The Delhi High Court on Monday issued notice to e-commerce giants Amazon and Flipkart and also the Centre on a PIL alleging that they have been openly violating FDI norms for marketplace model of e-commerce and circumventing them by routing hot-selling products at much cheaper rates through proxy “Controlled Sellers” or “Name Lenders” and pushing out small sellers and brick-and-mortar retailers. “… to circumvent the PN-3/2016 (Press Note 3, the document which spells out the FDI norms for ecommerce), both Amazon and Flipkart have created multiple entities and/or created ‘name lending’ companies and/or ‘controlled sellers’ through which they route such hot-selling stocks,” the petition filed by the NGO said.
The petition added that “through the name lending companies, they buy the branded goods in bulk (at discounts) from manufacturers, rendering small sellers uncompetitive by a wide margin, thus influencing the prices in violation of FDI norms.”
Amazon and Flipkart, which have foreign funding, operate through a marketplace model under which they are not allowed to influence the prices of products sold on their website or hold inventory.
Through these sellers, Amazon and Flipkart have complete control on influencing the price of goods sold on their platforms, a practice that violates FDI norms of the country, the NGO alleged.
Citing the example of one such seller, Cloudtail, which sells on Amazon.in, the petition said: “…FDI is not allowed in an entity operating on the inventory based e-commerce model…. Cloudtail buys goods in bulk from many manufacturers and sells them on the online platform of Amazon Seller.”
The petition alleged that to circumvent FDI norms, Amazon has created a company called Prione Business Services, a joint venture between Amazon group and Catarman Advisors LLP. This entity is the owner of Cloudtail.
After the new FDI norms came into force with the issue of Press Note 3, Flipkart devised a new method under which it looked for some “name lenders” who would form companies and through them the invoicing for goods would be routed.