Online marketplaces have found themselves at the eye of a storm again. Offline stores are peeved with online marketplaces, and have complained to the Delhi High Court. The High Court has in turn ordered the Enforcement Directorate to investigate online marketplaces.
The All India Footwear Manufacturers & Retailers Association has stated that online marketplaces are violating the Foreign Direct Investment law. The Association filed a petition against the government with the Delhi High Court, stating that online marketplaces are claiming to be only mediators; who connect the buyers with the sellers, but in reality have a greater interest in the selling activities.
The FDI rules do not allow business to consumer transactions, but only business to business transactions. So if a company has got capital investment from a foreign entity, that company can only be involved in business to business activities, and cannot transact directly with the customer. Leading marketplaces have maintained that they are playing by the rules.
However, the Footwear Association claims that a lot of laws are being broken. Their ire is clear in this statement from the complaint, “These companies are evading the law by creating a complex and convoluted business structure by creating the facade of a ‘marketplace’ model.”
Based on the complaint, the Delhi High Court has directed the Enforcement Directorate to conduct an investigation and find out if there are indeed discrepancies in following the law.
“The court has ordered investigation of 21 companies and asked the government of India to file a report and counter affidavit by December 21,” says Rishi Agrawala, who is representing the association.
Leading marketplaces including Flipkart and Snapdeal have been named in the complaint. Amazon has been spared the agony, but this is possibly only a temporary respite.
According to the FDI law, offline stores are not allowed to receive foreign investment. Could this then be a case of sour grapes? Offline retailers have moved legal proceedings against their online counterparts in the past as well. Isn’t the playground big enough for all to share and care? Perhaps a mutually workable partnership will help do away with the bad blood that is brewing between the online and offline traders.
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