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Ú Conducting commercial transactions over

the internet.
Ú It includes goods as well as services
Ú It is not defined in the IT Act.
 Õ 
 

Ú ýor Consumers

Ú ýor Business purposes

 ý  
Ú casy and convenient
Ú Commercial transaction can be done at
odd hours as compared to fixed market
shopping hours
Ú cmergency transactions can be done, i.e.
buying air-
air-tickets or railway tickets
Ú Bargain offers
Ú Wide variety-
variety- specially international
transactions can be done without being
physically present at a place
 ý 
Ú ãuge market due to wide reach of internet
Ú No necessity of hiring a large showroom
or shop to show-
show-case goods
Ú Reduces transaction costs specially in case
of e-
e-contracts (contracts can be entered
into without being physically present)



 

 
Ú ?urisdiction of law enforcement agencies
and courts
Ú Consumer harassment in case of defective
goods
Ú Tax evasion
Ú Money laundering
 ú
 
 
Ìractically everything that traditional
commerce can offer-
offer- few examples
Ú Buying goods-
goods- retail or wholesale
Ú Consultancy services

Ú Distance learning

Ú On
On--line health care
Ú On
On--line banking

 

  


›. ISÌ (Internet service provider)-
provider)- connects internet through
various routes i.e. dial-
dial-up, broad-
broad-band, leased lines
2. User or consumer-
consumer- all e-
e-commerce activities are structured
around him
3. Website--space where goods and services are displayed and
Website
are available for sale and purchase. Website may be
managed directly by company or firm or through content
providers (by outsourcing)
4. Ìayment providers-
providers-Those who facilitate the payment of
money for goods bought and sold i.e. credit cards, debit
cards
5. Ìayment system providers-
providers-They provide technological and
legal framework under which payment providers have to
function
6. Advertisers-- on-
Advertisers on-line advertising is a big business
7. Content providers-
providers-provides goods and services for sale on the
internet
8. Back end systems-
systems-provide inventory and accounting
application for on-
on-line application
 


Ú Technical term-
term- cDI (clectronic Data Interchange), also called click-
click-wrap
contracts/ mouse click contracts which is derived from shrink wrap
agreement for sale of software. Before e-
e-contracts are entered into, parties
having continued business relationships exchange Trading Ìartners
Agreements (TÌA) which gives details of conditions, warranties, limitations,
disclaimers, etc. Ìursuant to TÌA, cDI takes place for sale of goods or
services.
Ú Validity of clectronic exchanges or electronic transactions
transactions-- Contract Act does
not prohibit offer and acceptance by electronic means. Under the Act,
acceptance can be inferred by conduct, it does not prescribe a particular
mode of making an offer and acceptance
Ú One essential of a valid contract is Ɛmeeting of mindsƑ. In e-e-contracts, since
one party is a computer or website, that will be treated as the agent of the
real party, known as Ìrinciple of Attribution (electronic record shall be
attributed to the originator-
originator- this principle is recognized by the IT Act).
Ú Offer and invitation to treat-
treat- no rule of thumb, commercial websites may put
up products as offer or simply for advertising to entice prospective buyers,
which is invitation to offer. (Ìharmaceutical society of great Britain vs. Boots
Cash Chemist Ltd.)
Ú Mirror Image: Acceptance of an Offer should be
unconditional. Any changes made by the Offeree
in the offer made by the Offeror will be treated
as a counter Offer i.e. the Offeree becomes the
Offeror; this is known as the Last Shot Doctrine.

Ú US Ìosition: under the Uniform Commercial

Code based on Art. 19 (2) of the Vienna
Convention on Contracts for International Sale
of Goods,
Goods, in case the counter offer does not
materially alter the nature of original offer,
modification or addition suggested by the
Offeree will be treated as a pat of the original
offer although the Offeror retains the right to
reject it
 m
 

 
Ú Ãeneral Rule of Contract is that Mistake as to
the subject matter of Contract vitiates Consent.
ãowever, both the parties must be under a
Mistake with regard to the subject matter of the
Agreement
Ú Mistake of Indian law is no excuse.
Ú Mistake of ýoreign Law can be an excuse
Ú ÌROBLcM: difficult to prove whether one party
to the contract was at mistake or both.
Ú In c-
c- Commerce, problem is more acute e.g.
Argos Case Ƌ TV 2›Ƒ worth 200 pounds was
advertised as being for 2.99 pound each
 Ì   
Ú clectronic Record shall be attributed to the
Originator if (Section ››):
- it was sent by Originator ãimself
- a person having authority of the
Originator
- information system programmed by or
on behalf of Originator to operate
automatically
ÌÕ
úm
Ú Adopts Deeming & Assuming Clauses i.e.
regarding the authenticity of the message
having been sent by the Originator or a
person who has access to OriginatorƎs
authentication procedure.
Ú Safeguards: the Originator can send a
Notice to the Addressee that the message
was not sent by the Originator m
Ú Where the Addressee knew or should have
known that the message is not from the
Originator
 ?ú
ÕÌ
ý
ýúmÕý
Õú

Ú ?urisdictional aspect is most relevant issue so as to determine
the ?urisdiction of the proper court where action for breach of
contract can be filed.
Ú IT Act: lays down an Objective test
- Location of Computer is not relevant e.g. in case an e- e-
contract is entered into by one of the Ìarties who is working on
a Lap top i.e. would result in roving jurisdictions if location of
computer is the determining factor.
- ?urisdiction would be : Ìlace of Business of Originator
or that of the Addressee where the clectronic record is deemed
to have been received

ãOWcVcR, u/s ›3 (›) of the IT Act , parties are free to agree

on a different rule
 ?ú
Õý
ú

ý
Õ
Ú cxample Ƌ
Offeror is in Country A
Offeree is in Country B
Website is located in Country C

ABC Laminant Ìvt. Ltd Vs. A.Ì. Agencies,

Salem
Suit for damages for breach of contract can
be filed where the Contract should have been
performed or where its performance is
completed
 Ì
  


!
 
ý
 
!
Ú When contracting parties belong to different countries, in
addition to determining the jurisdiction of proper court,
applicability of proper law is also to be determined

Ú In New York Vs. World Interactive Gaming Corp.

Antigua (West Indies) hosted a website for Internet
Gambling. They accepted bets from residents of New York.
held by the New York State Supreme Court that Internet
gambling has violated New York State Gambling Laws even
though Gambling via Internet is legal in Antigua.

R Vs. Weddon
Ìorn website located in California but offering
pornographic material for sale in UK violated UKƎs Obscene
Ìublication Act
 mú
ÕÌÌú
"
Ú American courts have classified websites into 3
categories for exercising ?urisdiction
1. Active websites:
websites: where defendant is doing actual
business on the Internet through website Ƌ
Courts will exercise jurisdiction
2. Interactive websites:
websites: where primarily
information is exchanged; exercise of jurisdiction
will depend upon extent of information
exchanged and commercial nature of such
exchange
3. Passive websites:
websites: only makes available
information on the site
Ú Choice of Law: 2 aspects Ƌ
Ú Ìrinciple of Ìrivate International Law Ƌ it is the body of
principles applied by the municipal courts while deciding the
disputes between 2 parties which belong to different national
jurisdictions.
Ú contracting parties are free to chose the law applicable to
their contract, though this freedom is not absolute. There has
to be some substantial relationship between the contract or
parties and chosen law of a particular jurisdiction
Ú Choice of law is also exercised by the Courts before which the
matter involving 2 international parties is brought i.e. to
decide whether to apply the law of the ýorum where it has
been brought or some other country which has a greater
relationship with the dispute Ƌ RcNVOI
Ú Under the Rome Convention, parties are free to include
choice of law clauses in their agreements.
Ú No choice of Law in India; US Law allows freedom to chose
applicable law even within the US
Ú Choice Of forum: in India, under the Law of
Contract, if 2 courts have concurrent jurisdiction,
the parties can by agreement exclude the
jurisdiction of › court and give exclusive
jurisdiction to the other court. ãowever, parties
can not confer jurisdiction on a court which has
no jurisdiction at all.

Ú Under US law, parties can chose the forum in

which they wish to bring an action although it is
also subject to certain exceptions like real or
substantial connection with parties or subject
matter of the dispute with chosen forum.
 Ì# 
 

? Ì# 
Ú Use of Conspicuous Notice-
Notice- websites can give notice at the
beginning of the webpage restricting its applicability of laws
of countries where the web content is directed or indicting
the passive or local nature of website
Ben Susan Restaurant Corporation Vs. King
New York court held that StateƎs long arm statute could not
be against a non resident defendant when his business was
unquestionably a local operation

Ú Use of ýiltering Techniques to make access possible to

limited countries. But in such cases the Defendant has to
prove that he took all possible measures to restrict the
broadcast of its web content
 !m
$


 


 
›. ýaceless Contracting Ìarty Ƌ in routine
online transactions, the 2nd contacting party
might be unknown to the consumer or
buyer or even vice versa. No guarantee of
true location or true particulars
2. Internet is like a free highway Ƌ any offer/
message sent from one computer to the
other can be intercepted, changed and
altered and the final recipient might not
even get to know about it
 

 
"

ý 
Ú Technically known as Asymmetrical
Cryptosystem
Ú Operates through Ìrivate Key which is personal
to the sender and public Key which enables the
recipient to confirm that the message has come
from the genuine source which is known to him
Ú ãash ýunction Ƌ works in tandem with Digital
Signatures to further secure the authentication
system
Ú BUT Digital Signatures and ãash ýunction are
more advantageous where the originator is
known to the recipient.
Ú It does not solve the problem of faceless
contracting party.
 
  

%

Ú Basic question: whether Software is a
good?
Ú In Tata Consultancy Services Vs. State of
Andhra Pradesh, it was held by the Court
that sale of software is a sale of goods
and is amenable to tax
 ú
&Õ
Ú e.g. Income Tax, Wealth tax Ƌ taxes levied directly
on your income sources
Ú Direct taxes are levied either on the basis of
RcSIDcNCc or SOURCc or BOTã
Ú Residence basis Ƌ irrespective of where income has
arisen, residence is sufficient to levy tax
Ú Source Based Ƌ income arising in a country is taxed
in that country
Ú Use of both the rules can lead to Double Taxation.
This is usually avoided by countries by entering into
Double Taxation Avoidance Agreements (DTAAƎs).
Ú Where DTAAƎs have not been entered into, section
9› of the IT act provides necessary relief.
 
%
#  '
Ú In case of e-
e-commerce, due to a boundary less
market, it is crucial to determine where the
taxable event has occurred.
Ú In domestic transactions, there is not much of
a problem
Ú In case of cross border transactions the
principles followed are Ƌ
›. Ìlace of effective management
2. OcCD has suggested the principle of Ìc
(ÌcRMANcNT cSTABLISãMcNT) in case of
source based taxation i.e. place where the
Server is fixed and is hosting the website
 ÕÕÌÕ
Ú Under the IT Act, tax is payable on any business income
accruing directly or indirectly through or from any business
connection in India

Ú CIT Vs. R.D. Aggarwal & Co. (1965) 56 ITR 20 SC

Business Connection Ƌ involves a relation between a business
carried on by a non resident which yields profits or gains and
some activity in the taxable territories which contributes directly
or indirectly to the earning of those profits or gains. There is an
element of continuity between the business of the non resident
and the activity in the taxable territories.

Bangalore Woollen Vs. CIT 18 ITR 423

A business connection may exist without any regular agency,
branch or other definite organization. What is required is a
common thread of mutual interest passing through the fabric of
the trading activities carried on outside and inside the taxable
territory.
 ý
  
Ú The ýinance Act 2003 inserted explanation
2 and 3 in subsection (›) of section 9 of
the IT act to identify what constitutes a
ƍbusiness connectionƎ
Ú The ýinance Act 2002 introduced the
definition of Ìermanent cstablishment in
the IT Act
Ìc Ƌ fixed place of business through which
the business of enterprises is wholly or
partly carried
  
 c
c
 (
     
Ú The Ìreamble of IT act mentions that the IT Act
is an Act to provide legal recognition for
transactions carried out by means of electronic
data interchange and other means of electronic
communication commonly referred to as
electronic commerce which involves the use of
alternatives to paper based methods of
communication and storage of information
(The language of Ìreamble clearly spells out the
intention of the legislature to clothe commerce
through electronic data interchange with legal
sanctity)
Ú Section 3 of the Act provides for
authentication of electronic records by
affixing digital signatures
Ú Section 4 gives legal recognition to
electronic records

Ú Section 5 gives legal recognition to digital

signatures
 m 

 
ýour basic models of c commerce,transactions for
commercial purposes-
purposes-
›. B2B i.e. Business to Business (Asianvendors)
2. B2C i.e. Business to Consumer (Amazon)
3. C2B i.e. Consumer to Business (Razorfinish)
4. C2C i.e. Consumer to Consumer (cbay,
Baazee)
"Õ )