by December 31, 2001 0 comments

Suppose from Delhi you make an on-line purchase from a website owned by a Chinese company, but hosted in the US. You use your credit card issued by a bank in London. Now, if you run into a dispute regarding the product you purchased, against whom should you pursue your remedies and where?

The wonders of the Internet are much talked about. But what are lesser known are the contentious issues it is burdened with. One such issue–the issue of jurisdiction over the Internet–is an impediment to the proliferation of e-commerce.

Arguments to make the Internet a tax-free, regulation-free zone abound; and so do fears of entering into on-line contracts. 
A contract is generally governed by the jurisdiction (country or territory) in which it is entered into or where it is performed. So, your rights and obligations are determined by the laws of the jurisdiction. The taxes arising from the business agreement are also payable in that jurisdiction. In the case of a violation of intellectual-property rights, the place where such infringement takes place becomes the jurisdiction for pursuing legal remedies. In most other cases, traditional principles embodied in section 20 of the Civil Procedure Code come into play. They provide that you can file a case in a jurisdiction where either the cause of action arose or where the party against whom you are filing is located.

Cyber crimes
The IT Act provides for extra-territorial jurisdiction in cyber-crime cases. Section 74 provides that where any offence involves a computer or computer resource in India, it can be taken note of under our laws. This has a potential to create problems as an act which occurred overseas may have no connection in India except the use of some remote computer resource located here. This, which is quite common in Internet relations, may be brought within the purview of our laws. Soft pornography is allowed under various jurisdictions, whereas in India it may not be permitted. Therefore if the website displaying it is accessed by someone in India, it may be held liable for penal action here. There are many such instances of conflict of laws that may create enforcement problems. (For more on the IT Act, see India’s Cyber Laws, page 51.) 

Since the term “cause of action” in section 20, Civil Procedure Court, is open to interpretation, the trouble in relation to cyber contracts arises where the parties are located in different jurisdictions (ie, different countries or in places where different set of laws and regulations apply) and the medium of communication (website or mail server) is located in another jurisdiction. The problem is aggravated where more than one jurisdiction seeks to exercise its rights to impose taxes and levies (taxes include all direct and indirect taxes and levies include municipal cess, stamp duty, registration costs, etc) on an Internet-enabled transaction. The trouble also arises when under the laws of one jurisdiction a certain act is an offence, while where the person is located, the same act is allowed. For example, soft pornography is allowed in the US and most EU countries because of their liberal environment, but it is strictly prohibited in any form in India.

Place of contract
In most cases, a contract is related to a jurisdiction where it is signed or where a substantial part of it is executed. In the US, laws of most states provide that a ‘substantial nexus’ must exist between the contract and the state under whose jurisdiction it is being governed. Applying this principle, a US court bound a website by the jurisdiction where it provided service to the residents and repeatedly advertised in that jurisdiction.

The IT (Information Technology) Act, 2000 of India provides that any communication sent by a person himself or through his agent or an automated system programmed to send such communication is deemed to be sent by such person. Further, for legal purposes, a dispatch occurs when any message sent across cyber space enters a resource outside the control of the person sending it. A message is also deemed to be dispatched where the person sending the message has his place of business even where the message may not have been sent from such place. Similarly, an electronic message is said to be received when it enters the designated computer resource of the recipient or when it is retrieved. These provisions make it less difficult to determine the physical location in relation to an electronic communication.

Levy of taxes
Taxes are generally imposed on a party that resides or has a business establishment in a tax-imposing jurisdiction. In case of cross-border transactions, taxes are imposed on a foreign entity only to the extent of its business connection in India. On-line transactions impose on the parties a risk of liability in more than one such jurisdiction as the Internet has no territorial boundaries. Although there is an international treaty between most nations to avoid double taxation on a particular transaction, it involves too many formalities. The issue of customs duty for import of services (like, software products, on-line support services) also inhibits the progress of e-commerce. Commercial activities relating to immoveable property or negotiable instruments, like cheques, bills of exchange and promissory notes, are outside the purview of such e-commerce because of stamp duty requirements that cannot be met on-line.

Location of parties
The more active a website is in a particular location, the more is the likelihood of litigation being imposed on it in that jurisdiction. Courts in India are quick to assume jurisdiction over any matter brought before them even if remotely connected to India. Customer issues under the Customer Protection Act and Restrictive Trade Practices have been in the past dealt with fairly liberally in relation to assumption of jurisdiction even in cases of cross-border transactions. Such courts have allowed impleadment (making a party a defendant in a case or naming the party against whom proceedings are brought) of foreign parties where a customer in India is involved and have passed orders against them. But this may not be so with the proliferation of commerce on the Net. A defence of inconvenient forum may also be available to parties who find contesting suits in a particular jurisdiction beyond their
reasonable means. Further, a problem of enforcement of the orders of our courts would arise where there is no comprehensive international treaty for recognition of the orders of Indian courts.

Where parties from different jurisdictions are involved in a commercial relationship, the law allows them to determine the choice of law for governing their relationship. They can also choose the forum for dispute resolution. Therefore, to avoid any hassles about jurisdiction you must choose in the agreement for applicable laws the courts that would have exclusive jurisdiction over a dispute. But take care to choose a jurisdiction that would have a reasonable connection with the substance of your agreement. If possible, make a specific reference in the agreement to the laws chosen by you and give a link to legal resources to acquaint the customers with the applicable laws.

On-line arbitration is yet another convenient forum for resolution of disputes. Generally, the costs involved in litigation in an on-line arbitration are a fraction of what it would cost in courts and the decision is also arrived at fairly quickly. The WTO (World Trade Organisation) Arbitration and Mediation Centre undertakes on-line arbitration for ICANN (Internet Corporation for Assigned Names and Numerals) in cases of domain-name disputes. Similarly, cyber and the proposed i-cass system of Inter Pacific Bar Association undertake settlement of dispute on-line, which is a convenient way to resolve disputes in a cyber contract.

Since the existing laws are complex and insufficient to deal with the question of jurisdiction, an international treaty is the crying need of the day to settle this issue. The rules of the Internet continue to be ironed out. The perfect solution for businesses is to nominate a choice of jurisdiction and settle the matters through an agreement rather than dwell on the complexities of the present day jurisdiction issues till a final settlement arrives.

Jasmeet Singh Wadehra is an Advocate of Supreme Court of India and advises on technology and corporate laws

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