The Enforcement Directorate is looking into the books of Bangalore-based Urban Ladder, a curated online marketplace for furniture, to ascertain if the e-tailer?s business model was in line with the country?s foreign direct investment (FDI) rules, sources told FE. The exercise was part of a wider suo moto enquiry into the operations of a handful of e-commerce companies, which has been going on since January this year.
The ED?s focus on e-commerce companies was prompted by the huge foreign funding that several firms have received over the past year and a surge in their valuations even though they claim to be a platform provider for third-party sellers and not their own inventory. The ED wants to verify that e-commerce players do not wield control over some of the bigger sellers indirectly, as that would run afoul of the Indian rules which stipulate that e-tailers with FDI cannot sell to consumers.
ED sources, however, said the enquiries were at a preliminary stage and it was seeking information from e-tailers. ?We have been looking into these companies since January 2014,? said an ED official. ?On most e-commerce platforms, it is not clear who the active sellers are or how many sellers there are.?
Sources in Urban Ladder confirmed that it had received a communique from the ED asking for additional documents, but described it as a regular procedure. Urban Ladder, however, declined an official comment on the matter. The online furniture store, which was launched in 2012 by Ashish Goel and Rajiv Srivatsa, has so far raised $27 million in funding from investors like Kalaari Capital, SAIF Partners and Steadview Capital.
?I do not believe that e-commerce companies control sellers and do not see any trends of it. Their whole focus is to build a big seller base with a good number and not focus on one or two. Some of these things are happening because rules are not clear, not because they are breaking the law,? Ashish Jhalani, founder of eTailing India, told FE.
Even global major Amazon, within 16 months of its existence in India, had a run-in with the authorities. While the ED is looking into its business model, the commercial tax department in Karnataka has raised an objection over payment of value added tax. The department cited the state?s VAT rules to say that the e-tailer was functioning as a commission agent and therefore should pay VAT on behalf of the sellers, an interpretation Amazon disputes.
While new-age internet companies often contend that laws have not kept pace with evolving business models, the government has made its stand clear in recent months. Commerce minister Nirmala Sitharaman had recently hinted that errant companies may run into trouble. ?FDI is banned in multi-brand retail and the same applies to e-commerce also,? she had said in August.
*ED wants to verify that e-tailers do not wield control over some of the bigger sellers indirectly, as Indian rules stipulate that e-tailers with FDI cannot sell to consumers
*Focus on huge foreign funding that several e-tailers have received and also a surge in valuations even though they claim to be a platform provider for third-party sellers
*Urban Ladder has so far raised $27 million from investors like Kalaari Capital, SAIF Partners and Steadview Capital