Online Sale of Goods: Formation, Passing of Property and Risk, Implied Conditions, Marketplace and Inventory Models, and the Consumer Protection (E-Commerce) Rules, 2020

A purchase on a website or an app is a contract of sale like any other. The Sale of Goods Act, 1930 was written long before e-commerce, but its rules on formation, passing of property, risk, implied conditions and remedies apply to an online sale exactly as they apply to a sale across a shop counter. What online trade adds is three further layers: the Information Technology Act, 2000, which validates electronic contracts; the question of who the seller is when a platform stands between buyer and merchant; and the Consumer Protection Act, 2019 and the rules made under it, which impose duties the 1930 Act never contemplated.

1. Formation

A product listing is ordinarily an invitation to offer, on the same reasoning as goods displayed in a shop. Most platform terms say so expressly.
The buyer's order is the offer, and the seller's confirmation, whether of acceptance or of dispatch, is the acceptance. An automatic acknowledgement that an order has been received is usually not an acceptance, and terms of use commonly say that the contract is formed only on dispatch.
Electronic formation is valid. Section 10A of the Information Technology Act, 2000 provides that a contract is not unenforceable solely because offer, acceptance or revocation was communicated electronically, and Section 5 of the 1930 Act requires no particular form.
Communication is governed by Section 13 of the IT Act, which fixes the time and place of dispatch and receipt of electronic records.
Terms must be incorporated. A click-wrap agreement, where the buyer clicks to accept, is generally binding. Terms merely posted on a site, which the buyer never had to see, may not be.

2. Property, Risk and Delivery

The stages of an online sale, the rules that still apply, and the question of who the seller is

Goods ordered online are usually unascertained until picked and packed for the particular order, so under Section 18 no property passes until they are appropriated to the contract.
Appropriation and delivery to a carrier. Under Section 23 property in unascertained goods passes when goods of the contract description in a deliverable state are unconditionally appropriated with the buyer's assent, which may be given in advance by the order. Under Section 39 delivery to a carrier for transmission to the buyer is prima facie delivery to the buyer.
Risk follows property under Section 26, unless otherwise agreed. Online sellers commonly provide that risk passes only on delivery to the buyer's address, and consumer law expects them to bear loss in transit.
Cash on delivery is a conditional arrangement, under which the seller typically reserves property until payment.

3. Implied Conditions

The implied conditions in the 1930 Act apply to online sales with particular force, because the buyer cannot inspect the goods before buying.

Sale by description, Section 15. Goods sold by a description in a listing must correspond with it, including the images, specifications and brand shown.
Merchantable quality and fitness, Section 16. Where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that they are of merchantable quality; the proviso excluding defects that an examination ought to have revealed rarely helps a seller online, since the buyer could not examine them.
Exclusion by Section 62 is possible in principle, but a standard-form clause excluding these conditions in a consumer sale is exposed to challenge as an unfair contract under Section 2(46) of the Consumer Protection Act, 2019.

4. Who Is the Seller?

	Inventory model	Marketplace model
Who owns the goods	The platform	Third-party sellers
Who is the seller under the 1930 Act	The platform	The third-party seller
The platform's role	Seller, with all a seller's duties	Intermediary, providing the technology to bring buyer and seller together
Liability for defective goods	The platform, as seller	Primarily the seller; the platform's position depends on its conduct and on the E-Commerce Rules

📖 Christian Louboutin SAS v. Nakul Bajaj, 2018 SCC OnLine Del 12215

Facts: A luxury brand sued an e-commerce website that sold goods bearing its marks, alleging that many were counterfeit and that the website promoted itself using the brand's name and images. The website claimed protection as an intermediary under Section 79 of the Information Technology Act, 2000.

Held: The Delhi High Court held that the protection given to intermediaries is available only to a platform that remains passive. A platform that plays an active role, such as identifying and verifying sellers, storing and packaging goods, promoting products, or otherwise exercising control over the transaction, cannot claim the safe harbour and may be held liable for what it sells.

Ratio: An e-commerce platform is protected as an intermediary only so long as its role is passive. The more control it exercises over the goods and the sale, the closer it comes to being treated as a party to the transaction.

5. The Consumer Protection Layer

The Consumer Protection Act, 2019 defines e-commerce and electronic service providers, and gives a consumer who buys online the same remedies as any other consumer before the consumer commissions.
The Consumer Protection (E-Commerce) Rules, 2020, notified in July 2020, require e-commerce entities to display seller details, return, refund, exchange and warranty terms, and grievance redressal information; to appoint a grievance officer; and to refrain from unfair trade practices and manipulation of prices. They impose separate duties on marketplace and inventory entities.
Product liability under Chapter VI of the 2019 Act allows a consumer to claim against the manufacturer, service provider or product seller for harm caused by a defective product, in addition to any claim for breach of contract.
Refund and cancellation rules operate alongside, not in place of, the buyer's rights under the 1930 Act to reject goods for breach of condition.

⚠ This is a developing area

The rules on e-commerce are amended frequently, and the treatment of platforms, return policies and digital goods continues to develop through regulation and litigation. The statutory framework described here should be checked against the current text of the E-Commerce Rules and any later amendments before it is relied on for a particular transaction.

6. The Position Stated Shortly

An online sale is a contract of sale governed by the 1930 Act.
A listing is an invitation to offer, the order is the offer, and confirmation or dispatch is the acceptance; Section 10A of the IT Act validates electronic formation.
Property in goods ordered online usually passes on appropriation, and risk follows property unless agreed otherwise.
The implied conditions of description, quality and fitness apply with particular force.
In an inventory model the platform is the seller; in a marketplace model the third party is.
Christian Louboutin: an active platform may lose intermediary protection.
The Consumer Protection Act, 2019 and the E-Commerce Rules, 2020 add duties and remedies on top of the 1930 Act.