The Delhi High Court on Monday sought response of the Centre, e-commerce giants Amazon and Flipkart on a PIL alleging that they have been openly violating the FDI norms for marketplace model of e-commerce and circumventing them by routing hot-selling products at much cheaper rates through proxy “Controlled Sellers” or “Name Lenders” and pushing out small sellers and brick-and-mortar retailers.
A bench of Acting Chief Justice Gita Mittal and Justice C Hari Shankar also issued notice to the parties on the public interest litigation (PIL) filed by NGO Telecom Watchdog which said e-commerce companies Amazon and Flipkart have been turning marketplace into de-facto inventory based e-commerce entities and should be punished under the FEMA.
It said that the authorities need to file their response by November 11.
NGO’s advocate Pranav Sachdeva submitted the Centre should probe the cases in which e-commerce companies—Amazon and Flipkart—have circumvented FDI Rules by creating a number of name-lending entities.
The NGO came to the court after having made four complaints to the government this year on the same issue but in vain.
Explaining the genesis of the issue, the PIL said that electronic commerce, which has seen rapid growth in recent years, operates in all the four major market segments: business to business (B2B), business to consumer (B2C), consumer to consumer (C2C), and consumer to business (C2B).
In India, e-commerce works on a marketplace-based system where only electronic platform for buying/selling to third parties is provided and the inventory-based model, where the marketplace is allowed to maintain its own stock also.
The Department of Industrial Policy & Promotion (DIPP) under the Commerce Ministry issues guidelines for foreign direct investment (FDI) in e-commerce from time to time.
Prior to March 2016, in India, 100 per cent FDI was permitted in B2B e-commerce, but not in B2C e-commerce.
However, many companies like Flipkart started providing platform for retailers and distributors to sell their products on B2C model, which led to the All-India Footwear Manufacturers and Retailers’ Association (AIFMRA) moving court in year 2015.
During the pendency of that petition, the government relaxed the FDI norms and issued a press note vide which it allowed 100 per cent FDI under automatic route in marketplace model of e-commerce with a rider that the sales volume from a single seller, including its group companies, cannot exceed 25 per cent of the gross sales. However, the FDI continued to be prohibited in an inventory-based model of e-commerce.
This, the plea said, “sought to strike a good balance between encouraging infrastructure creation for India’s fast growing e-commerce sector and securing the interest of India’s large base of Micro, Small and Medium Enterprises (MSME) and small retailers”.