The Enforcement Directorate on Monday informed the Delhi High Court that investigation had been initiated against e-commerce giants — Amazon and Flipkart — for alleged violation of foreign exchange law.

Noting the submissions of the ED, a Bench of Chief Justice Rajendra Menon and Justice A.J. Bhambhani disposed of a petition, which alleged that the e-commerce giants were violating foreign direct investment norms.

The ED said the “department has already registered and initiated investigation under the provisions of the Foreign Exchange Management Act [FEMA] against the two companies to ascertain whether they have been contravening any provisions of the FEMA or contravening any rule, regulations, notification, direction or order issued in exercise of the powers under the FEMA....”

The court was hearing a petition by NGO Telecom Watchdog.

Seeks legal proceedings

In its petition, the NGO had sought initiation of legal proceedings against the two e-commerce giants under FEMA for alleged violation and circumvention of FDI norms.

The petition, filed through advocate Pranav Sachdeva, said: “FDI is allowed only in marketplace model of e-commerce. FDI is not allowed in inventory based model of e-commerce”.

It had alleged that Amazon and Flipkart have created multiple entities to circumvent the FDI norms.

The plea alleged that Amazon and Flipkart, by creating name-lending companies, buy branded goods in bulk at discounts from manufacturers and render small sellers uncompetitive by a wide margin. “As a consequence of this FDI norms violation, smaller sellers are unable to participate in the fast-growing e-commerce sector,” the petition said.

“The cumulative impact of this is that the marketplaces have usurped the space meant for small retailers by turning into proxy sellers via their name lending companies,” the petition alleged.

The petition also alleged that they have created several other group companies in the chain to divide discounts and losses.