HC issues notices to Flipkart, Amazon on rules ‘violation’ PIL

The Delhi High Court has issued notices to Flipkart and Amazon besides the Centre in a public interest litigation (PIL) filed by Telecom Watchdog, which alleged the e-commerce giants had violated FDI norms and circumvented them by routing popular products at much cheaper rates through proxy ‘controlled sellers’ and pushing out small businesses and brick-and-mortar retailers.

“...to circumvent the PN-3/2016 (Press Note 3, the document which spells out the FDI norms for e-commerce), both Amazon and Flipkart have created multiple entities and/or created ‘name lending’ companies and/or ‘controlled sellers’ through which they route such hot-selling stocks,” the petition filed by the NGO said.

The petition added that “through the name lending companies, they buy the branded goods in bulk (at discounts) from manufacturers, rendering small sellers uncompetitive by a wide margin, thus influencing the prices in violation of FDI norms.”

Amazon and Flipkart, which have foreign funding, operate through a marketplace model under which they are not allowed to influence the prices of products sold on their website or hold inventory. Through these sellers, Amazon and Flipkart have complete control on influencing the price of goods sold on their platforms, a practice that violates FDI norms of the country, the NGO alleged.

Citing the example of one such seller, Cloudtail, which sells on Amazon.in, the petition said: “…FDI is not allowed in an entity operating on the inventory based e-commerce model…. Cloudtail buys goods in bulk from many manufacturers and sells them on the online platform of Amazon Seller.”

The petition alleged that to circumvent FDI norms, Amazon has created a company called Prione Business Services, a joint venture between Amazon group and Catarman Advisors LLP. This entity is the owner of Cloudtail. Flipkart and Amazon did not respond to queries were sent by ET.

After the new FDI norms came into force with the issue of Press Note 3, Flipkart devised a method under which it looked for some “name lenders” who’d form companies and through them the invoicing for goods would be routed.

“Out of several thousands of brands registered on their Web site, database analysis showed five brands that appeared frequently and also did not have much or no competition in their respective categories on Flipkart’s online marketplace. To avoid any direct linkages, Flipkart used completely different brand names, which have no correlation with the names of their respective companies. For example, Superconnect is the brand name that appears on Flipkart screen, but its company name is Shreyash Retail,” the petition alleges.