Following several concerns raised against two ecommerce giants Amazon and Flipkart allegedly taking undue advantage of the FDI norms and how the government stepped in and issued a circular to stem these practices, the issue has now reached the courts. The Delhi High Court is reportedly hearing a PIL on this very complaint. In an interesting development on Monday, the Enforcement Directorate submitted to the HC that there is an ongoing investigation against the two companies for alleged violation of foreign exchange law and that a case has been registered under provisions of Foreign Exchange Management Act (FEMA) against them.
This is first time such a development has been made public. The submission to the High Court was by the Enforcement Directorate and was made in response to a notice issued by the Court to the government. The HC had issued notices to Amazon and Flipkart as well, but it is not clear whether the companies have filed their responses in the matter. The ED has said since the government is seized of the matter and a case has been filed, the present PIL must be dismissed.
The PIL was filed by an NGO Telecom Watchdog. The thrust of the petition is the now familiar complaint against the two that they have been flouting the FDI norms by floating their own entities to buy products in bulk and sell to select entities who then offer these products at massively reduced prices. The losses in the transactions are absorbed by these companies in the process.
The PIL brings up two major issues to the fore. One is these actions of Flipkart and Amazon violate the FDI norms and FEMA in the sense that they are stocking the products (albeit indirectly) and are very much involved in the retail selling of the products, something forbidden under the FDI norms under which they were given the licence to operate their business. The second is as an outcome of their illegal practices: Small traders are put at a disadvantage and cannot continue their business in an uneven platform.
It remains to be seen if the HC will heed the ED’s plea and dismiss the PIL and at what stage the investigation by the ED is.