The Enforcement Directorate (ED) discovered “direct links” between e-commerce giants Amazon and Flipkart and their preferred vendors. ED has been probing alleged violations of foreign direct investment (FDI) legislation and questioned the top five sellers on both platforms and found that the majority have close ties to e-commerce companies, Economic Times reported.
During their investigation, the Enforcement Directorate recovered substantial evidence like the “email dumps” from Amazon and Flipkart sellers, indicating that the two companies have direct influence over their preferred sellers. According to the ET report, investigators confirmed the control over everything from inventories, and warehouses to profit margins after reviewing several email exchanges between the e-commerce giants and their preferred sellers. So far, there is no confirmation if Amazon and Flipkart received a summons or correspondence from the probe agency.
Among the sellers interrogated by ED, one seller’s testimony reportedly indicated glaring disparities between his annual turnover of several thousand crores and his minimal annual profit of Rs 20 lakh, implying that Amazon and Flipkart may similarly influence profit margins. The seller, who lives in a two-bedroom flat, supposedly works directly for the corporations, with even his bank accounts being monitored. The ED inquiry uncovered faults in Amazon and Flipkart’s “Just in Time” (JIT) stock management model.
Notably, the FDI law requires an open marketplace for all vendors, including small businesses, however, by controlling factors such as inventory, warehouses, and profit margins, Amazon and Flipkart are said to be violating FDI laws and reducing the marketplace to a multi-brand platform that solely benefits themselves.
Within the next three months, ED is likely to file a final complaint against Amazon and Flipkart under the Foreign Exchange Management Act (FEMA). The probe agency might question top officials from both companies to thoroughly examine the evidence before proceeding with filing a final complaint.
ED raids at the premises of the main vendors of Amazon and Flipkart
Last week, the Enforcement Directorate conducted searches under the Foreign Exchange Management Act (FEMA) at 19 premises of main vendors of e-commerce giants Amazon and Flipkart across multiple cities, including Delhi,
Bengaluru, Mumbai, Hyderabad, and Panchkula (Haryana). The raids are still underway as part of an ongoing investigation initiated by the ED after receiving several complaints against the Amazon and Flipkart companies.
The allegations suggest that Amazon and Flipkart, through their marketplace platforms, are violating Foreign Direct Investment (FDI) rules, said the federal agency. As per the agency, Amazon and Flipkart are accused of directly or indirectly influencing the sale prices of goods and services, and not providing a level playing field for all vendors.
The Central agency said that its investigation is focused on determining the extent of these alleged violations,” added the agency. “ED initiated its FEMA investigation based on several complaints against Amazon and Flipkart. The e-commerce entities providing a marketplace that they are violating FDI rules by directly or indirectly influencing the sale price of goods or services and not providing a level playing field for all the vendors,” it added.
