Flipkart breathes a sigh of relief as complaints of predatory pricing are thwarted
Online marketplace Flipkart has recently been under the scanner due to the increasing numbers of complaints after their ‘Big Billion Day’ sale. Nirmala Sitharaman, Union Commerce and Industries Minister recently announced that there was no inquiry into the complaints against e-commerce player of ‘predatory prices’ of goods and unfair trade practices during its recent festive season sale.
Sitharaman told reporters after a visit to the BJP office, "I would like to state that no enquiry has been planned or proposed on the e-retailer on the concerns raised by customers on the big billion day sale."
On October 8, Sitharaman had said that the centre would look into the complaints of predatory prices on goods sold by Flipkart after allegations of unfair trade practices were leveled against it during the mega discount sale held on October 6.
After receiving the complaints, she had earlier remarked "We have received many inputs. Lot of concerns have been expressed. We will look into it."
Now, she told the Economic Times that her earlier remarks were misinterpreted. "My earlier three sentence remarks were interpreted in three million ways on the Flipkart issue."
Recently, many television news channels had reported that the company under the scanner of the Enforcement Directorate (ED). However, the ED officials made it clear that ED had not issued any showcause notice to Flipkart and they were not inquiring into "Big Billion Sale".
Though Flipkart has received the all-clear sign in the matter of their Big Billion Day sale, the fact remains that the ED is very much investigating the online merchant Flipkart for violation of FDI rules in the country. In fact, a showcause notice has been prepared and sent to the adjudicating authority to finalise the penalty amount against the company.
The official notice sent to Adjudicating Authority Officials was quoted in India Today as saying, "In view of the facts and evidences discussed above, it reveals that M/s FOL & FIPL (through WSR, a related and Group company) were actually engaged in multibrand retail trading in the guise of wholesale cash & carry (which was their declared activity of business). M/s FOL & FIPL used the technology platform through M/s WSR and have thus carried out e-commerce which is prohibited for multibrand retail. M/s FOL & FIPL are still carrying out the practice of multibrand retail and the use of e-commerce even as on date is clear contravention of FEMA as discussed in this complaint."
The agency has found that WSR, a firm incorporated in 2009 to transact with customers, was allegedly acting as a front for retail operations of Flipkart Online Services, incorporated in 2008. According to ED officials, the company had sold WSR to a group of Indian investors in February 2013 and moved on to what is called, the marketplace model, in April the same year to conform to the FDI regulations.
The notice said, "owing to the amendment of the FDI Policy on 01.04.2010 and 01.10.2010 regarding group companies, Noticee No. 2 & 3 in order to circumvent this amendment divested their shares in M/s WSR to trusted ex-employees and close relatives who are appointed Directors. M/s FOL however continued to share a similar relationship with M/s WSR which was not as per normal market practice. The same is the case in respect of the relationship of M/s WSR with M/s FIPL, who shared a relationship which was not as per normal market practice and have to be considered belonging to the same group or group companies. Therefore, FOL/FIPL and WSR actually continued to be companies belonging to the same group or group companies as evident from above transactions inspite of attempted restructuring."
As per the current policy, FDI is not allowed in e-commerce companies conducting B2C transactions while 100 per cent FDI is allowed in B2B (business-to-business) transactions. The new government has not taken a call on liberalizing the FDI provisions for the sector so far.