Flipkart, Snapdeal, Jabong, 21 others under ED scanner for flouting FDI norms

After a retailers' association in New Delhi and the Delhi High Court, the Enforcement Directorate has now pulled up e-commerce companies in India for allegedly flouting foreign investment norms in the country. 

Out of 21 e-commerce companies, the ED is likely to submit a report on in February on eight companies including, Flipkart, Snapdeal, Jabong, and so on. 

According to the ED, these companies have alleged violated foreign investment rules and Foreign Exchange Management Act (FEMA). In India, only companies that are engaged in B2B activities are allowed to raise capital from overseas. B2C sellers are not permitted to raise funds from foreign investors. However, the ED has alleged that several e-commerce companies, despite having a B2B front, allegedly bought goods from merchants outright and later sold them to customers, even dishing out heavy discounts. 

Currently, FDI is also permitted in only those companies that manufacture and sell their own goods, and not for those who don't. To work a way around this, most e-commerce companies call themselves a retailers' marketplace, where they provide a platform for various retailers to list their products and sell them. 

However, the ED is now questioning this claim.

Last year, the All India Footwear Manufacturers & Retailers Association had filed a similar complaint against Flipkart, Snapdeal and Jabong, Amazon's Junglee, in response to which even the Delhi High Court had written to the Central government after "observing a prima facie violation" of the country's norms.