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Traders body urges DPIIT to penalise Amazon, Flipkart for allegedly violating FDI, FEMA rules

Ecommerce players Amazon and Flipkart should be punished and penalised for “blatant violation” of India’s FDI policy and Foreign Exchange Management Act, traders body Confederation of All India Traders (CAIT) wrote in a letter to the Department for Promotion of Industry and Internal Trade (DPIIT). In the letter, the organisation questioned Amazon’s alleged control over Future Retail via its stake in Future Coupons, its investment into More Retail, and Walmart-owned Flipkart’s investment into Aditya Birla Fashion Retail among other things.

It alleged that Amazon has put in place pre-determined agreements with retailers which allows it to offer deep discounts on certain products, thereby violating the FDI rules. It also claimed that Amazon has invested in excess of ₹35,000 crores for “capturing the e-commerce market”, which has caused a “death knell for crores of small merchants in India”.

India’s FDI policy for e-commerce, the latest version of which is Press Note 2 (2018), allows 100% FDI in the marketplace model, but prevents marketplaces such as Amazon from exercising ownership over any inventory sold on their marketplace, or influence the sale of goods directly or indirectly.

CAIT’s claims about Amazon, Flipkart

The trade organisation accused Amazon of controlling Future Retail, through its investment into Future Coupons, the Future Group’s promoter entity. Amazon had purchased a 49% stake in Future Coupons for ₹1,500–2,000 crore. CAIT also alleged that Amazon never disclosed to market regulator SEBI that all the rights of Future Coupons in the Future Retail shareholding agreement were handed over to Amazon through the shareholding agreement between Amazon and Future Coupons.

Amazon also invested ₹4,200 crore into More Retail, and took control over it, CAIT claimed. It alleged that More Retail was earlier owned by Aditya Birla Group, but was bought from them by Witzig Advisory Services Private Limited, following which, Amazon invested in Witzig, and via “internal arrangements” effectively controls More Retail.

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CAIT also questioned Flipkart’s recent investment of ₹1,500 crore into Aditya Birla Fashion and Retail Limited in return of a 7.8% share in the company. “In its filing to stock exchange, a clear intent to make ABFRL a preferred seller on the marketplaces owned and operated by Flipkart Group is shown,” CAIT said. CAIT had earlier written to the government opposing Flipkart’s investment into Aditya Birla Fashion and Retail.

Both Amazon and Flipkart have been controlling the inventories of the goods and services being sold on their respective e-commerce marketplace platform, CAIT claimed. Flipkart does this via its “affiliate companies” like WS Retail and Omnitech Retail, while Amazon does this via companies such as Cloudtail, and Appario Retail, it alleged.

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