On a petition filed by the country’s brick-and-mortar retailers through the All-India Footwear Manufacturers and Retailers Association (AIFMRA), the Delhi High Court on Thursday asked the government not to pick and choose but probe all 21 e-commerce players.
Justice Rajiv Endlaw, after brief arguments, gave further four weeks time to the ministries of finance and commerce to file their reply. It said that “instead of six companies, the government should expand their probe into all 21 companies”, as sought by the AIFMRA.
While seeking parity in foreign direct investment (FDI) norms with e-commerce players, AIFMRA had sought a probe into the affairs of various e-commerce websites offering footwear for sale, and also appropriate action against them under money laundering laws. Moreover, it wanted to restrain the government from allowing FDI into any entity involved in e-commerce, but the court said that it will hear its request for interim relief on December 21.
Earlier, the court had sought replies from the ministries of finance and commerce, RBI and Enforcement Directorate, among others, on the AIFMRA’s plea seeking a level playing field amongst the retailers in the physical world and retailers in the cyberspace (internet world).
Senior counsel A M Singhvi argued that the Centre should probe all the companies and requested the court to restrain the flow of FDI into any entity involved in e-commerce.
Alleging that ecommerce players, which have attracted thousands of dollars in overseas funding using the marketplace model, he argued that the rampant illegalities committed by various entities and their affiliates are not being investigated by the authorities.
E-commerce websites are doing business through the Internet as online stores in complete violation of the consolidated FDI policy of 2015, which became effective from May 12, as also the Foreign Exchange Management Act 1999, and the Foreign Exchange Mangement (Transfer or Issue of Security by persons Resident Outside India) Regulation 2000, among others, it said, adding that “these entities are evading the law by creating a complex and convoluted business structure by creating a façade of a market place model”.
Over the past few years, retailers have repeatedly asked the government to create a simple FDI policy without segregation by brands and channels. Major ecommerce players like Flipkart, Snapdeal and Amazon.in have made good inroads into the country’s retailing business by offering huge discounts, which impacted sales of brick-and-mortar retailers.
While India bars FDI in e-commerce firms that sell products directly to consumers, foreign companies are allowed to operate online marketplaces that offer a platform for sale of global brands, putting them at a disadvantage. Accusing the government of turning a blind eye towards e-commerce websites that have started wiping out the market by eliminating small shop owners especially in the footwear market, the petition stated that discounts offered by online players have cut into their sales and, thus FDI illegally gotten by the e-commerce entities is being misused by them through their websites to wrap the level playing field.
According to the association, though its members are liable to pay sales tax, there is an artificial exemption being enjoyed by e-commerce entities. They said: “This evasion further helps the e-commerce websites to claim unlawful and undue advantage of physical retailers… The valuation of these e-commerce websites being manifold, the investment into them despite losses shows that there is a clear financial bungling of the e-commerce entities which calls for an indepth and a forensic investigation into their working.”