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ED to start investigating Flipkart, Amazon’s relationship with sellers – Firstpost
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ED to start investigating Flipkart, Amazon’s relationship with sellers – Firstpost

The ED is examining whether Amazon and Flipkart control suppliers in a way that violates regulations, which require these platforms to operate only as intermediaries and not inventory-based businesses.

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

Previously, the investigation focused on large sellers associated with these e-commerce giants, but the focus is now on the companies themselves, according to a report by the Economic Times.

Sources familiar with the matter revealed that the ED was examining whether Amazon and Flipkart controlled suppliers in a way that violated regulations, which require these platforms to operate only as intermediaries and not inventory-based businesses.

The investigation is related to alleged violations of the Foreign Exchange Management Act (FEMA), typically resulting in monetary penalties. Nationwide searches were conducted earlier this month on 19 sites linked to prominent Amazon and Flipkart sellers in New Delhi, Bengaluru and Hyderabad. Officials confirmed that sellers interviewed during these searches were asked to clarify certain business transactions and agreements.

E-commerce giants under surveillance

Documents seized during the searches are being carefully examined, with the ED focusing on finding out whether e-commerce platforms influenced sales or prices through a select group of sellers. The central question is whether these suppliers were truly independent or operated under the disguised control of Amazon and Flipkart. Once the documents have been analyzed and those involved interviewed, senior executives overseeing the FDI will be summoned to provide further explanations, according to the Economic Times report.

While the first phase of the investigation targeted sellers, the second phase will focus directly on Amazon and Flipkart. Insiders say this problem dates back to 2019 and has been a long-standing concern for authorities. Although Amazon and Flipkart are yet to be formally summoned, sources say the recent searches were triggered by new evidence deemed admissible by the ED.

Allegations and defense

The ED’s investigation centers on whether the platforms’ influence violated FDI regulations, such as the rule that no seller should account for more than 25 percent of total sales. Critics suggest companies may have skirted these rules despite strict guidelines.

Executives of both companies have consistently denied any wrongdoing, arguing that FDI standards are strictly enforced and saying digital footprints make any violation nearly impossible. They say their business practices were explained in detail to authorities during previous investigations.

Ongoing Regulatory Concerns

This is not the first time that Amazon and Flipkart have come under the scanner. The Competition Commission of India (CCI) has also examined whether companies are providing equal opportunities to all sellers or showing a preference for a few selected large sellers. However, the ED investigation differs, focusing specifically on alleged violations of FDI rules. In particular, India’s FDI regulations, strengthened in December 2018, prohibit e-commerce companies from holding stakes in or exercising control over sellers.

Enforcement of these rules has led Amazon and Flipkart to restructure their agreements with suppliers. For example, Amazon sold its stake in large sellers like Appario Retail to comply with regulations. Even as companies have made adjustments, the ongoing scrutiny highlights lingering concerns about whether e-commerce giants are following the rules or skirting them.