Amazon sues Enforcement Directorate for investigating ‘beyond scope and power’

Amazon said the ED’s probe pertains to transactions that have no foreign exchange element.
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Amazon sued the Enforcement Directorate on Wednesday, December 22, in the Delhi High Court, in the latest update in a long legal battle in the deal between Future Retail and the Reliance Group. Amazon challenged the jurisdiction of the ED and its officers to investigate matters that are "beyond the scope of power and remit of the ED" under the Foreign Exchange Management Act, 1999 (FEMA).

ED began investigating Amazon under sections of the FEMA Act after it received communication from the Union Ministry of Commerce which sought "necessary action" against e-commerce players like Amazon and Flipkart as well as an observation made by the Delhi High Court in relation to Amazon. The HC had said that the attempt made by Amazon to control Future Retail through a conflation of agreements it has with an unlisted unit of Future Retail will be considered as violative of the FEMA and foreign direct investment (FDI) rules.

According to reports, Amazon is challenging the ED investigation as it pertains to transactions that have no foreign exchange element, and said that the ED is “conducting a fishing and roving investigation and subjecting the petitioners to proceedings without any "legal basis/jurisdiction" and causing unnecessary harassment despite full cooperation by the petitioners.”

Amazon has questioned the ED in a writ petition stating the ED does not possess the requisite jurisdiction, under Section 13 read with Section 37 of FEMA to investigate issues relating to people joining or leaving the legal team of Indian Amazon entities in India, payments made by an Indian resident entity in Indian rupees to Indian counsels law firms for services rendered in India and the same is not relevant to information relating to the Future Group transaction.

Amazon said the mandate to investigate given to ED under FEMA is exclusively established under Section 37 read with Section 13 of FEMA.

The ED is only empowered to investigate matters under FEMA, i.e. on the issues of foreign exchange. FEMA itself prescribes the mandate given to ED for investigation of contraventions under FEMA, Amazon said. It added that changes by way of people exiting the legal team of Amazon’s India arm has no relevance under FEMA, it said. 

"The requirement to file details of legal fee over the last 10 years and details for employees leaving etc. is, thus, another evidence of a roving and fishing enquiry which ought not to be allowed by this Honourable Court," Amazon said.

"In light of the above, the summons to the extent referred to above and the actions taken or proposed to be taken pursuant thereto are bad in law and will be based on an erroneous assumption of jurisdiction by ED," Amazon said.

Amazon said it pertains to transactions that have no foreign exchange element.

Recently, the Competition Commission suspended its more than two-year-old approval for Amazon's deal with Future Coupons and imposed a Rs 202 crore penalty on the e-commerce major for failure to furnish true and complete details about the transaction.

In August 2019, Amazon had agreed to purchase 49% of one of Future Group's unlisted firms, Future Coupons Ltd (which owns 7.3% equity in Future Retail Ltd through convertible warrants), with the right to buy into the flagship Future Retail after a period of three to 10 years. In August 2020, Reliance Retail said it will acquire the retail and wholesale business, and the logistics and warehousing business of Future Group for Rs 24,713 crore.

Amazon had dragged Future Group to arbitration at Singapore International Arbitration Centre (SIAC), arguing that Future violated the contract by entering into the deal with rival Reliance.

Future Coupons told CCI that submissions made by Amazon before the regulator and the arbitrator were contradictory. Subsequently, CCI issued a show cause notice to Amazon in June this year.

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