Have E-commerce Firms Violated FDI Norms? RBI, ED Asked To Probe

The mega sales have ended. The partying is also over. E-commerce majors such as Flipkart, Amazon and Snapdeal are now in for some sobering news.

Government of India has asked Reserve Bank of India (RBI) and Enforcement Directorate (ED) to probe whether e-commerce majors have violated Foreign Direct Investment (FDI) rules by engaging in business-to-consumers (B2C) activity.

Source: http://thecampusconnect.com/

The move follows a complaint filed by Confederation of All India Traders (CAIT) which alleged that e-commerce portals circumvented law and engaged in B2C activity as 100% FDI is allowed in the business-to-business (B2B) segment. In its complaint, CAIT stated that Amazon, Flipkart and Snapdeal, which recently conducted mega sales, solicited the general public through big advertisement campaign in print, electronic and social media. Since these companies have received foreign investment, they are allowed to undertake B2B e-commerce activity and not B2C. The said advertisements addressed to the public in general tantamount to retail trading, according to CAIT.

The complaint added, “These companies claim to be a marketplace and therefore can provide only a technology platform for the sellers who are registered with them. Since ownership of inventory does not hold by the said companies they cannot offer ‘sale’ or ‘discounts’ in totality on their online portals but they are doing so which also establishes that they are not marketplace and as such openly flouting FDI policy.”

Earlier, in September, the All India Footwear Manufacturers and Retailers Association had petitioned to the Delhi High Court alleging that e-commerce companies were violating the existing FDI regulations. The petition stated that e-commerce companies have created a complex business structure behind which they are evading the law, adding that the entities are taking an undue advantage of the footwear retailers and manufacturers present in the physical world as they are giving discounts on the products, which has left the brick-and-mortar retailers only as a trial room or showrooms.