E-commerce ushers in a legal contradiction

The Indian retail industry is quite upset at the way e-commerce platforms are encroaching into their business.

Some manufacturers like Samsung have already decided to remove their products from e-commerce sites altogether. Samsung officials find the predatory pricing policies by e-tailers, cutting into their marketing strategies, which they have carefully put in place with brick-and-mortar outlets.

This, say marketing professionals, has reached a point where it is not only disruptive, but could even turn out to be destructive.

Many brick-and-mortar outlets, too, are now refusing to stock the products of companies unless they can rein in e-tailers. They point to the way the entire trade in India had boycotted Palm (the first smartphone company in the world) five years ago.

They thus ensured that Palm products could be sold only through the company's own outlets in India or from outlets overseas. Of course, one advantage that retailers had in India was a strong market demand for Nokia products and a weak demand for Palm. Eventually, Palm was taken over by HP (Hewlett Packard), which soon decided to shut down this once magnificent product.

This time, some retailers are even contemplating approaching the court to force the government to impose some restrictions on e-tailers.

They point out how there is a major contradiction in law when a government bans Foreign Direct Investment (FDI) in multi- brand retail outlets (which is why Walmart and others like it have not been given the go-ahead yet).

But the same government allows FDI in portals which engage in e-commerce. They point out that e-tailers are nothing but multi-brand retailers.

Says Ajay Jugran, managing partner, Lawcombine Counsel, a Delhi-based law firm: "Foreigners can't invest in multi-brand retail in brick-and-mortar mode but they can invest in portals e-tailing multi-brand online. Clearly, technology is far ahead of our FDI policy. Effectively, what the government is saying is that if you can't do it offline, do it online. This is a contradiction. Our FDI policy has to catch up with the Internet or accept its disruption."

Hormazdiyaar Vakil, partner at Mulla & Mulla, & Cragie Blunt & Caroe, a Mumbai-based law firm, agrees. "It is a contradiction in law. It moves away from the principle that there must be a level-laying field for all multi-brand retailers. It is an invitation to a backdoor entry into multi-brand retailing, using the façade of e-commerce," says Vakil.

Adds Jugran, "E-tailing is retailing. Unless that is understood, online portals will keep getting FDI and beat FDI restrictions in the multi-brand retailing sector. It's child's play...but then child is the father of man. Infant internet is ahead of pre-internet FDI policy continuing as is."

Clearly, there could be litigious days ahead for both e-commerce and retailing.