ED Looks Into E-Commerce, Begins Investigation Into Amazon, Flipkart On FDI Violations: Report

The report noted that ED is investigating the alleged violations under the Foreign Exchange Management Act (FEMA) that are typically civil offences including monetary penalties

The report cited one of the sources and explained that the ED wants to find out if either of the e-commerce players played a part in influencing prices and if sellers violated the 25 per cent sales limit.

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The Directorate of Enforcement (ED) has now shifted its attention towards e-commerce players Amazon and Flipkart. The agency has begun investigating the two firms and their vendors for violations of foreign direct investment (FDI) norms, media reports said.

Citing sources in the know, the Economic Times reported that the ED plans to find out if the companies exercised control over their vendors. As per the norms, they can only act as platforms for sellers.

The report noted that ED is investigating the alleged violations under the Foreign Exchange Management Act (FEMA) that are typically civil offences including monetary penalties. Earlier in the month, the authorities conducted raids at 19 sites across the country related to large sellers on Flipkart and Amazon in New Delhi, Hyderabad, and Bengaluru.

The report quoted a source in the know and noted, “The sellers covered during the searches were summoned and have been questioned to explain certain transactions and arrangements. Documents are being studied thoroughly. The main focus is to ascertain whether Amazon and Flipkart operated through a preferred set of sellers, which were invariably controlled by them but disguised as independent vendors, thus violating FDI norms. Once all search-related documents are studied and people linked to them are questioned, key managerial personnel—who handle FDI of the company—will be asked to join the probe.”

The earlier investigations focused on sellers, however, the next one will focus on the ecommerce players, sources noted. The news report stated that Amazon India and Flipkart didn’t respond to any queries.

The matter has been under investigation for some years now. However, the agency conducted some fresh raids earlier this month after it found certain actionable material, the sources said.

The report cited one of the sources and explained that the ED wants to find out if either of the e-commerce players played a part in influencing prices and if sellers violated the 25 per cent sales limit. Any violation, if found out, will bring more scrutiny from investigative agencies and law enforcement authorities. 

Notably, the FDI norms in India bar e-commerce firms with foreign investment from operating via an inventory-based model.