Amazon, Flipkart Being Probed on Whether They Violated Provisions of Foreign Exchange Law: Enforcement Directorate

The Enforcement Directorate has told the Delhi High Court that it was investigating whether e-commerce giants Amazon and Flipkart have violated provisions of foreign exchange law.

The ED's response came on a PIL which has alleged that the e-commerce giants were violating foreign direct investment (FDI) norms.

The matter is scheduled to come up for hearing before a bench of Chief Justice Rajendra Menon and Justice V K Rao on November 19.

The court had earlier sought response of the Centre, Amazon and Flipkart to the plea which has sought a probe into the alleged FDI violations.

The ED, in its reply filed through central government standing counsel Amit Mahajan, said the "department has already registered and initiated investigation under the provisions of Foreign Exchange Management Act (FEMA) against the two companies to ascertain whether they have been contravening any provisions of FEMA or contravening any rule, regulations, notification, direction or order issued in exercise of the powers under FEMA...."

It also sought dismissal of the petition.

The petition by an NGO, Telecom Watchdog, has also asked for initiation of legal proceedings against the two e-commerce giants under the FEMA for alleged violation and circumvention of FDI norms.

The plea, filed through advocate Pranav Sachdeva, has claimed that Amazon and Flipkart have created multiple entities to circumvent the FDI norms and route the hot-selling stock at cheaper rates.

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

It has claimed that by creating name lending companies, Amazon and Flipkart buy branded goods in bulk at discounts from manufacturers and render small sellers uncompetitive by a wide margin, thus influencing the prices in violation of the FDI norms.

"As a consequence of this FDI norms violation, smaller sellers are unable to participate in the fast growing e-commerce sector," the plea has contended and added that due to subsidized prices on such platforms, small sellers are unable to sell in the brick-n-mortar world too.

Apart from that the plea has also claimed that the two e-commerce giants have created several other group companies in the chain to divide discounts and losses.

"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," it alleged.