Delhi HC directs ED to enquire about FDI violations by ecom firms

The Delhi High Court has ordered the Enforcement Directorate (ED) to find out whether ecommerce companies such as Snapdeal, Jabong, Myntra and Amazon-owned Junglee have violated the country's foreign direct investment (FDI) rules by deploying overseas funds. The court passed the order while hearing a case filed against the government by shoe shop owners on the grounds that India bars overseas capital in the sector and such investments were also in breach of the Foreign Exchange Management Act.

The ED has a month to report on its findings. "The court has ordered investigation of 21 companies and asked the government of India to file a report and counter affidavit by December 21, said Rishi Agrawala, counsel for the All India Footwear Manufacturers & Retailers Association that had petitioned the court in August.

In September, the court had observed in the same case that there had been "a prima facie violation" of FDI norms by ecommerce companies while sending notices to the central government. India does not allow FDI in business-to-consumer (B2C), multi-brand ecommerce but allows 100 percent FDI in the business-to-business (B2B) segment. Earlier this month, it allowed single-brand retailers to sell online provided they already have permission under that category.

The Delhi High Court has previously been approached on the same issue by the Retailers Association of India (RAI), which had filed a writ petition against the government in May asking for a level-playing field in terms of foreign investment in relation to ecommerce companies. The court converted the petition into a representation on May 21, 2015 and directed the association to discuss the matter with the government, failing which it could approach the court again in four months.