Flipkart, Snapdeal and eight more e-tailers under ED scanner

Leading e-commerce companies are under Enforcement Directorate’s (ED) scanner for alleged foreign exchange rule violations. The ED is looking into the books of accounts of eight online companies most of whom are India’s leading e-tailers. Flipkart, Snapdeal and Jabong are some of them under the scanner. This is being done on the orders of the high court which directed the ED to look into 21 firms.

The ED is probing whether these companies violated foreign direct investment (FDI) rules by selling products of multiple brands through their portals. It is also checking if these sites stocked up products purchased in bulk from manufacturers and then sold them to consumers directly at huge discounts through their websites. As per the Indian government FDI in e-commerce is allowed only for those companies that manufacture and sell their own products. To get around this rule, many e-tailers structure themselves as aggregators that work as marketplaces for people to choose and buy products of companies that put their products up for sale on these websites.

The high court acted at the behest of All India Footwear Manufacturers and Retailers Association (AIFMRA), which is an apex body of local shoe makers and retailers. They filed a petition claiming that many online retailers were indulging in multi-brand retail trade as well as receiving large funds from foreign investors. Rishi Agrawala, AIFMRA’s lawyer feels that ‘e-commerce sites gain an unfair advantage over the physical retailer by doing multi-brand retail despite having FDI funds’.