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21 e-commerce firms under the scanner for FDI violation

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In response to the petition filed by All India Footwear Manufacturers & Retailers Association, against e-commerce firms for violations of India’s foreign direct investment (FDI) norms, Delhi High Court has ordered the government to probe 21 e-commerce companies.
Major e-commerce websites including Flipkart, Snapdeal, Jabong, Myntra and Amazon-owned are under the scanner. However, Amazon Inc.’s local arm, Amazon India, doesn’t feature in the list.
Earlier this year, AIFMRA filled a petition before a bench of Justice Rajiv Sahai Endlaw,challenging the marketplace model on which these e-commerce players operate in.
While India permits 100 per cent FDI in the business-to-business (B2B) segment, foreign investment is restricted in the business-to-consumer (B2C) and multi-brand retail. By turning into a marketplace, e-commerce websites such as Flipkart and Snapdeal can legally access overseas capital.
In the petition, AIFMRA claims that the various e-commerce websites have been continuously dodging the question of FDI violations by showing their business as a “marketplace” and not a “seller”, when in reality a sale through online platforms is similar  to a sale made by a physical retailer.
Justice Rajiv Sahai Endlaw on Thursday has ordered the Centre, Delhi government, central bank and Electoral Drectorate(ED) to file affidavits within four weeks “detailing steps already taken so if any need for further directions is felt, the same can be issued,” the court said.
The respondents (Centre, Delhi government, RBI and ED) state that “out of the 21 entities with respect to which averments have been made in the petition, six are being investigated against and a decision has also been taken to investigate other entities as well.”
In September this year, while hearing the same case, justice Endlaw had said that there was a “prima facie case” of violation of foreign direct investment (FDI) rules. He issued a notice to the government and directed it to file an affidavit within two weeks.
Justice Endlaw said the very fact that the transactions of e-tailers are taxed by a state as a sale means that they are in a business-to-consumer (or b2c) business, which is a violation of the present FDI policy.
Rishi Agrawala, counsel for the industry body( AIFMRA), said in a statement that the government informed the court that it had initiated a probe into six e-commerce companies for allegedly breaching India’s FDI regulations. The court then asked the government to expand its probe to cover all 21 e-commerce sites.
The court has posted the matter for December 21 and asked the government to file a reply in the meantime, Agrawala said.
There is no definition of the online marketplace model under the present Indian FDI regulation. Marketplaces are simply termed as a websites that connect buyers to sellers, offering services such as warehousing, logistics, and payments. While looking at a growth of e-commerce in India and rise in complaints by brick and mortar associations, need for a clear defination and law for e-commerce should be taken up seriously.
Meanwhile, the Commerce and Industry Minister Nirmala Sitharaman, recently said that the government is  working on the definition of ‘e-commerce’.
The minister on July 15 had chaired a meeting of states on the issues related to foreign direct investment (FDI), the definition and taxation in the e-commerce sector. The states were asked to give their views and comments on the matter.
Sitharaman said recently that  her ministry has received inputs from almost all the states on the issues related with FDI in e-commerce segment.
“We have got the inputs from the states. We are in the process of putting it all together,” Sitharaman told PTI.

Read: Government working on ecommerce definition: Nirmala Sitharaman

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