The probe is being conducted under various sections of FEMA after the central probe agency recently received a communication from the Commerce Ministry seeking "necessary action" against e-commerce players like Amazon and Flipkart pertaining to certain multi-brand retail businesses and an observation made by the Delhi High Court in relation to Amazon.
The Enforcement Directorate (ED) has initiated a probe against e-commerce giant Amazon for alleged violation of the foreign exchange law and rules of the country, official sources said on Thursday.
The probe is being conducted under various sections of the Foreign Exchange Management Act (FEMA) after the central probe agency recently received a communication from the Commerce Ministry seeking “necessary action” against e-commerce players like Amazon and Flipkart pertaining to certain multi-brand retail businesses and an observation made by the Delhi High Court in relation to Amazon.
The HC had said that said the attempt made by the US-based firm to control Future Retail through a conflation of agreements it has with an unlisted unit of the Indian company will be considered as violative of the FEMA and foreign direct investment (FDI) rules.
When contacted, an Amazon spokesperson said it was “not aware of any new case by the ED against Amazon India”.
Sources said the agency is looking to “investigate into the entire issue and will seek details from Amazon and other stakeholders”.
In the first instance under the ED scanner is a recent communication sent to it by the Department for Promotion of Industry and Internal Trade (DPIIT) that functions under the Commerce Ministry.
It had forwarded a representation made by the Confederation of All India Traders (CAIT) alleging that major e-commerce players like Flipkart and Amazon violated FEMA and FDI rules.
CAIT had alleged that these e-commerce companies were in violation of FEMA and FDI rules by adopting illegal structuring/investments and practices.
Flipkart, at that time, had said it was “fully compliant with all applicable laws and FDI regulations in the country”.
In the second instance being investigated by the ED that involves Amazon, the Delhi High Court had made observations on the US e-commerce firm objecting to the Rs 24,713 crore Future Group-Reliance deal that was signed in August last year.
In August 2019, Amazon had agreed to purchase 49 per cent of one of Future’s unlisted firms, Future Coupons Ltd (which owns 7.3 per cent equity in BSE-listed Future Retail Ltd through convertible warrants), with the right to buy into the flagship Future Retail after a period of three to 10 years.
Amazon had dragged Future Group to arbitration at Singapore International Arbitration Centre (SIAC), arguing that Future violated the contract by entering into the deal with rival Reliance.
On October 25, 2020, an interim award was passed in favour of Amazon with a single-judge bench of V K Rajah barring FRL from taking any step to dispose of or encumber its assets or issuing any securities to secure any funding from a restricted party.
After this, Future Group filed a plea with the Delhi High Court. On December 21, a single member bench rejected the plea to restrain Amazon from writing to regulatory authorities about the SIAC arbitral order but gave a go-ahead to the regulators to decide over the deal.
The court had also made several observations indicating that Amazon’s attempt to control Future Retail through a conflation of agreements Amazon has with an unlisted unit of the Indian company will be violative of the FEMA FDI rules.
Since then, Amazon has also filed a petition in the Delhi High Court seeking detention of Future Group founders, including CEO Kishore Biyani, and seizure of their assets as it sought to block the Future-Reliance deal.