Delhi HC issues notice to Flipkart, Amazon for flouting FDI norms via proxy sellers

The Delhi High Court has issued notices to e-commerce giants Flipkart and Amazon for violating FDI norms after a PIL filed by NGO Telecom Watchdog.

The PIL alleged that both have been openly violating FDI norms for marketplace model of e-commerce and circumventing them by routing hot-selling products at much cheaper rates through proxy “Controlled Sellers” or “Name Lenders” and pushing out small sellers and brick-and-mortar retailers.

A bench of Acting Chief Justice Gita Mittal and Justice C Hari Shankar issued notices to the Centre, Amazon and Flipkart seeking their response by November 11 to the plea which has sought legal proceedings against the two under the Foreign Exchange Management Act (FEMA), reports ET.

According to Press Note 3 of 2016, which regulates FDI in e-commerce, entities like Amazon and Flipkart are not to exercise ownership over the stock, nor directly or indirectly influence the price of goods and services sold on their marketplace.

For uninitiated, Press note 3 says that 100 per cent FDI is only allowed under automatic route, only if the companies are engaged in B2B sales, but is not applicable to B2C transactions.

As per the guidelines, e-commerce firms can function as a marketplace to connect buyers and sellers, and not influence prices.

However, exchange offers, EMI costs, and bank offers are funded completely or substantially by Amazon and Flipkart and constitute a clear influence on price in violation of FDI norms, the PIL added.

Besides, both parties involve various intermediaries/support entities in the chain to divide discounts/losses which deserts smaller sellers to participate in the fast-growing e-commerce sector.

Giving an example of Cloudtail, the largest seller on Amazon, the PIL alleged that it buys goods in bulk from many manufacturers and sell them on the online platform of Amazon Seller.

This is not the first time when both e-commerce behemoths come under FDI scanner. In April, this year, Indian Cellular Association (ICA) and Retailers Association of India (RIA) had raised the issue of FDI rules violations by the online marketplace platforms.

At that time, they approached  Commerce Minister Suresh Prabhu and complained that these marketplace models have been operating against the spirit of the policy.