Delhi HC disposes PIL seeking probe into FDI violations by Flipkart\, Amazon

Delhi HC disposes PIL seeking probe into FDI violations by Flipkart, Amazon

Investigation has been initiated against e-commerce giants Amazon and Flipkart for alleged violation of foreign exchange law, the Enforcement Directorate (ED) Monday informed the Delhi High Court.ET Bureau  |  Updated: March 18, 2019, 21:15 IST
Delhi HC disposes PIL seeking probe into FDI violations by Flipkart, Amazon The Delhi High Court on Monday disposed a public interest litigation (PIL) which sought a probe into violations of India’s foreign direct investment (FDI) norms by e-commerce giants Flipkart and Amazon.

A bench headed by of Chief Justice Rajendra Menon passed the order after the Enforcement Directorate (ED) told the court that an investigation under provisions of Foreign Exchange Management Act (FEMA) against the two companies is already pending with it.

The petition was filed by NGO Telecom Watchdog had also asked for initiation of legal proceedings against Flipkart and Amazon under FEMA for allegedly violating the FDI norms prescribed in a March 2016 press note.

An Amazon spokesperson declined to comment, while Flipkart did not respond to a query sent by ET until the time of going to press.

Press Note 3 issued by the government in 2016 regulated FDI in e-commerce marketplaces, disallowing them to exercise control over stock sold on their platforms or influencing prices of goods and services they sold. It had also said that no more than 25% of sales on any e-commerce marketplace could be routed through an group company.

The plea, filed through advocate Pranav Sachdeva, claimed that Amazon and Flipkart have created multiple entities to circumvent the FDI norms and route the hot-selling stock at cheaper rates. It also had claimed that by creating name lending companies, Amazon and Flipkart had bought branded goods in bulk at discounted rates from manufacturers which was rendering small sellers on their platforms uncompetitive.

"As a consequence of this FDI norms violation, smaller sellers are unable to participate in the fast growing e-commerce sector," the plea has contended, adding that due to subsidised prices on such platforms, small sellers are unable to sell in the brick-n-mortar world too.

In December 2018, the government issued a new press note, amending the FDI norms for e-commerce marketplaces in the country and gave all firms time until February 1 to ensure compliance. As a response, Amazon had pulled down products sold under its own private labels, and also through sellers Cloudtail and Appario in which it owned stake, in the hours leading upto the government’s deadline.

However, in the following week, Amazon reduced its stake in Prione Business Services Pvt Ltd., which owns and operates its largest seller Cloudtail, to 24 per cent in order to remain compliant with the new laws.