Enforcement Directorate intensifies Amazon probe, govt seeks info

This follows report claiming e-commerce giant dodged Indian regulations

The Enforcement Directorate has widened its probe linked to e-commerce major Amazon, seeking details about the sellers on its Indian platform and also its deal with Kishore Biyani-led Future Coupons, according to a source in the know. This follows a Reuters report citing internal documents at the Seattle-based firm on how it dodged the government while violating foreign direct investment (FDI) guidelines in giving preferential treatment to a group of sellers.

In a parallel development, the government has asked the investigative agency for a status report on its ongoing probe into alleged violations by Amazon. In a letter to Amazon and Future Coupons, ED has sought information on contractual agreements between the two, mode of investments, financial transactions and government approvals, an official at the federal agency pointed out. Amazon has also been asked to furnish the details of sellers associated with it and their inventories during a certain period.

Under the FDI rules, online marketplace players such as Amazon cannot hold any inventory unlike in other countries, and they must not exercise any control on sellers on the platform. The rules formulated about two years ago stated that the inventory of a seller or a vendor will be seen as being controlled by a marketplace if the purchase by any entity exceeded 25 per cent on the platform.  

On the basis of its deal with Future Coupons, Amazon had moved court to stop Biyani’s deal with Reliance Industries, arguing that there was a breach of agreement. Investigative agencies are now probing the alleged foreign laws violations in the American major’s deal with Future Coupons to assess if that transaction had legal validity in the first place.

An email sent to Future Group didn't elicit any response. Future has already provided partial details regarding its deal to the probe agency, it is learnt. Amazon refused to comment on the matter. 

“We are examining two important aspects in this matter. One relates to whether its investment in Future Coupons is contrary to the foreign exchange management act (FEMA) in the absence of an approval from the foreign investment promotion board,” said a senior ED official.         

              

“Second, we have to see if the e-commerce company bypassed any regulatory curbs on foreign investment,” the official added. According to him, the agency has conflated both the issues and is accordingly collecting information.

FEMA deals with forex contraventions and is primarily treated as civil in nature.

Officials further explained that in the deal with Coupons, the agency is looking at the aspect of controlling rights conferred upon Amazon. ‘’In the second issue, we are checking the participation of the local sellers as required under the FDI policy.’’   

 Reuters reported that Amazon had helped a small group of sellers, giving them discounted fees. The company was using these sellers to bypass India’s regulatory curbs on foreign investments, the report said. According to the report, only 35 out of a total of 400,000 sellers accounted for two-third of its online sales. It said that the US-firm had exercised significant control over the inventory of some of its biggest sellers such as Cloudtail and helped them cut special deals with major brands.  

However, Amazon had denied the allegations, calling the media report as "unsubstantiated, incomplete, factually incorrect, without going into specifics’’.

Last month, while passing its judgment on Amazon’s plea challenging the acquisition of Future Retail by RIL, the Delhi High Court had observed that Amazon appeared to have indirectly obtained control over the Big Bazaar owner without the approval of the government. The Delhi High Court had observed that it was done with the help of three agreements by Amazon. It further remarked that the said agreements appeared to be in violation of FEMA.

The court had, however, upheld Amazon’s right to make representations to statutory authorities against the Future Group-Reliance Retail deal. The matter escalated after Amazon initiated arbitration to stop the Reliance-Future deal and secured an emergency award, pausing the deal.