Amazon and Flipkart logos.
Credit: Reuters File Photo
Bengaluru: The Enforcement Directorate (ED) conducted search operations at the warehouses of sellers and vendors which sell on e-commerce platforms Flipkart and Amazon, on Thursday.
The searches were conducted in warehouses of 16 vendors and sellers across Mumbai, Bengaluru, Delhi and Hyderabad.
Highly placed sources told DH that the investigation is being carried out on possible violation of Foreign Exchange Management Act (FEMA).
A senior ED official, who did not wish to be named, clarified that the search is being conducted because while under the existing Foreign Direct Investment (FDI) rules, Amazon and Walmart-owned Flipkart have permission to operate as online marketplaces, they are functioning as multi-brand retailers.
“The evidence of such misrepresentation is with the sellers and vendors, which is why they are being searched. However, if the investigation leads to further action, that will be taken against Amazon and Flipkart, and not those who sell on the platform,” the official told DH.
Under India’s FDI policy, foreign e-commerce companies are prohibited from retailing their own products in any form. India allows 100% FDI in single-brand retail under certain conditions, and 51% FDI in multi-brand retail.
It allows 100% FDI in the marketplace model of e-commerce to ensure that foreign companies act primarily as facilitators of transactions rather than as direct sellers or retailers.
“This policy is designed to prevent foreign e-commerce platforms from gaining an undue advantage over domestic businesses by operating as multi-brand retailers,” said Jidesh Kumar, Managing Partner, King Stubb & Kasiva, Advocates and Attorneys.
Commenting on repercussions if these firms are found guilty, Rahul Sundaram, Partner, IndiaLaw LLP said, “Any violation could lead to penal consequences as prescribed by law, including, but not limited to, operational restrictions, financial penalties, and legal action against company officials.”
All India Consumer Products Distributors Federation (AICPDF) , the industry body which represents FMCG distributors in India, hailed the government for addressing the concerns raised by traders. “The recent action by the ED against e-commerce companies marks a hopeful turning point for small and traditional retailers across India,” it said in a statement on Thursday.
US based Walmart bought Flipkart, in which it currently owns an 80% stake, in 2018 for $16 billion. Amazon Inc’s exact ownership in Amazon India remains undisclosed.
A filing to the US stock market regulator in 2016 shows that the Seattle headquartered Amazon owns an indirect minority stake in a third-party seller on its India platforms
This comes after union minister Piyush Goyal’s comment on Amazon’s investment in India, stating that the company is doing it to make up for its losses and not to support the Indian economy.