India: Clarity To Ambiguities In FDI In E-Commerce – Will It Reduce Litigation?

Department of Industrial Policy and Promotion ("DIPP") on March 29, 2016, has provided certain guidelines on foreign direct investment ("FDI") in e-commerce trading entities and e-commerce market place entities. In Press Note No. 3 of 2016 ("Press Note"), DIPP has attempted to provide much needed clarity on definitions and guidelines on operations of such entities as well.

E-commerce under the FDI Policy

Prior to the Press Note, e-commerce activities included the activity of buying and selling by a company through an e-commerce platform. It was not clear as to whether buying and selling of only goods would amount to e-commerce activities, or both good as well as services. However, the provisions and debates around retail trading indicated that the provisions applied only to goods. Further, there was no definition of an e-commerce platform.

Press Note has provided the definition for 'e-commerce':

E-commerce means buying and selling of good and services including digital products over the digital and electronic network.

The term 'digital and electronic network' has been stated to include a 'network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.'

Thus, now, services are specifically included within e-commerce activities. The interesting addition is 'digital products'. The term 'digital products' is not defined. It is not clear from the definition as to whether the DIPP intended to include 'digital products' as goods or services. Depending upon categorisation of 'digital products', the relevant compliances under Consolidated FDI Policy of 2015 ("Consolidated FDI Policy") including the Press Note will get triggered. It would be incongruous to apply provisions applicable to physical goods to 'digital products', especially in the absence of clarity of the term 'digital products'. Hence, it is extremely important to get this clarity.

Types of E-Commerce Model

The current regulatory status with respect to foreign investments in the e-commerce space allows 100% FDI under the automatic route (i.e., no FIPB approval is required) in e-commerce entities engaged in B2B e-commerce. Whereas, no FDI is allowed in e-commerce entities which are engaged in B2C e-commerce. As a result, there was an ambiguity regarding treatment of marketplace model under the FDI Policy which led to the writ petition being filed before Delhi High Court in the case of All India Footwear Retailers & Manufacturers Association v. Union of India.1 The Press Note specifically aims to remove that ambiguity by defining Marketplace Model and Inventory Based Model of E-Commerce (discussed below).

The Press Note has provided definitions for inventory based model of e-commerce and marketplace based model of e-commerce as follows:

Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.2

Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.3

E-Commerce Entities

E-commerce entities have been defined to include the following entities provided that they conduct e-commerce activities:

  1. company incorporated under the Companies Act, 1956, or the Companies Act, 2013;
  2. foreign company covered under Section 2(42) of the Companies Act, 2013;
  3. an office, branch or agency in India as provided in Section 2(v)(iii) of Foreign Exchange Management Act, 1999 owned and controlled by a person resident outside India;

The above definition does not cover Limited Liability Partnerships ("LLP") that may be engaged in e-commerce activities, leading to an ambiguity with respect to whether an LLP with FDI can carry on e-commerce business.

Inventory Based Model of E-Commerce

Inventory based model of e-commerce ("Inventory Model") has been defined to include e-commerce activities where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly. Inventory Model is the B2C model of e-commerce and FDI in such model is strictly prohibited.4 However, Press Note clarifies that subject to Consolidated FDI Policy in relation to sectors, FDI in relation to provision of services through e-commerce will be under automatic route.5

Press Note No. 12 of 2015 ("Press Note 12") provided that certain manufacturers engaged in single brand retail would be entitled to receive FDI. These are:

  1. an Indian manufacturer which is permitted to sell its own branded product through wholesale retail e-commerce platforms.
  2. an Indian manufacturer, who is an investee company, manufacturing in India, in terms of value, at least 70% of its product in house, and sources, at most 30% from other Indian manufactures.
  3. a single brand retail trading entity operating through brick and mortar stores.

Further, Press Note 12 provided additional conditions:

  1. Product should be sold under the same brand internationally.
  2. 'Single brand' product retail trading would cover only products which are branded during manufacture.6 Therefore, branding as a separate activity may not be considered as a branding for single brand.
  3. Non-resident entities whether as owner of a brand or otherwise, shall be permitted to undertake single brand retail trading through an agreement with the brand owner entitling the non-resident entity to undertake single brand product retail in India.
  4. FDI Proposals of more than 51% would require 30% of value of goods purchased to be from within India and preferably from MSMEs, village and cottage industries, artisans and craftsmen.

Marketplace Based Model of E-Commerce

Marketplace based model of e-commerce ("Marketplace Model") includes entities that provide an information technology platform on digital and electronic network to act as a facilitator between buyer and seller.

DIPP has prescribed certain other clarifications in the Press Note:

  1. Marketplace Models entities have been permitted to enter into transactions with sellers registered on its platform on B2B basis. However, each seller or its group companies would not be allowed to sell more than 25% of the total sales of the Marketplace Model entity. This amendment to the Consolidated FDI Policy may affect the business of certain e-commerce entities where majority of sales are made by one retail entity.
  2. Marketplace Models have been allowed to provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services. This clarification would allow e-commerce entities to have in-house support services instead of reaching out to third party service providers.
  3. It has been further clarified that in Marketplace Model, any warrantee or guarantee or return of goods and services sold will be the responsibility of the seller and not the e-commerce entity. Responsibility for the delivery of goods to the customers and ensuring customer satisfaction would be that of the seller and not the e-commerce entity. Consequently, liability under consumer protection laws would be of the sellers and not the e-commerce entity.
  4. In Marketplace Models, e-commerce entities cannot 'directly or indirectly influence the sale price of goods or services' and are obligated to maintain a 'level playing field'. The Press Note does not define the expression 'influencing' and 'level playing fields'. There is uncertainty with respect to what may be reasonably considered influencing and whether incentive schemes would be violative of the obligation to maintain a level playing field.
  5. It has been clarified that e-commerce entities engaged in Marketplace Model should not exercise ownership over the inventory, i.e., goods purported to be sold, otherwise such ownership over the inventory will render the business into Inventory Model.
  6. Para 2.3 (ii) and (x) of the Press Note suggests that Marketplace Model may be used for Cash & Carry Wholesale Trading. However, Para 2.3 (iv) of the Press Note prohibits a Marketplace Model entity from having ownership in inventory. Para 2.3 (x) further provides that the Guidelines in Para of the Consolidated FDI Policy will apply in respect of B2B e-commerce entities. Given that there is restriction on ownership of inventory by Marketplace Model entities, these provisions need to be clarified with respect to Cash & Carry Wholesale Trading.


The Press Note has been introduced by the Government at a time when there are litigations pending in courts of India7 on issues related to FDI in e-commerce. The Press Note purports to be clarificatory in nature yet it provides provisions that go beyond just clarifications.8 While the Press Note provides clarity to adjudicate challenges to Marketplace Model and FDI in e-commerce it does not provide any time to companies to comply with conditions set in the Press Note as Para 4 states that the Press Note will take immediate effect. To the extent the Press Note provides clarification in respect of the Marketplace Model, it is beneficial to e-commerce entities. The additional conditions therefore ought to be seen as having prospective applicability.

The applicability of the Press Note to e-commerce entities engaged in provision of services may result in ambiguity since certain services such as music, video, software etc. may also be considered as goods which can be bought and sold.9 The restrictions on e-commerce entities to not 'directly or indirectly influence the sale price of goods and services' and to ensure 'level playing field' appear unreasonable and ambiguous as these expressions are not defined.

It is hoped that DIPP clarifies the time required for compliance in respect of additional conditions set out in the Press Note. These concerns should be addressed at the earliest to ensure that the FDI Policy in e-commerce truly fulfils its potential.


1.W.P. (C) 7479/2015.

2.Para 2.1 (iii) of the Press Note.

3.Para 2.1 (iv) of the Press Note.

4.Para 2.2.(ii) of the Press Note.

5.Para 3 of the Press Note.

6.Para 2.2.25: "Manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing – a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.

7.For instance All India Footwear Retailers & Manufacturers Association v. Union of India [(W.P. (C) 7479/2015)] and Dinesh Kothari & Ors. v. Union of India & Ors. [(W.P. (C) 692/2016)]

8.Para 2 of the Press Note provides that for the purpose of clarity guidelines for FDI in e-commerce is enumerated while Para 4 provides that it shall take immediate effect.

9.Tata Consultancy Services v. State of Andhra Pradesh [(2005) 1 SCC 308]; M/s. Associated Cement Companies Ltd. v. Commissioner of Customs (2001) 4 SCC 593

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Shardul Amarchand Mangaldas & Co
Dua Associates
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Shardul Amarchand Mangaldas & Co
Dua Associates
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions