ED starts probe into Flipkart, Amazon’s vendor relationship – Firstpost

The Enforcement Directorate (ED) is stepping up its investigation into whether Amazon and Flipkart’s supplier relationships violated India’s foreign direct investment (FDI) norms.

Earlier, the investigation focused on large sellers associated with these e-commerce giants, but now the focus is shifting to the companies themselves, the Economic Times reports.

Sources familiar with the matter revealed that the ED is scrutinizing whether Amazon and Flipkart controlled vendors in a manner that violated rules that require these platforms to operate solely as intermediaries and not as inventory-based businesses.

The investigation is related to alleged violations of the Foreign Exchange Management Act (FEMA), which typically result in monetary penalties. Earlier this month, 19 sites linked to prominent sellers Amazon and Flipkart were searched across the country in New Delhi, Bengaluru and Hyderabad. Officials confirmed that vendors interviewed during these raids were asked to clarify certain transactions and business arrangements.

E-commerce giants under scrutiny

The documents seized during the searches are scrutinized and the ED is focusing on whether the e-commerce platforms influenced sales or prices through a select group of sellers. The main question is whether these suppliers were truly independent or operating under the covert control of Amazon and Flipkart. According to a report in the Economic Times, after analyzing the documents and questioning the people involved, senior FDI watchdogs will be summoned for further clarification.

While the first phase of the investigation targeted sellers, the second phase will focus directly on Amazon and Flipkart. Insiders claim that this problem arose back in 2019 and has worried the authorities for a long time. Although Amazon and Flipkart are yet to be formally summoned, sources say the recent searches were prompted by fresh evidence that the ED found actionable.

Prosecution and defense

The ED’s investigation is focused on whether the influence of the platforms violated foreign direct investment regulations, such as the rule that no single seller should account for more than 25 percent of total sales. Critics suggest that companies could have circumvented the rules despite the strict guidelines.

The management of both companies has consistently denied wrongdoing, maintaining that FDI norms are strictly enforced and asserting that digital footprints make any wrongdoing almost impossible. They claim their business practices were thoroughly explained to authorities during previous investigations.

Constant regulatory problems

This is not the first time that Amazon and Flipkart have come under the scanner. The Competition Commission of India (CCI) also examined whether companies were giving equal opportunities to all suppliers or favoring a select few large sellers. However, the ED investigation is different, focusing specifically on alleged violations of FDI rules. In particular, India’s FDI rules, strengthened in December 2018, prohibit e-commerce companies from owning or controlling stakes in sellers.

The enforcement of these rules forced Amazon and Flipkart to restructure their arrangements with suppliers. For example, Amazon sold its stake in major retailers like Appario Retail to comply with the regulations. While the companies have made adjustments, the ongoing review highlights lingering concerns about whether the e-commerce giants are playing by the rules or breaking them.