Legal Regime of Online Transactions in India

What is the Legal Regime of Online Transactions in India?

8/25/20234 min read


The rapid development and rising trend of e-commerce have changed customer preferences to buy online, the tech-savvy era has been utilizing various types of digital transactions and there are more than 200 crore rupees that have been transacted on several types of electronic payment networks each day. While digital transactions have brought comfort and accessibility, they also left users with concerns about digital payment security, and personal data security. The legal framework for digital transaction security includes several laws and policies that have been introduced and enforced in India.

Regulatory bodies governing electronic payments in India
Reserve Bank of India

The Reserve Bank of India (RBI) is the main controller for digital transactions in India. In the beginning, the laws governing this ambit were very general until recently when it turned into full-fledged regulation due to improved use of the electronic payment system. The Reserve Bank of India acknowledges the substitutions to the market very easily and therefore changes its legislation according to the circumstance which occurs.

Digital transactions- Ombudsman Scheme

On January 31, 2019, under the approval of the RBI, the banking ombudsman was assigned to take care of consequences relating to unauthorized digital transactions, frauds, or any money transaction situation. It was a susceptible approach for consumers to approach in their time of need.

The legal framework for e-commerce transactions in India
Payment and Settlements Systems Act, 2007

The Payment and Settlements Systems Act (PSS), 2007 is the Act that regulates the digital transaction systems in India. This Act gives the Reserve Bank of India (RBI) the power to govern all the matters which relate to digital transaction systems, the settling of it as well as the legalities which are constituted. The PSS Act determines that no person, other than the RBI, can govern a payment system except with due approval issued by the RBI (unless particularly exempted by the terms of the PSS Act itself). The Act delivers for earning and payment finality and gives formal administration powers over overall settlement and payment systems with the RBI.

The Reserve Bank of India has introduced the concept of regularities to protect the revenues of consumers while making any transaction through the mode of digital payments. In the year 2009, the RBI issued a law that negotiated with the opening and managing of the accounts for digital transactions which had an intermediary involved hence these statutes were named the intermediary regulation.

This statute asserted that any such entity to evolve a payment system had to mandatorily have permission from the RBI. There were exceptions provided to some categories of payment systems because they settle their accounts with the assistance of a nodal account and are not involved in settling any payment between a customer and a businessman.

The Act of Payment and Settlements is one that was enforced under this Intermediary law. The Act deals with Appoints the RBI as the authority that regulates payment and settlement systems; Makes it compulsory to get RBI approval to operate a payment system; Warrants the RBI to regulate and supervise payment systems by determining laws and calling for information, regular reports, documents, etc; Warrants the RBI to audit and conduct on- and off-site examinations of the payment systems; Warrants the RBI to issue directives; and Provides for netting and settlement to be final and irrevocable.

Intellectual Property Rights in E-Commerce Transactions

Intellectual property rights (IPRs) are another important factor in e-commerce transactions in India. E-commerce programs must guarantee that they do not violate the IPRs of third parties. In India, IPRs are protected under several laws, containing the Copyright Act 1957, the Trade Marks Act 1999, and the Patents Act 1970.

E-commerce outlets must assure that they have the essential licenses and approvals to use copyrighted material, trademarks, and patents. They must also assure that third-party traders selling on their outlets do not violate the IPRs of others. Additionally, e-commerce platforms must have a policy in place to address complaints regarding copyright violations or trademark infringements by traders or users.

Data Privacy and Security in E-Commerce Transactions

Data privacy and security are significant aspects of e-commerce trade in India. The Personal Data Protection Bill, of 2019, is required to become law soon and will govern the collection, storage, and processing of private data in India. Under the bill, e-commerce businesses are expected to complete the consent of customers before compiling their data. They must also assure that the personal data obtained is utilized only for the objective for which it was obtained.

In addition to accepting data privacy laws, e-commerce businesses must also take steps to assure the protection of their users' data. They must utilize encryption and other security criteria to ensure user data from unauthorized access and use. E-commerce businesses must also have a policy in place to address data violations and other safety incidents quickly.

Cybercrime and E-Commerce Transactions

Cybercrime is a rising threat to e-commerce transactions in India. Cybercriminals utilize numerous techniques, such as malware, ransomware, and phishing to steal private and financial data from unsuspecting customers. E-commerce platforms must educate their users about the dangers of cybercrime and give guidance on how to protect their data. E-commerce platforms must monitor their programs for suspicious activity and take action to block violent users or traders.


The e-commerce platform's rapid development not only reflects the nation's growing acceptance of it but has also taken to the fore concerns that the government's legal system has been dealing with. The laws for e-commerce are quite uncondensed by-laws as there is no particular codified statute. The industry will expect to look at such a viewpoint of the particular situation for which the legislation is to be considered. To accomplish this field, the e-commerce industry must have a thorough awareness of the legal regime and the probable challenges that an e-commerce industry may face, as well as reasonable risk managing criteria. Further, the law of the e-commerce sector is exceptionally dynamic and comprises scattered statutory provisions. Hence, any entrepreneurs intending to invest in the e-commerce industry must be aware of the legal/regulatory compliances and responsibilities expected out of e-commerce activities in India.

Submitted by: Manya Mishra

Course: BBA LLB

Amity University