ED to question Amazon, Flipkart officials over alleged foreign investment law violations: Report | Company Business News

The Enforcement Directorate of India (ED) will question Amazon and Flipkart officials as it steps up an investigation into alleged foreign investment law violations, days after raiding some of the e-commerce firms’ sellers, Reuters reported on Monday, November 11, citing a senior government source. 

This investigation action signals rising regulatory scrutiny of Flipkart and Amazon, especially given their rapidly growing sales in the $70 billion e-commerce market. The agency reported earlier that India’s antitrust regulator, the Competition Commission of India (CCI) investigation, revealed that the two companies breached laws by favouring select sellers.

Even though Amazon and Flipkart have maintained that they comply with Indian laws, the ED has been investigating allegations that the companies, through select sellers, exert control over the inventory of goods. In India, laws prohibit foreign e-commerce operators from holding an inventory of goods which they can sell on their website; this forces them to operate as a marketplace of sellers. 

Enforcement Directorate Raid

Last week, the Enforcement Directorate raided Amazon and Flipkart sellers and now plans to summon the company executives. According to a senior government source directly involved in the case, Reuters reported that the watchdog is currently reviewing documents seized from the sellers during the operation.

The searches continued until Saturday and substantiated that there have been foreign investment rule violations, as per the source cited in the agency report. The details of the raid have not been publicly disclosed.

According to the official, ED will also analyze business data from sellers and their deals with e-commerce companies in the past five years. Amazon and Flipkart did not immediately respond to the agency’s queries. 

Indian e-commerce market scrutiny

Flipkart has a 32 per cent market share of the Indian e-commerce market, while Amazon holds 24 per cent as of last year. This accounts for 8 per cent of the $834 billion retail market in India.

The latest raids were triggered by Amazon and Flipkart’s antitrust investigation findings, which said the platforms “had end-to-end control over the inventory, and the sellers are just name lending enterprises.”

Two people aware of the development say at least two of Amazon’s sellers and four of Flipkart’s sellers were raided last week.

An investigation in 2021, based on internal Amazon papers, showed the company applied significant control over the inventory of some of the biggest sellers; this violates the law prohibiting foreign companies from doing so. 

Amazon’s biggest seller in India, Appario, was among those raided last week. The officials inspected financial books and questioned executives about their dealings with the US-based entity, according to one of the sources cited in the report. 

According to Reuter’s 2021 investigation, Appario was internally referred to as a “special” merchant and, unlike other sellers, received discounted fees and access to Amazon global retail tools used for inventory management. The seller did not respond to the agency’s request for comment.

Online shopping and delivery platforms face rising scrutiny in India due to complaints of alleged “unfair business practices” that hurt smaller players. As per Reuter’s report last week, CCI also found that food delivery giants Zomato and Swiggy breached laws by favouring select restaurants on their apps.