Amazon, Flipkart Under ED Lens!

Bengaluru: Investigative authorities like Enforcement Directorate (ED) have turned their focus now on the nature of relationship between Amazon and Flipkart and selected large sellers after recent raids on many sellers across multiple cities, suspecting violation of Foreign Direct Investment (FDI) norms. According to reports, investigating authorities are trying to find out if the e-commerce companies are exercising control over these sellers, which is in contravention of the existing FDI norms. Bizz Buzz published a number of exclusive reports on the blatant FDI violation by Amazon.

It may be recalled here that multiple teams of the ED on November 7 conducted searches at 19 premises of vendors selling their products on e-commerce platforms- Amazon and Flipkart. The raids were conducted in Delhi, Bengaluru, Mumbai, Hyderabad and Panchkula.

These raids were conducted as part of the investigation under the provisions of the Foreign Exchange Management Act (FEMA). There were multiple complaints that the e-commerce platforms are violating India’s FDI rules by directly or indirectly influencing the sale price of goods or services and not providing a level playing field to vendors.

Meanwhile, these raids were welcomed by the Confederation of All India Traders (CAIT), which has given multiple presentation to the government about violation of current FDI norms by global ecommerce giants.

According to the notification issued by the government, e-commerce players are prohibited from influencing the selling price of good or services or favouring any seller over other for facilitating any sale.

“Ecommerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Services should be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control, to vendors on the platform at arm’s length and in a fair and non-discriminatory manner,” the notification said. According to reports, some sellers raided during this month by the ED were summoned and have been questioned on certain transactions and arrangements.

Sources in the know said that the investigative authorities are trying to ascertain whether Amazon and Flipkart operated through a certain set of sellers, which were controlled by these e-Commerce giants but presented themselves as independent sellers.

Reports indicated that key managerial personnel (KMP) in charge of complying with FDI rules of the country will be asked to join the probe.

As the current rules strictly prohibit holding of stake by e-commerce companies in any of their seller or influence their operations, any violations in this regard could lead to penalties and other punitive actions. Notably, after the notification of norms in 2018, Amazon India had divested its stake in Appario by selling it to Clicktech. Similarly, operations of Cloudtail had been shut down in 2022 post these new norms. However, sources in the retail trading segment said that despite such past closures, e-commerce giants’ propensity to favour select sellers continue and this should be investigated thoroughly.