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Delhi High Court issues notice to Government of India on FDI in E- Commerce

India's brick-and-mortar retailers have approached the Delhi High Court once again after failing to get a response from the government in their quest for parity in Foreign Direct Investment (FDI) norms with e-commerce players, which have attracted billions of dollars in overseas funding using the marketplace model.

The All India Footwear Manufacturers and Retailers Association (AIFMRA), have filed a writ petition in the Delhi High Court seeking clarity on FDI in e-commerce. The grievance of the Petitioners claiming to be retailers is that though FDI is prohibited in retail but the entities retailing goods through the internet are not being restrained from accepting foreign investment. According to news reports, AIFMRA claims that the various e-commerce websites have been continuously dodging the question of FDI violations by camouflaging their business as a “marketplace” and not a “seller”, when in reality a sale through online forums is akin in character to a sale made by a physical retailer. Thereby causing prejudice to the Petitioners as the marketplaces are in alleged violation of the existing norms that forbid FDI in retail.

The Petitioners argued that the entities selling goods through the medium of the internet qualify as “retailers” and further informed that the Union of India (UOI) and the other State Governments have been treating such sales as sales by retailers and have raised tax on them which are already challenged under different forums/ Courts.

Alleged violation of FDI policy by e-commerce entities: 

The Delhi High Court after noting the FDI policy and hearing the arguments advanced by the Petitioners observed vide order dated September 23, 2015 that prima facie it appears that the UOI / State Governments cannot, on the one hand, for the purpose of tax, treat sales by the entities selling goods through the medium of the internet as retail and on the other hand, for the purposes of investment, not treat the same as retail sale. The Delhi High Court further issued notice to the Central Government on the alleged violation of FDI policy by e-commerce entities and has directed the government to file the reply within two weeks, the matter is scheduled to be listed next on October 14, 2015.