Delhi HC disposes of plea seeking probe into FDI norms violation by Amazon, Flipkart

The Delhi High Court today disposed of a public interest litigation seeking a probe into the alleged violations of Foreign Direct Investment (FDI) norms by e-commerce giants Amazon and Flipkart..The order was passed by a Division Bench of Chief Justice Rajendra Menon and Justice V Kameswar Rao after the Enforcement Directorate (ED) informed the Court that an investigation into the issue was already pending with it..As per the affidavit submitted to the Court, the ED has registered a complaint and initiated a probe into any violation of provisions of the Foreign Exchange Management Act, 1999 or any other legislation by Amazon and Flipkart..The petition moved by NGO Telecom Watchdog sought initiation of legal proceedings against Amazon and Flipkart under the FEMA for bypassing existing FDI norms defined in a March 2016 press note..The said press note allowed 100% FDI under the automatic route in the marketplace model of e-commerce, but stipulated that the sales volume from a single seller including its group companies cannot exceed 25 per cent of the gross sales. However, FDI continued to be prohibited in the inventory-based model of e-commerce..The petitioner alleged that to circumvent the press note, Amazon and Flipkart created “name lending” companies and “controlled sellers” to route hot-selling stocks at much cheaper rates. It was further alleged that marketplaces have usurped the space meant for small retailers by turning into proxy sellers via their name lender/controlled sellers..In the case of Amazon particularly, it was submitted that this was being done through a company called Prione Business Services Pvt Ltd. which in turn holds 100% equity in Cloudtail India Pvt Ltd, which happens to be the largest seller on Amazon..For Flipkart, it was contended that it devised a new method under which it looked for some name lenders who would form companies, and through these companies, the invoicing for goods would be routed..It was also alleged that both Flipkart and Amazon created several other group companies in the chain to divide discounts/losses. According to the petition,.“Exchange offers, EMI costs and bank offers are funded completely or substantially by Amazon & Flipkart and constitute a clear influence on price in violation of FDI norms.”.The petition was filed through Advocate Pranav Sachdeva..ED filed its affidavit through Standing Counsel Amit Mahajan..Read the order:.Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.