The Delhi High Court on Monday sought the stand of the Centre, Amazon and Flipkart on a petition alleging that the e-commerce companies were violating foreign direct investment (FDI) norms.
A Bench of Acting Chief Justice Gita Mittal and Justice C. Hari Shankar sought a response from the government and the two e-commerce giants by November 11.
The petition by an NGO, Telecom Watchdog, has also asked for initiation of legal proceedings against the two e-commerce giants under the Foreign Exchange Management Act for alleged violation and circumvention of FDI. The plea, filed through advocate Pranav Sachdeva, has claimed that Amazon and Flipkart have created multiple entities to circumvent the FDI norms and route the hot-selling stock at cheaper rates.
The petition has contended 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 the stock, nor directly or indirectly influence the price of goods and services sold on their marketplace. “FDI is allowed only in marketplace model of e-commerce. FDI is not allowed in an inventory based model of e-commerce,” it said. It has claimed that by creating name lending companies, 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,” the plea has contended and added that due to subsidised prices on such platforms, small sellers are unable to sell in the brick-n-mortar world too. “The cumulative impact of this is that the marketplaces have usurped the space meant for small retailers by turning into proxy sellers via their name lending companies,” the petition has alleged.
The plea has also claimed that the two e-commerce giants have created several other group companies in the chain to divide discounts and losses. “Exchange offers, EMI costs and bank offers are funded completely or substantially by Amazon and Flipkart and constitute a clear influence on price in violation of FDI norms,” it said.
