No RBI, ED probe launched into alleged FDI violation in Flipkart-Aditya Birla Fashion deal: MoS Commerce

The Reserve Bank of India (RBI) and Enforcement Directorate (ED) are yet to launch an investigation into the alleged FDI policy violation in the recent Rs 1,500-crore deal between Flipkart and Aditya Birla Fashion & Retail (ABFRL). Mira Sethi, Deputy Director at the Department for Promotion of Industry and Internal Trade (DPIIT) in a letter to RBI and ED on December 22, 2020, had “requested to take necessary action” following allegations leveled by the trader’s body Confederation of All India Traders (CAIT) “wherein it has been, inter-alia, alleged that e-commerce companies are in violation of Fema rules/FDI policy by adopting the illegal structuring/investments and practices.”

However, “no such investigation has been initiated by RBI or Enforcement Directorate on the matter,” MoS Commerce and Industry Som Parkash said in a written reply to a question in the Rajya Sabha on Friday. The DPIIT letter had noted CAIT’s allegations with respect to “FDI policy in manufacturing is being misused for multi-brand retailing of grocery by leading e-commerce players”, “complaint against Amazon for various violations of the Foreign Exchange Management Act, 1999 and rules and regulations framed thereunder” and “blatant violation of FDI policy/FEMA rules, and exploitation of the loopholes by multinational retailing giants, Amazon and Flipkart” apart from objections on the Flipkart Investments-Aditya Birla Fashion and Retail deal.

CAIT had cited the FDI policy violation in the deal alleging that Flipkart has a “clear intent to make ABFRL a preferred seller” on its marketplace. The confederation reasoned that the FDI policy prohibits a foreign company to venture in any forms of multi-brand retail trading by having any equity interests in the sellers on its marketplace platform, or by controlling, directly or indirectly, their inventory through side agreements, or under the garb of B2B e-commerce. ABFRL had announced the sale of a 7.8 per cent equity stake in Flipkart Group in October that was approved by the Competition Commission of India in January. ABFRL manufactures and retails apparels, accessories, and footwear through multiple multiple retail formats including retail and departmental stores, multi-brand outlets, e-commerce, etc.

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Som Parkash also said in his reply in the upper house of the Parliament that CAIT’s complaints alleging biased practice adopted by banks in providing cash backs and discounts for purchases made through e-commerce websites, such as Amazon and Flipkart, is being examined by CCI. The traders’ body had in November 2020, alleged banks offering cashback and discounts on e-commerce purchases from Amazon, Flipkart, others for “making an unholy nexus” leading to infringement of the fundamental rights of the traders and consumers, violating the Preamble of the Constitution of India and FDI Policy of the Government. CAIT had also charged banks for “making a cartel with Amazon and Flipkart for promoting unfair practices.”