Photo: Arvind Yadav/HT
Photo: Arvind Yadav/HT

Delhi high court asks RBI to submit latest circular on FDI policy

Over the past few years, retailers have been fighting for a single foreign direct investment policy that's applicable to all

New Delhi: The crackdown on e-commerce websites and business entities for alleged violation of foreign direct investment (FDI) policy gained pace as the Delhi high court heard a public interest litigation seeking a thorough investigation against all firms that have received FDI.

Chief Justice G. Rohini and justice Jayant Nath, who heard the matter, sought a reply from the Reserve Bank of India (RBI) on the central bank’s latest circular governing FDI policy.

The petition by Dinesh Kothari, a chartered accountant, and Amulya Nidhi, a human rights activist, sought an investigation and appropriate legal action arising out of alleged illegalities being committed by companies receiving FDI through violation of the Foreign Exchange Management Act (FEMA), 1999, and the government’s FDI policy that governs the retail sector.

The petition alleged that various FDI-receiving companies were dealing with customers by transacting through their closely held non-FDI receipt sister concern, website or business group, under which FDI is allowed.

“It is clear that there has been a blanket ban over the inflow and use of FDI in business entities carrying out business through e-commerce websites, but despite that these entities are illegally receiving benefits of FDI inflow through their sister concerns. These companies are interpreting laws, policies and procedures arbitrarily in their favour," the petition said.

This has resulted in such companies functioning as a business-to-customer (B2C) platform under the garb of a business-to-business (B2B) platform where FDI is permitted, it said.

The petition mentioned Flipkart’s WS Retail where a sale made to a customer goes through WS Retail and not directly by flipkart.com, in alleged contravention of FDI norms.

A probe of 21 e-commerce companies including Flipkart, Snapdeal and Myntra to determine the nature of operation of these websites was directed by the court in November last year on a plea by the All India Footwear Manufacturers and Retailers Association, a lobby group.

The probe is ongoing and results are awaited.

Over the past few years, retailers have been fighting for a single FDI policy that’s applicable to all. Earlier, Retailers Association of India, a body representing more than 1,000 retailers including Shoppers Stop and the Future Group, had in May approached the Delhi high court seeking a level playing field in terms of FDI. The court had then directed the government to consider their representation and take a decision within four months.

The next date of hearing in the matter is 24 February.

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