The Delhi High court passed public interest litigation against Amazon and Flipkart for violating FDI rules.
Government in 2016 press release has told e-commerce companies to put control over stock sold on their platforms.
FDI norms also say that not more than 25% of sales on any e-commerce marketplace could be routed through a group company.
The Delhi High court after having a bench meeting headed by Chief Justice Rajendra Menon passed public interest litigation which quested a probe into violation of Foreign Direct investment rules by e-commerce behemoths Amazon and Flipkart. The bench passed the order after the Enforcement Directorate (ED) told the court that an investigation under provisions of the Foreign Exchange Management Act (FEMA) against the two companies is already pending with it.
The petition against the two was filed by NGO Telecom Watchdog and it has also asked the court to commence legal proceedings against Flipkart and Amazon under FEMA for allegedly violating the FDI norms.
According to a press note of government in 2016 on regulating FDI in e-commerce market, it has suggested Amazon, Flipkart, and other e-commerce companies to put control over stock sold on their platforms or influencing prices of goods and services they sell. It had also said that not more than 25% of sales on any e-commerce marketplace could be routed through a group company.
Advocate Pranav Sachdeva filed a plea against Flipkart and Amazon and said that they are rendering small sellers on its platforms uncompetitive. They are doing so by building several entities to bypass the FDI norms and maintain their top-selling stocks at cheaper rates.
He also claimed that by creating name lending companies, Amazon and Flipkart had bought branded goods in a huge amount at discounted rates from manufacturers and leaving no path for sellers to sell its products neither in e-commerce market not in nearby areas.
In December 2018 government amended FDI norms and gave time till 1st February 2019 to execute operation of firms according to new norms. According to India’s new foreign direct investment policies:-
- Cashback system should be fair and crystal clear to the buyer and seller.
- E-commerce marketplace is prohibited to show ownership or control over entities.
- E-commerce companies can do a transaction with sellers only on a business to business basis.
- Retailers are not allowed to put a mandatory situation to any seller to sell any product exclusively on its platform.
In order to cope up with new FDI policies, Amazon India has closed selling products sold under its own private labels and also closed selling by firms in which it owned stacks including Cloudtail and Appario.
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