Explain why Flipkart, Amazon flouting FDI rules by creating Name Lending companies, Delhi HC asks Centre

The Delhi High Court on Monday (July 30) sought Centre’s reply whether e-commerce companies Flipkart and Amazon had circumvented FDI rules
(Press Note No 3 [2016 Series]) by creating a number of Name Lending companies.

The plea which is filed by NGO Telecom Watchdog, has sought investigation and punishment under Foreign Exchange Management Act (FEMA).

The plea states the grounds on which the
e-commerce companies should be investigated into:

• Before Press Note No 3, Cloudtail and WS Retail were the single largest sellers on Amazon India and Flipkart, respectively. Both had an individual share of nearly 50 percent on their respective platforms. Post Press Note No 3, instead of single large sellers, both marketplaces have created smaller sellers, with the same amount of control that they had on the Cloudtail and WS Retail, which is in violation of Press Note No 3.
• Large marketplaces like Amazon India and Flipkart are running marketplaces anchored by massive inventory-based operations through a network of “controlled sellers” and/or Name Lending companies which is in violation of Press Note No 3.
• Through these controlled sellers, Amazon and Flipkart have complete control on influencing the price of goods sold on their platforms which is in violation of Press Note No 3.
• The warrantee/guarantee in respect of goods sold by these controlled sellers is effectively executed Amazon and Flipkart, since these sellers are just proxies for the marketplaces which is in violation of Press Note No 3.
• Both Amazon and Flipkart are booking heavy losses by transferring costs within the group companies to avoid tax payments.

—India Legal Bureau

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