Amazon under ED lens over FDI rule breach

The Enforcement Directorate (ED) has registered a case against e-commerce major Amazon for allegedly violating some provisions of the foreign exchange law linked to multi-brand retail.

The action follows certain observations made by a Delhi High Court bench last month about Amazon in the Reliance-future Retail acquisition case. The Seattle-based firm had objected to a deal where Kishore Biyani-led Future Group sold its retail, wholesale, logistics and warehouse units to Mukesh Ambani’s Reliance Retail.

Also, a recent letter from the commerce ministry’s Department for Promotion of Industry and Internal Trade (DPIIT) seeking necessary action for similar violations prompted the agency to take up the matter, a source said.

An email sent to Amazon remained unanswered.

“After a preliminary enquiry in the matter, the case has been filed to ascertain whether they have been contravening any provisions of FEMA,” said an official privy to the case.

“Or contravening any rule, regulations, notification, direction or order issued in exercise of the powers under FEMA .... " said the official.

“We have studied the Delhi High Court recent order in the Future Retail case, where the court pointed at the agreement between Future and Amazon’s Indian arm, which is contrary to the Foreign Exchange Management Act (FEMA) and FDI rules,’’ the official said.

The Delhi High Court in December had made several observations in its order with respect to Jeff Bezos-led company’s 2019 investment in Future Coupons Pvt Ltd (Future Retail's parent).

It analysed the clauses of three agreements - Future Retail's shareholder's agreement with FCPL (FRL SHA), FCPL'S shareholder's agreement with Amazon (FCPL SHA) and FCPL'S share subscription agreement with Amazon (FCPL SSA). Amazon's investment in FCPL translates into less than 10 per cent holding in FRL.

The court had held that it was of prima facie opinion that the conflation of the three agreements--frl SHA, FCPL SHA, and FCPL Ssa--would render the conflated agreement violative of the FEMA FDI rules.

"Besides creating protective rights, the conflation of the three agreements showed that it transgressed to control over Future Retail, which would require government approvals and, in its absence, will be contrary to FEMA-FDI rules," the court had said referring to FDI policy for multi-brand retail which permits foreign investment of up to 51 per cent under the government route.

Amazon had initiated arbitration to stop the Future Retail deal and secured an emergency award, temporarily pausing the deal.

Meanwhile, DPIIT recently forwarded four complaints by a traders’ body to the ED saying that e-commerce companies were in violation of the FEMA by adopting illegal structuring/investments and practices.

Earlier in 2018, both Amazon and Flipkart had faced similar charges of FEMA violations based on a petition which was filed by an NGO, Telecom Watchdog. The plea had claimed that Amazon and Flipkart created multiple entities to circumvent the FDI norms.

In a separate case, Flipkart had in 2014 received a showcause notice from ED.