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All Is Not Well With Ecommerce Companies Over FDI Law

If found guilty under FEMA, the Enforcement Directorate can slap a penalty up to three times of the contravention or foreign investment received

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The Enforcement Directorate is currently examining a slew of ecommerce companies that buy and sell products online to check if any of them have flouted the foreign direct investment (FDI) norms while raising capital from foreign risk capital investors such as private equity and venture capital firms.

Currently, the probe is under the stringent FEMA norms. All the ecommerce companies in the country like Snapdeal, Amazon India, Flipkart, among others are under the scanner. While Amazon India is a wholly owned subsidiary of Amazon US, Flipkart and Snapdeal have raised fundings from foreign investors. This year itself, Flipkart and Snapdeal garnered a total of $1.45 billion between them. While Flipkart raised $700 million at a reported $15.2 billion valuation in a round that saw participation from existing investors Tiger Global and Steadview Capital, Snapdeal raised $500 million in August in a round led by Chinese e-commerce firm Alibaba Group, Foxconn Technology Group and existing investor Softbank Group.

However, following an outcry by major etailers over the supposed lacuna in the FDI norms, they have approached the Reserve Bank of India to plead their case. "It is currently looking into the matter," said a top source in the Directorate on condition of anonymity.

If found guilty under FEMA, the ED can slap a penalty up to three times of the contravention or foreign investment received in this case. "The case has been made out by our investigating team and now the Adjudicating Officer is analysing the case to take a finally call on the penalty amount" explained a top source in the Directorate. An Adjudicating Officer is a senior official in ED, generally belonging to the rank of a special director. The Adjudicating Officer analyses the investigation report to ensure the case stands the test of law.

The probe was initiated on the basis of complaints citing that FDI norms in India do not allow FDI in e-commerce especially in business to consumer models. But after ED initiated the investigation several e-commerce players have changed their business model to suit the foreign investment norms in India. As per the current FDI norms, if any ecommerce venture is the manufacturing space, it can raise foreign capital.

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ecommerce fdi etailers enforcement directorate fema