After a retailers’ association in New Delhi and the Delhi High Court, the Enforcement Directorate has now pulled up e-commerce companies in India for allegedly flouting foreign investment norms in the country.
As reported by Hindustan Times, Out of 21 e-commerce companies, the ED is likely to submit a report on in February on eight companies including, Flipkart, Snapdeal, Jabong, and so on.
According to the ED, these companies have alleged violated foreign investment rules and Foreign Exchange Management Act (FEMA). In India, only companies that are engaged in B2B activities are allowed to raise capital from overseas. B2C sellers are not permitted to raise funds from foreign investors. However, the ED has alleged that several e-commerce companies, despite having a B2B front, allegedly bought goods from merchants outright and later sold them to customers, even dishing out heavy discounts.
According to Indian rules, FDI in e-commerce is only for those companies that manufacture and sell their own products. FDI is prohibited in other e-retail companies that do not manufacture goods. To get around this, most online retail portals have structured themselves as aggregators that act as marketplaces for people to choose and buy products of companies that put up goods for sale through these gateways.
However, the ED is now questioning this claim.
Last year, the All India Footwear Manufacturers & Retailers Association had filed a similar complaint against Flipkart, Snapdeal and Jabong, Amazon’s Junglee, in response to which even the Delhi High Court had written to the Central government after “observing a prima facie violation” of the country’s norms.