Delhi High Court today sought the RBI’s response on a PIL alleging that as per one of its circulars, retail trading in any form through e-commerce would not be permissible for companies which receive foreign direct investment (FDI).
A bench of Chief Justice G Rohini and Justice Jayant Nath issued notice to the Reserve Bank of India (RBI) and asked it to verify whether any such master circular, as claimed in the petition, exists and if yes, to place it before the court by the next date of hearing on February 24.
The PIL has contended that as per the July 1, 2015 master circular of RBI, while FDI is allowed in business-to-business (B2B) e-commerce, companies that get FDI cannot undertake single and multi-brand retail trading through e-commerce.
It has sought an inquiry into the affairs and transactions of all FDI recipient companies and to stop operations of those found to be directly or indirectly carrying out e-commerce in retail sector.
The petitioners, Dinesh Kothari and Amulya Nidhi, have said that “100 per cent FDI is permissible through automatic route for buying and selling by a company through the e- commerce platform but this is subject to the condition that such companies would engage only in B2B e-commerce as against business to consumer (B2C) pattern and not in retail trading”.
They have alleged that “in order to mislead and confuse the competent authorities, the said e-commerce companies are creating a conundrum of group websites/companies amongst the closely held/managed sister companies/business concerns and thereby causing tremendous loss to the government exchequer..”
The petition has further claimed that “to circumvent the law, these entities have created a web of connected entities” which carry out different functions, like logistics, handling payments, providing software and technology support and so on.
The petition has said “one of the structures being commonly used by these companies is marketplace model. Under this model, the entity which operates the e-platform receives FDI in its capacity as a technology or logistics company or in any permissible sector, but not as a trading entity”.
“While in another entity (owned by the same foreign parent), FDI is received in its capacity as a B2B wholesale cash and carry business. B2B entity in turn sells products to B2C company (non-FDI recipient). The B2C entity (front company – mostly indirectly funded by other FDI recipient company) – ultimately sells on e-platform,” the petitioners have alleged.
They have also contended that “FDI recipient e-commerce websites and other such FDI recipient business entities have been violating the provisions of Foreign Exchange Management Act (FEMA) and the rules, bye-laws and guidelines framed there under which relate to the FDI policy of the government”.
The petitioners have sought that “required legal action be initiated” against the companies or e-commerce sites or entities who have violated provisions of FEMA and the rules framed there under.