A compliance certificate needs to be issued not after a review of documents but, actually, a due diligence since most of the new rules are implementation-specific rather than form-specific, which can be reviewed and opined on.
By Abir Roy
Recently, the norms with respect to FDI in e-commerce were revised. The revised norms came in the backdrop of objections raised by retailers and traders against e-commerce entities with foreign funding primarily against the following practices: (i) predatory pricing and loss funding; and (ii) web of preferential sellers created by such dominant e-commerce players. The changes in the e-commerce policy seek to address some of the concerns.
Prior to analysing the key impacts, the success of any law and/or policy lies in its implementation. The present regime, as it stands, is that, under FEMA, there is no provision of filing a complaint by a private party. While representations are made in case of FDI violations to the Enforcement Directorate (ED), it is ultimately up to the ED’s discretion to take cognisance of a matter.
Thus, it has been widely deliberated that there is an urgent need for an e-commerce policy/regulator which would address the entire booming e-commerce landscape, establish fair and non-discriminatory norms and establish an e-commerce regulator with enforcement powers to enforce the said policy.
Now, turning our attention to the changes in the policy, a few of the key changes include: (a) no control over inventory by e-commerce entities; (b) if a market place entity or group companies have any equity participation or control over the inventory of an entity, then that entity is barred from selling its products on the platform run by the e-commerce entity; (c) services to the vendors selling goods on the platform would be on a fair and non-discriminatory basis; (d) no exclusive mandate to sellers; (e) annual reporting to RBI by a statutory auditor confirming compliance of the norms.
While the changes seek to address the entire modus operandi of the dominant e-commerce players, these still have loose ends since the entire thrust of the present changes lies on the ambit and interpretation of control. The aspect of control must be seen dehors the aspect of equity participation since these are disjunctive terms used in the changes.
The ambit of control is broad, since an entity may be in control over another entity in practice by way of multiple agreements like exclusivity, services agreement, common directorship or any other means even when the equity participation may be minimal. The changes in the policy sought to keep a tab on the innovative structures that have been floated by companies which may have defeated the implementation of the policy.
Also, the policy seeks to suggest that the services must be given to vendors on a non-discriminatory basis. One of the services which is very important but often not spoken about is the placement of the goods of vendors on the e-commerce websites.
For example, if you want to buy an iPhone on a prominent e-commerce website, the top searches coming on the first page would be of vendors with whom the marketplace entities may have an arrangement, while other vendors with similar ratings and quality would not get this advantage.
This is very important since it has been proved with consumer surveys that 60-70% of the purchases on e-commerce websites (especially of white goods) are from vendors which come in the first page. Now, this aspect of display and marketing would also have to be given by marketplaces to vendors on a fair and non-discriminatory basis. Keeping the same in mind, it is time to evaluate all vendor arrangements.
Lastly, what is notable and fascinating is that the policy mandates that an auditor would have to give a certificate of compliance every year. While the aspect of a compliance certificate is common under Indian laws, this is slightly different since, now, an auditor would have to review the business practices and review agreements to check compliance of a law. Such a certificate would need to be issued not after a review of documents but, actually, a due diligence since most of these rules are implementation-specific rather than form-specific which can be reviewed and opined on (like having a FC-GPR, FC-TRS form, etc). The role and responsibility of the auditor may be spelt out in the e-commerce policy. Can they be held liable as “officer in default: In case of a violation”?
All in all, this policy has been welcomed by traders: However, the key lies in implementation and ensuring a fair and level playing field. One should watch out for this space.