ED probing Amazon, Flipkart over FEMA violations

The Enforcement Directorate (ED) has started investigations against e-commerce giants Amazon and Flipkart following allegations of violation of foreign exchange law, the Delhi High Court was informed on Monday.

Disposing of a PIL by an NGO Telecom Watchdog which claimed that these companies were violating foreign direct investment (FDI) norms, a bench of Chief Justice Rajendra Menon and Justice A J Bhambhani noted the submissions of the ED.

The ED said that a case has been registered under provisions of the Foreign Exchange Management Act (FEMA) against the two companies.

The agency's response came after the high court sought response of the central government, Amazon and Flipkart.

In its reply filed through central government standing counsel Amit Mahajan, the ED has said, "the department has already registered and initiated investigation under the provisions of 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...."

According to the petitioner, the two companies had created multiple entities to circumvent the FDI norms and route the hot-selling stock at cheaper rates.

It also claimed 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 the price of goods and services sold on their marketplace.

By creating name lending companies, the petitioner alleged that 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," it claimed.