 24th March which increased the minimum default vale from Rs. 1 lakh to Rs. 1 crore not only reduced the workload on the insolvency resolution professionals but also turned out to be beneficial for the MSME’s and corporate debtor. However, the fruit to such benefits is only enjoyed by one as opposed to safeguarding equal interest of the parties. Increasing the default value to such a higher threshold causes immense dissatisfaction to the operational and financial creditors. The operational creditor in particular would face hindrances as they won’t be able to utilise this remedy to regain the operational and corporate debt from the corporate debtor. Moreover, their operational debt isn’t generally this high to be able to initiate insolvency proceedings which further puts them on the backfoot. Under Section 9 of the IBC, 2016 the operational creditor cannot even jointly file for an application unlike as mentioned under Section 7 of the Insolvency Code, 2016. Kumar Saurabh Singh, Partner at Khaitan & Co. said that the Central Government shall also cover matters of liquidation in other courts and tribunals besides the IBC process. He said that “A similar approach would also be required to be followed by other courts/tribunals in the country to not allow enforcement and sale of assets of companies which are suffering from the impact of the pandemic situation so that the benefit of suspension of insolvency law is effectively given to the borrowers.”

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After diving deep into the details of the impact of COVID-19 on the IBC laws in India, the question still remains whether the applicants who filed for the insolvency resolution before the pandemic should be affected or not. In my view if it does, then the applicants would rather prefer indulging themselves in outside settlements rather than utilising the provisions under the Insolvency and Bankruptcy Code thereby defying the very purpose of the said statute.

IMPACT OF COVID-19 ON IBC LAWS ACROSS THE WORLD:

  • UNITED STATES – On 19th February, the Small Business Reorganisation Act became effective which seeks to provide an economical and quicker option for reorganisation of businesses with total debts falling within the quantum of $2,725,625. On 28th March, Donald Trump gave a nod to the Coronavirus Aid, Relief, Economic Security (CARES) Act. Apparently, it is the largest emergency aid package ever provided in US history. It includes revised retirement account rules, student loan changes, and the unemployment coverage. There has also been an increment in the debt limit under the CARES Act to $7.5 million for a year in order to allow small business debtors to realign their affairs for a new start.

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  • SINGAPORE – The Ministry of Law in Singapore had announced that they would introduce a bill in the Parliament aimed at finding a way for an organised moratorium so that the obligations that ensue are either suspended or deferred. A distinctive feature of the Bill is that the parties would not be allowed to be represented by lawyers in case of a dispute. Instead, an assessor would be appointed by the Ministry of Law who will decide on an equitable and just outcome without any legal fees. 
  • AUSTRALIA – On 23rd March, the Commonwealth government introduced the Coronavirus Economic Response Package Omnibus Bill 2020[3] which was passed by both Houses of Parliament and received the Royal Assent on 24th Certain temporary amendments were made to the Corporation Act, 2001 which are as follows:
  • Amendment relating to individual in financial distress
  • Amendment relating to businesses in financial distress
  • Temporary relief for directors from the duty to prevent insolvent trading

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  • UNITED KINGDOM – Alok Sharma, Business Secretary announced a package of insolvency measures to be adopted in the future. The UK government has shown keen interest in bringing forward such legislation, but the timing still remains uncertain. It is evident that the government is building up on potential reforms announced in August 2018. The new structuring tools include –
  • To bring in measures safeguarding the suppliers and creditors, thereby ensuring timely payments until a more viable solution is reached.
  • Coming up with a new restructuring plan, and binding creditors to that plan.
  • To introduce a moratorium for companies allowing them a breather from creditors enforcing their debts for a while until they seek a restructure or rescue.
  • To protect their supplies thereby enabling them to continue with their trading activities during the moratorium period.

 Thus, on comparing the impact of COVID-19 on IBC laws in India with the rest of the world, we can deduce that almost similar precautionary steps were adopted by other countries. Some of them increased their minimum default limit required to file for insolvency proceedings, some have thought of implementing a moratorium period, while the others decided to put a bar on initiation of insolvency proceedings after a set particular date.

[1] https://www.ibbi.gov.in/uploads/legalframwork/48bf32150f5d6b30477b74f652964edc.pdf

[2] http://www.mca.gov.in/Ministry/pdf/Notification_30032020.pdf

[3] https://pinpoint.cch.com.au/document/legauUio3230299sl1133168580/regulation-5-4-01aa-temporary-increase-to-the-statutory-minimum-and-statutory-period

 

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