E-commerce Fraud in India- Risk, Measures and Legal Implications


December 14, 2017

In the last decade, the E-commerce sector in India has witnessed an unprecedented growth and if numbers are to be believed then ASSOCHAM Resurgent India Study published in January, 2017 reports that in 2016 about 69 million consumers purchased online and the number is expected to shoot upto 100 million consumers by 2017. In view of this unparalleled E-com development, it would be relevant to throw some light on the legal implications confronted by the burgeoning sector.


The ascendancy of E-commerce in today’s highly dominant digital world supersedes over the traditional brick and mortar concept of transaction or buying and selling for the simple reason that any good can be bought and services can be availed from the comfort of home and in a single click. The online shopping sites are overflowing with goods of all kinds from needle to diamonds and E-commerce sites are ensuring luring offers which instantly attract consumers. However, like everything has pros and cons, so does E-commerce. Some of the legal implications and violations which make rights of the consumers vulnerable in this digital world are enumerated below:

Intellectual Property Issues

The contours of Intellectual Property and E-commerce are intrinsically bound with each other. IP essentially envisages ideas in the form of trademark, copyright, patents and design. The e-commerce platform showcases innumerable intellectual property like trademarks and designs, hence brand vulnerability emerges as an intriguing concern on the online trading precinct.

There have been numerous instances, when brands or trademarks have been misused on the e-commerce websites and sale of counterfeit products on such websites have been rampant. For example, in 2015 Snapdeal was accused by famous Nalli Silk Sarees for misusing its brand name Nalli on its e-commerce website. Similarly, in April, 2016 furniture manufacturer, Housefull International accused online market place Mebelkart of selling fake furniture under its brand name. Online market places like Amazon, Flipkart and eBay have also been brought under the legal scanner for misusing brand names.

However, in such cases it is essential to determine the liability of E-commerce websites which merely provides a platform for online transactions and in such cases getting hold of the actual concrete infringers and proving “negligence” or “actual knowledge” by the online market place becomes a complex affair.

What does the Law say?

Intermediary Liability under Information Technology Act 

The Information Technology (IT) Act, 2008 covers “online market places” under the purview of “intermediary” and the Act further exempts intermediaries from liability and envisages that an intermediary shall not be liable for any third party information, data or communication and the intermediary’s function is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored. However, the intermediary shall observe due diligence and shall inform users of computer resource not to host, display, upload any information that infringes any patent, trademark, copyright or other proprietary rights.

Competition Law Issues

Online market place apart from facing defiance from the traditional brick and mortar stores in India has also been facing charges of unfair competition. For example, in the past exclusive agreements between the online selling portal and sellers of products like an exclusive agreement to sell a particular publication or a newly launched smartphone through a chosen platform only, have faced competition law issues on the grounds of being anti-competitive and having an appreciable adverse effect on competition. A relevant instance in this context would be the Mohit Maglani case (2014), wherein the Informant had sued Flipkart which had been contracted by Rupa Publications for exclusive sale of Chetan Bhagat’s Half Girlfriend. However, the Competition Commission in the case gave a green signal to such arrangements by holding that such exclusive agreements were not unfair as they did not restrain the entry of new players in the market.

We all fervently wait for online market places to shower heavy and exceptional discounts on products, however these online portals often face predatory pricing issues wherein they are alleged of perpetrating in selling products below the manufacturing price. For example the infamous Big Billion Sale on Flipkart in 2014 had garnered several oppositions from brick and mortar retailers as well as from the manufacturing companies.

However, this alarming situation has recently been addressed by the Department for Industrial Policy and Promotion (DIPP) which through its directive aims at curbing the practice of predatory pricing by online market places and provides that E-commerce entities will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field.

E-commerce is still at a nascent stage in India with its contours being examined judiciously. However, streamlining of rules and regulations pertaining to e-commerce and rendering clarification about contributory negligence or infringement in such cases would help in avoiding this online market place kerfuffle and also help in attenuating law’s obscurity in this sector.

Online Payment and Security Issues

An unprecedented spurt has been witnessed in usage of electronic payment mode. According to RBI (Reserve Bank of India) RTGS and NEFT volumes increased almost threefold between 2013 and 2016 reflecting greater adoption of the system by all segments of users. Similarly, with increasing number of banks offering mobile banking services and driven by the growth in e-commerce and use of mobile payment applications, the volume of mobile banking transactions has increased nearly seven-fold and the value of transactions has shown a steep rise.

Though RBI seeks to promote electronic payments it also recognized security risks of electronic payments and has notified all the Banks and Authorized Payment Networks about the Security and Risk Mitigation measures for Electronic Payment Transactions.

RBI stated that the Banks shall ensure that transactions effected through such channels are safe and secure and not easily amenable to fraudulent usage. One such initiative by RBI, was mandating additional factor of authentication for all card not present (CNP) transactions[1]. Banks have also put in place mechanisms and validation checks for facilitating on-line funds transfer, such as: (i) enrolling customer for internet/mobile banking; (ii) addition of beneficiary by the customer; (iii) velocity checks on transactions, etc.

Duty of Customers

  • Customers shall mandatorily register for SMS alerts and wherever available register for e-mail alerts, for electronic banking transactions;
  • The customers must be advised to notify their bank of any unauthorised electronic banking transaction at the earliest after the occurrence of such transaction, because longer the time taken to notify the bank, the higher will be the risk of loss to the bank/ customer.

Liability of a Customer

RBI on July 06, 2017 also issued notification regarding Customer Protection – Limiting Liability of Customers in Unauthorized Electronic Banking Transactions. Relevant extract of the notification that defines the liability of customer in the event of unauthorized transaction is reproduced below:

Limited Liability of a Customer

(a) Zero Liability of a Customer

A customer’s entitlement to zero liability shall arise where the unauthorised transaction occurs in the following events:

  1. Contributory fraud/ negligence/ deficiency on the part of the bank (irrespective of whether or not the transaction is reported by the customer).
  2. Third party breach where the deficiency lies neither with the bank nor with the customer but lies elsewhere in the system, and the customer notifies the bank within three working daysof receiving the communication from the bank regarding the unauthorised transaction.

(b) Limited Liability of a Customer

A customer shall be liable for the loss occurring due to unauthorised transactions in the following cases:

  1. In cases where the loss is due to negligence by a customer, such as where he has shared the payment credentials, the customer will bear the entire loss until he reports the unauthorised transaction to the bank. Any loss occurring after the reporting of the unauthorised transaction shall be borne by the bank.
  2. In cases where the responsibility for the unauthorised electronic banking transaction lies neither with the bank nor with the customer, but lies elsewhere in the system and when there is a delay (of four to seven working daysafter receiving the communication from the bank) on the part of the customer in notifying the bank of such a transaction, the per transaction liability of the customer shall be limited to the transaction value or the amount mentioned in Table 1, whichever is lower.
Table 1
Maximum Liability of a Customer under paragraph 7 (ii)
Type of Account Maximum liability
• BSBD Accounts 5,000
• All other SB accounts
• Pre-paid Payment Instruments and Gift Cards
• Current/ Cash Credit/ Overdraft Accounts of MSMEs
• Current Accounts/ Cash Credit/ Overdraft Accounts of Individuals with annual average balance (during 365 days preceding the incidence of fraud)/ limit up to Rs.25 lakh
• Credit cards with limit up to Rs.5 lakh
• All other Current/ Cash Credit/ Overdraft Accounts
• Credit cards with limit above Rs.5 lakh

Further, if the delay in reporting is beyond seven working days, the customer liability shall be determined as per the bank’s Board approved policy. Banks shall provide the details of their policy in regard to customers’ liability formulated in pursuance of these directions at the time of opening the accounts. Banks shall also display their approved policy in public domain for wider dissemination. The existing customers must also be individually informed about the bank’s policy. Overall liability of the customer in third party breaches, as detailed in paragraph 6 (ii)and paragraph 7 (ii)above, where the deficiency lies neither with the bank nor with the customer but lies elsewhere in the system, is summarised in the Table 2:

Table 2
Summary of Customer’s Liability
Time taken to report the fraudulent transaction from the date of receiving the communication Customer’s liability (₹)
Within 3 working days Zero liability
Within 4 to 7 working days The transaction value or the amount mentioned in Table 1, whichever is lower
Beyond 7 working days As per bank’s Board approved policy

Hence, according to the RBI it is incumbent on the customer to report unauthorized transaction to the Bank as soon as possible in order to avoid any liability.

Consumer Protection Issues

Consumer Protection Act, 1986 extends protection to electronic transactions and sale and purchase made through E-commerce websites. The Act does not render any specific provision dealing with such transactions however, the electronic transactions are adequately covered under the Act.

The essential requirement for consumer case under the Consumer Protection Act, 1986 is that the goods complained of shall have been bought for a consideration i.e. money should have been paid for it and services complained of shall have been availed for a consideration.

Hence, any person who has suffered deficiency in services can approach the appropriate Consumer Forum under the Consumer Protection Act, 1986.

A new Consumer Protection Bill is under consideration by the Government and it has been apprised that the Bill would contain specific provisions to deal with E-commerce transactions and may also empower the Centre to make rules to prevent unfair trade practices in online trade.

Checklist while doing online shopping

  • Always check the credentials of the E-commerce website by which transaction is being made. Only shop through reputed E-commerce websites;
  • Shop through those websites which have exchange, return and refund policies adequately placed.
  • Trust those websites for shopping which are easily accessible through customer care numbers, so that in case of any problem you can immediately contact them.
  • Once you receive the product, always check for the MRP mentioned on the product and verify if you have been charged more than MRP or not. If you have been charged more than the MRP then immediately contact the E-commerce website through the customer care number. Reputed and trusted websites on verification would immediately initiate refund.
  • As stated earlier in case of unauthorized transaction immediately contact your Bank and register your mobile number with the Bank so that you receive SMS alert in case of any fraud immediately.




[1] Card not present (CNP) transactions is a payment card transaction made where the cardholder does not or cannot physically present the card for a merchant’s visual examination at the time that an order is given and payment effected