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Ecommerce companies may find themselves in trouble yet again in India.

India’s Enforcement Directorate (ED) is currently investigating six ecommerce companies for allegedly violating India’s foreign direct investment regulations — and 15 more companies will soon come under its scanner . “Investigation is actually underway [for the six companies],” said Prabhsahay Kaur, one of the lawyers for the government on Thursday responding to a petition filed by the All India Footwear Manufacturers and Retailers Association (AIFMRA). Kaur revealed about the ED’s investigation in a hearing in the Delhi High Court.

Kaur declined to share the names of the six companies that are currently under ED’s investigation with MediaNama after the hearing.

AIFMRA had filed a petition against 21 eCommerce companies in August alleging that all of them are violating India’s foreign direct investment policies. India does not allow foreign direct investments in business to consumer eCommerce and 100% is allowed in business-to-business segment at present. Online retailers — many of which are flushed with funds from overseas — have switched to a marketplace model, acting as a platform for buyers and sellers in an effort to workaround the regulations on FDI. The lawyers for AIFMRA argue that online retailers process payments, deliver the items, take returns, and make refunds — behaving just like a traditional retailer — despite being a marketplace enabling transactions.

Previously Justice Rajiv Sahai Endlaw, who is overseeing the case, found that there is a “prima facie violation” of the FDI norms. On Thursday, he said: “investigate all the other entities…and publish the information in this regard” over the next four weeks. The government will also file its counter-affidavit in reply to the writ petition during this time.

On the subject of granting the companies in question an interim relief, the judge said it will be taken up for consideration during the next hearing, which is on Dec. 21.

Similar Cases In The Past

There have similar cases in the past where online retailers have been accused of violating India’s foreign direct investment rules. Retailers Association of India, which comprises Future Group, Shoppers Stop and Reliance Retail had accused them of running afoul of India’s FDI laws in May. Similar accusations have been made by the Confederation of All India Traders as well.

Meanwhile India’s commerce minister, Nirmala Sitharaman, said earlier in November that the government will soon come out with a definition of eCommerce, which will be helpful in resolving the disputes over controversial issues such as taxation and foreign investment.

Here is the list of all the 21 companies named in the petition:

Update: It is unclear why the petitioner named Junglee, which is just a price comparison website, instead of Amazon. Additionally, India now allows single-brand retailers to set up their online shops. Companies such as Zovi and American Swan are single brand retailers.

Download MediaNama’s white paper explaining the structuring of Foreign Direct Investments in eCommerce business in India.

Image source: StormKatt under CC BY 2.0