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An order was passed by a Division Bench of Chief Justice Rajendra Menon and Justice V Kameshwar Rao which disposed off public interest litigation filed seeking a investigation into the alleged violations of Foreign Direct Investment (FDI) norms by e-commerce giants Amazon and Flipkart. The order was passed after the Enforcement Directorate(ED) informed the bench that an investigation was already pending with it with regard to the issue at hand.
A complaint was registered with the ED after which an investigation was initiated to check any violation of the provisions of Foreign Exchange Management Act, 1999 or other legislation by the two e-commerce giants.
The NGO Telecom Watchdog had moved the petition to sought actuation of legal proceedings against the e-commerce companies under the FEMA for bypassing existing FDI norms defined in a press note of March 2016 allowing 100% FDI under the automatic route in the marketplace model of e-commerce, but prescribed that the sales volume for a single seller inclusive of its group companies to not exceed 25% of the gross sales.
However, FDI continued to be prohibited in the inventory-based model of e-commerce.
The allegations raised by the petitioner were, first, Amazon and Flipkart had created “name lending” companies and “controlled sellers” to route their hot-selling stocks at much inexpensive rates to avoid the press note, second, the space for the small retailers have been appropriated by turning into proxy sellers via their name lenders/controlled sellers.
It was contended that Flipkart has devised a latest method to look for name lenders who would form companies which would invoice the goods to be routed. Whereas, Amazon accomplished the above allegations, through a company called Prione Business Services Pvt Ltd. which in turn holds 100% equity in Cloudtail India Pvt Ltd., which is acknowledged to be the largest seller on Amazon.
Another allegation was raised by the petitioner stating several other group companies were created in the chain to distribute discounts and losses by Amazon and Flipkart.
“Exchange offers, EMI costs and bank offers are funded completely or substantially by Amazon & Flipkart and constitute a clear influence on price in violation of FDI norms,” stated the petitoner
Advocate Pranav Sachdeva had filed the petition, whereas ED filed its affidavit through Standing Counsel Amit Mahajan.
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