E-commerce giants Flipkart and Amazon have direct links between the companies and their preferred sellers, as per an investigation by the Enforcement Directorate (ED).
In its investigation, the ED found that the top 5 sellers of both Amazon and Flipkart are related directly to the e-commerce platforms. This is as per an Economic Times report. This comes at a time when the ED has been investigating e-commerce platforms for alleged violations of foreign investment laws in the country.
Recent media reports also indicated that the ED recently raided the sellers of both Amazon and Flipkart across India in November this year. The raids were conducted at the main offices of vendors of the two e-commerce platforms. The locations where it was conducted reportedly include Delhi, Bengaluru, Mumbai, Hyderabad, and Panchkula (Haryana).
Advertisement
A government official told the Economic Times that the investigation under FEMA (Foreign Exchange Management Act) highlighted that most of the preferred sellers are former employees of Amazon and Flipkart. Further, some of the sellers are also relatives of their past associates or employees.
Potential summons for Amazon and Flipkart
Additionally, the e-mails of the sellers of the two e-commerce platforms that were analyzed by the ED highlighted that there was a direct link between some of the sellers and the e-commerce platforms.
“A scrutiny of certain emails establishes the direct control of the e-commerce giants over their preferred sellers,” a government official reportedly said.
Advertisement
As of now, Amazon and Flipkart did not receive any summons with regards to the issue. To add to it, the investigation also found out that almost everything is under the control of the two e-commerce platforms. This includes warehouses and inventories. Further, profit margin is also something that has been under the purview of the two platforms.
Just to give an example, a seller who reportedly resides in a 2BHK has an annual turnover of more than a few thousand crores. However, his profit rages around only Rs 20 lakhs. This in turn indicates that the profit margin of the seller is controlled by the e-commerce giants.
The official reportedly said, “The gaping difference between his annual turnover and his profit margins is appalling. This only goes on to indicate that the profit margins are also controlled by them.”
The main argument against the two e-commerce platforms is that both of them are indirectly running an inventory-based model. Even though they claim to operate as a marketplace.
“The FDI laws recognize two types of models for e-commerce, one of which is the marketplace model and the other is the inventory-based model,” said Kinjal Champaneria, Partner, Solomon & Co., to Outlook Business earlier.
Now, a complaint under FEMA violation will be reportedly filed by the ED against the two e-commerce platforms within three months.
Just one email a week