E-commerce in India is in the process of consolidation. However, in the race to establish themselves, most of the e-commerce websites of India are not complying with the laws and regulations of India. They easily forget that e-commerce websites are required to comply with Indian laws as well.
There are many essential legal formalities that every e-commerce website operating in India is required to comply with. These include cyber law due diligence (PDF), Internet intermediary liability and e-commerce due diligence requirements as well. Even mobile payment providers, payment gateways, mobile application developers, etc are required to comply with India e-commerce and other techno legal laws.
The matter does not end here. The cyber law due diligence is also mandatory for foreign investors in e-commerce and technology ventures of India. However, this is not happening in India. Recently the Enforcement Directorate (ED) was planning to issue a show cause notice to Flipkart. Now it has been reported that Myntra has come under ED’s scanner for possible violations of foreign direct investment (FDI) norms of India. Further, the talks of possible merger and acquisitions between Flipkart and Myntra are also in troubled waters.
While Indian e-commerce players are passing through difficult times yet foreign e-commerce players are emerging very strong. For instance, Amazon has started selling apparels on its Indian website. Similarly, Rakuten Inc is planning to explore Indian e-commerce market starting with a travel and hospitality portal. Twitter is also planning to use its platform for e-commerce purposes. Google’s flight travel search service has already panicked Indian e-commerce portals.
It seems that foreign e-commerce players are stressing upon regulatory compliances but Indian e-commerce players are acting in great disregard of the same. The present actions of ED against Flipkart, Myntra, etc may be attributable to possible regulatory non compliances.
The legal risks for websites companies developing e-commerce and online gaming websites in India have also increased significantly. Similarly, entrepreneurs dealing with the fields like encryption, cloud computing, m-health, telemedicine, online pharmacies, Bitcoins exchanges, adult merchandise, online travel, online gaming including online poker, etc are not complying with techno legal requirements of Indian laws. Investing in such legally risky ventures is not a viable strategy.
Currently foreign investment is barred in e-commerce activities and firms have formed multiple corporate entities to legally confirm to the norms. The front end e-commerce website is owned by locals, while the venture capital money flows into a firm which is essentially into wholesale cash and carry business. This separate firm then supplies to the front end retail site as per law.
Back in 2012, the Indian Government had also started probing venture capital-backed Flipkart Online Services Pvt Ltd for possible violations of FDI norms. “The Reserve Bank of India has informed that matters related to Bharti Wal-Mart/ Cedar Support Services Limited and Flipkart Online Services Pvt Ltd, respectively, have been referred to the Directorate of Enforcement for further investigation,” read a statement issued in Parliament at the time.