Delhi HC says e-tailers seem to breach FDI rules

The high court on Wednesday issued a notice to the central government on prima facie violation of foreign direct investment (FDI) policy by e-commerce entities. It has asked the government for a reply within two weeks.

FDI is not allowed permitted in e-commerce companies but most of these are funded by global investors through the marketplace route. In this format, e-commerce entities host sellers on their platforms. While the sellers transact with buyers, e-commerce players present themselves as technology platforms connecting both.    

The petition was filed by the All India Footwear Manufacturers & Retailers Association (AIFMRA), seeking clarity on FDI in e-commerce and saying it believed marketplaces breached the formal norms.

Traditional retailers had earlier approached the HC after failing to get a response from the government on the question of parity in FDI norms with e-commerce entities.

AIFMRA argues the sales made by online marketplaces have the full character of a sale to a consumer, akin to that in retailing. Marketplaces are obviously retailers because the payment is accepted by them, delivery is made by them, returns are taken by them and refunds are also made by them, it argued.  

Welcoming the court directive, Kumar Rajagopalan, chief executive, Retailers Association of India, said: “RAI has consistently represented to the government that e-commerce marketplaces are utilising FDI funds, dealing with customers and behaving exactly like retailers. We have sought the Government’s help in clarifying the situation, as FDI rules cannot be applied differently to the so-called e-commerce marketplaces while retailers are not allowed to get FDI.”

E-commerce majors refused to comment. “We will have to read the HC order before we make any statement,” said one.

The court had indicated there is no difference in the business done by e-commerce retailers and physical retailers. It had converted the petition into a representation on May 21 and directed the association to discuss the matter with the government, failing which they could approach the court again within four months.

RAI represents a little over 1,000 retailing entities, including Shoppers Stop, Reliance Retail and the Future Group. It had filed a petition against the government in mid-May, asking for a level playing field in terms of foreign investment.