The Enforcement Directorate (ED) has started an inquiry into the alleged violation of Foreign Direct Investment (FDI) norms by two major players in the e-commerce arena, Flipkart and Amazon, under the Foreign Exchange Management Act (FEMA),1999.
This case is scheduled to be heard on 19 November.
On a PIL filed by Telecom Watchdog, an NGO, these two telecom companies along with the Union of India, who is also a respondent, received a notice from Delhi High Court bench on July 30th, 2018.
PIL alleged that the e-commerce websites sold popular products at a much cheaper rate through proxy ‘controlled sellers’ through companies such as Prione Business Services Pvt Ltd and Cloud Tail India Pvt Limited in case of Amazon and by Flipkart through Shreyash Retail Pvt Ltd, Tech-Connect Retail Pvt Ltd, Health & Happiness Pvt Ltd, Consulting Rooms Pvt Ltd, Savadika Retail Pvt Ltd.
Amazon and Flipkart, which have foreign funding, operate through a marketplace model, which makes them a mere facilitator between a seller and a consumer. These platforms have no ownership over the goods sold on such marketplace platforms and are not allowed to influence the prices of products sold on their website or hold inventory.
To find their way around the 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, which sells products on Amazon.
Through these sellers, Amazon and Flipkart have complete control on influencing the price of goods sold on their platforms, a practice that violates the FDI norms of the country.
Now, the Enforcement Directorate (ED) has filed its reply to the court stating that the investigation against the two e-commerce players has been registered and the probe is underway.
The reply filed by ED stated that the investigation is underway and the department is trying to ascertain whether the respondent companies have been contravening any provisions of FEMA 1991 or contravening any Rule, Regulations, Notification, Direction or Order issued in exercise of the powers under FEMA 1999.
The Foreign Exchange Management Act consolidates and amends the law relating to foreign exchange with the
objective of facilitating external trade and payments and promotes the orderly development and maintenance of foreign exchange market in India.