Chinese E-Commerce Firms Alibaba And Jingdong Targets Pharmaceutical E-Commerce Market

Chinese E-Commerce Firms Alibaba And Jingdong Targets Pharmaceutical E-Commerce MarketE-commerce has many segments and online sale of medicine is just one of it. However, medicines and pharmaceuticals are very sensitive commodities to be graded freely. Therefore, there are many techno legal regulatory compliances that are applicable to online dale of medicines world over. There are specific laws for online pharmacies in India and for opening of online pharmacy stores in India.

Chinese firms and companies have become very active in the field of e-commerce. China also has better infrastructure and regulatory regime than India as far as online pharmacies are concerned. Although some computerisation efforts have been undertaken in India yet they are insufficient to manage online pharmacies regime in India.

On the other hand, leading Chinese e-commerce firms like Alibaba and Jingdong have set their sights on the pharmaceutical e-commerce market, which is worth thousands of billions of yuan, though they will first have to tackle multiple barriers in the way of entering the market. However, if they wish to target Indian market, they have to comply with techno legal requirements of Indian laws.

Beijing has imposed strict regulations on the sales of medicinal products on the internet. According to regulations, vendors must be approved by the State Food and Drug Administration and will have to possess the internet-based Drug Information Service Certificate and the Internet Drug Transaction Service Certificate to sell drugs online. As of early April, less than 170 business-to-consumer (B2C) websites had obtained the two certificates. Due to the regulation barriers, most e-commerce giants can only sell the products online on behalf of legal sellers.

While traditional e-commerce websites have a steady stream of visitors, they cannot take a share of the online pharmaceutical market. On the other hand, while traditional pharmaceutical companies have an advantage in products and certificates, they have had difficulty venturing into the B2C pharmaceutical market.

Foreign Companies And E-Commerce Portals Would Be Required To Register In India And Comply With Indian Laws

PRAVEEN DALAL MANAGING PARTNER OF PERRY4LAW AND CEO OF PTLBForeign companies and e-commerce players have been avoiding compliance with Indian laws for long by hiding behind the conflict of laws in cyberspace. Companies like Google are avoiding compliance with Indian laws even if they have established subsidiaries in India. This has become possible because we had lax laws and many loopholes in our existing laws. The Indian Companies Act, 2013 (PDF) was formulated to tackle this situation and most of its provisions have been brought into force recently to streamline the corporate culture of India.

These include the relevant Rules under various chapters of the Companies Act 2013 as well. As a result, the directors’ liability under the Companies Act, 2013 has significantly increased. Even the cyber law and cyber security obligations of the Directors of companies operating in India have been clearly mentioned under the Companies Act, 2013. Thus, the regulatory compliances under Indian Companies Act 2013 have been given a new meaning.

There are some speculations that India may open online retail and e-commerce sector very soon. However, we at Perry4Law believe that this liberty would not be a free ride but would come with the compliance requirements that various e-commerce stakeholders and foreign companies have been ignoring so far.

This is a significant indication as many retail outlets and entrepreneurs have to decide their policies and strategies accordingly. For instance, Carrefour is carefully analysing its Indian strategy these days.  Similarly, companies like Google, Amazon, Rakuten, Twitter, Facebook, etc are also trying their hands on e-commerce business. However, income tax liability of these companies is still not clear in India and the same must be clarified by the new government immediately.

Some media reports have claimed that online retailers such as the UK’s fashion and beauty store ASOS.com, Japanese e-commerce firm Rakuten.com and Overstock.com of the U.S. that sell in India without registering an Indian arm may soon have to, if the government decides on a literal interpretation of the Companies Act of 2013. Companies outsourcing work to Indian back-offices, information technology (IT) companies, and analytics hotshops may also have to follow suit.

According to section 2(42) of the new Companies Act of 2013, “any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode or which conducts any business activity in India in any other manner, is classified as a foreign company”. Section 380 of the Companies Act 2013 provides that every such foreign company must register in India.

Further, Rule 2 (1) (c) of the Companies (Registration of Foreign Companies) Rules 2014 provides that for the purposes of clause (42) of section 2 of the Act, ”electronic mode” means carrying out electronically based, whether main server is installed in India or not, including, but not limited to -

(i) Business to business and business to consumer transactions, data interchange and other digital supply transactions;

(ii) Offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities, in India or from citizens of India;

(iii) Financial settlements, web based marketing, advisory and transactional services, database services and products, supply chain management;

(iv) Online services such as telemarketing, telecommuting, telemedicine, education and information research; and

(v) All related data communication services,

whether conducted by e-mail, mobile devices, social media, cloud computing, document management, voice or data transmission or otherwise;

These provisions have been incorporated as foreign companies, especially the technology companies, have been avoiding payment of taxes as per Indian laws. They have been making tremendous profits out of Indian transactions but still they contend that they are not regulated under Indian laws. Thus, these provisions were required to be formulated to covers such foreign technology companies and there is nothing wrong with their incorporation.

We at Perry4Law also believe that all Subsidiary/Joint Ventures Companies in India, especially those dealing in Information Technology and Online Environment, must mandatorily establish a server in India. Otherwise, such Companies and their Websites should not be allowed to operate in India. The Ministry of Home Affairs, India and Intelligence Bureau (IB) are already exploring this possibility.

A “Stringent Liability” for Indian Subsidiaries dealing in Information Technology and Online Environment must be established by Laws of India. More stringent online advertisement and e-commerce provisions must be formulated for Indian Subsidiary Companies and their Websites.

India May Open Online Retail And E-Commerce Sector Very Soon

India May Open Online Retail And E-Commerce Sector Very SoonIt is well known fact that the BJP led government would be more business friendly as compared to its predecessor. Similarly the new government would also keep in mind the interest of Indian business community and local laws. We have already reported that the BJP led government may not be against FDI in multi-brand retail in India. We have also reported that e-commerce players in India are not complying with the laws of India and Indian government must take immediate and stern steps against these e-commerce players.

There are many essential legal formalities for starting e-commerce business in India. These include cyber law due diligence (PDF) and e-commerce due diligence as well. Unfortunately, a majority of e-commerce players, both national and international ones, are not complying with Indian laws pertaining to e-commerce. India has also not formulated a dedicated law for e-commerce that is need of the hour.

Some media reports have informed that India could open up its online retail sector for foreign players very soon. This would allow them to sell their own products instead of using a marketplace model as is presently happening. The industry ministry that drafts FDI rules recently met officials from companies including Amazon, Google, eBay Inc, Wal-Mart and Indian e-retailer Flipkart to finalise the investment guidelines.

This would also help in strengthening of supply chain, infrastructure and selling of cheaper goods in India. This may, in turn, potentially boost consumption and benefit small manufacturers and traders. This may also help in elimination of middlemen, leading to lower transaction, overhead, inventory and labour costs.

Regulatory uncertainty under the previous government had prevented foreign supermarket chains from setting up shop in the country. So far, only Britain’s Tesco PLC has announced an investment.

UK MHRA’s Bans On Herbal Medicines Without Registration Or A Product Licence Would Impact Indian Manufacturers

UK MHRA’s Bans On Herbal Medicines Without Registration Or A Product Licence Would Impact Indian ManufacturersThe international crackdown on illegal online pharmacies and spurious medicines has started making an effect. Law enforcement and regulatory authorities around the world, including India, have started apprehending the criminals and shutting the illegal online pharmacies websites.

Many of these illegal online pharmacy websites are being managed by criminal elements. However, there are many more who are managing illegal online pharmacies websites in India simply to earn money. They are not criminals but in order to earn money they are actively violating the laws of India.

For instance, fields like online pharmacies, dietary and health supplements, ayurveda, healthcare technology, nutraceuticals, e-health, m-health, telemedicine, etc require compliance with techno legal requirements as prescribed by various legislations of India. These include compliance with laws like Prevention of Food Adulteration Act, 1954 and Rules 1955 (PDF), Food Safety and Standards Act, 2006 (PDF), information technology act, 2000, etc. A complete list of various laws that are required to be taken care of by various healthcare and nutraceutical companies and businesses can be accessed here.

However, Indian healthcare stakeholders are not complying with laws of India and other jurisdictions. Many online pharmacies websites of India are already on hit list of U.S. and technology companies and search engines like Google, Yahoo, etc. U.S. has already undertaken the detention without physical examination of drugs from firms which have not met drug GMPs as per the import alert 66-40 of US FDA. These include Indian companies as well that were prohibited form selling their medicines in U.S.

Now it has been reported that the latest directive by the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) intends to ban all herbal medicines without registration or a product licence and it is likely to affect the Rs 850-crore annual sales of Indian herbal and Ayurvedic medicines in Europe.

As of 1st May 2014, unlicensed manufactured herbal medicines without a traditional herbal registration (THR) or product licence (PL) can no longer be sold to consumers and must be removed from shelves.

Dr Linda Anderson, from the MHRA Licensing Division, said: “The aim of the THR scheme is to give people access to traditional herbal medicines that are safe, of good quality and have information on how to use the product correctly. The public should only buy herbal medicines that they know have met standards which can be identified by the THR or PL number on the product. Most of the THR products also have the THR logo which can easily be identified on the packaging. Natural doesn’t always mean safe. Some unlicensed herbal medicines can cause serious side effects or may interact with other medicines that a patient is taking.   Over 300 products are now registered under the THR scheme. This provides consumers with a wide range of products from which to choose”.

“Companies should no longer supply unlicensed manufactured herbal medicines. People also need to be aware that not all of the products they are using, fall under the MHRA’s licensing system. A herbal practitioner is allowed to make up an individual preparation following a consultation. And other products can legally be sold as foods, cosmetics or general consumer products”, says Dr. Linda Anderson.

The MHRA has been providing help and advice to the herbal industry for 10 years, since the Herbals Medicines Directive introduced manufacturing and quality standards. Herbal manufacturers originally had seven years to bring their products up to the required standards and have had an additional three years during the sell through period. The MHRA has had continual dialogue with the herbal industry to help ensure that companies meet the required manufacturing and quality standards.

With the introduction of Directive 2004/24/EC, all manufactured over-the-counter herbal medicines in the UK, require either a Traditional Herbal Medicines Registration (THR) or a full Marketing Authorisation (MA). This includes manufactured Traditional Chinese Medicines and Ayurvedic medicines.

Ayurvedic drug makers from India, under the Ayurvedic Drug Manufacturers’ Association (ADMA), are protesting the ban. The body has approached the commerce ministry for resolution. The major challenge for registration is the MHRA’s fee, which ranges from Rs 8 lakh to Rs 45 lakh. Indian companies are yet to start registering their products and are waiting for an intervention by the ministry. Besides registration fees, the MHRA also requires traditional medicines to have been used in the European Union for 15 years.

Shashank Sandu, the treasurer of ADMA, said, “We are studying the notification. We have shared our concerns with the ministry. We have tried talking to MHRA, but it did not respond. We are not sure how many years the registration will be valid. It is impossible to pay such a huge amount every year. We have approached the ministry for asking the MHRA for a reimbursement of the fee or a subsidy. The MHRA charges registration fee based on the number of ingredients in a product. As ayurvedic drugs are poly-herbal, there is confusion on whether each ingredient is to be counted or be counted as a group of ingredients.

Indian ayurvedic drugs had been banned in the UK because of the presence of heavy metals and toxic elements. In 2004, a study by the Journal of the American Medical Association found 14 products by firms like Dabur, Zandu, Baidyanath and Himalaya had harmful levels of lead, mercury and arsenic. After the study, the UK, Canada and Singapore had issued warnings.
“Traditional Chinese Medicines and Ayurveda traditionally use heavy metals and other toxic elements as ingredients. These include realgar (arsenic sulphide), cinnabaris (mercuric sulphide), calomelas (mercurous chloride), hydrargyri oxydum rubrum (red mercuric oxide). The current Chinese Pharmacopoeia includes 48 products containing at least one of these ingredients),” a notification from MHRA said.

Four Irish Controlled Illegal Online Pharmacies Websites Were Investigated And Closed Down

Four Irish Controlled Illegal Online Pharmacies Websites Were Investigated And Closed DownThere has been an international crackdown upon illegal online pharmacies websites. This has become necessary as an online pharmacy website may be located in one jurisdiction and it may be controlled from another. Thus, law enforcement agencies around the world have been collaborating and coordinating their actions in this regard.

Many online pharmacies websites of India are already on hit list of U.S. and technology companies and search engines like Google, Yahoo, etc. U.S. has already undertaken the detention without physical examination of drugs from firms which have not met drug GMPs as per the import alert 66-40 of US FDA. These include Indian companies as well that were prohibited form selling their medicines in U.S.

However, we cannot blame U.S. for taking legal and retaliatory actions against Indian online pharmacies as almost all of them are operating in an illegal and unregulated manner. Recently, U.S. shut down 1677 illegal online pharmacies websites but Indian government is still indifferent towards taking legal actions against illegal online pharmacies of India. Many online pharmacies websites in India are controlled by underworld and organised criminal networks and Indian government is sleeping over the matter.

On the other hand, Irish regulatory authorities have taken a stand that was need of the hour. Two people have been arrested and more than 100,000 tablets seized in the Irish end of a week-long international crackdown on the online sale of counterfeit and illegal medicines. Four Irish-controlled websites were investigated and closed down during the operation, according to the Irish Medicines Board (IMB) and the Customs Service of the Revenue Commissioners. The two agencies worked with 200 enforcement agencies across 110 countries to target criminal networks behind the sale of illegal medicines as part of Operation Pangea VII. Coordinated by Interpol, the initiative resulted in 239 arrests worldwide and the closure of 10,600 websites. The main countries of origin are China, Pakistan and India.

Ten search warrants were executed, leading to the two arrests. “Our goal is to stem the flow of medicines from illegal pharmacy websites which present themselves to the general public as perfectly legitimate, but, in reality are not, and many have been shown to be controlled by criminal networks,” said John Lynch, director of compliance with the IMB.

“In attempting to buy prescription medicines from such websites, not only are the public divulging their personal and financial details, they are also placing their health in very real danger. Some of these medicines have been shown to contain too little or too much of the active ingredient, while others contain the wrong active ingredient altogether,” he concluded.

Under Irish law, the sale of prescription-only medicines by mail order is prohibited. This includes internet supplies.  The Irish Patients Association commended the authority on their work but pointed out that operation lasted just one week. “The reality is that it is like drawing a leaking bucket of water from a fast moving dangerous river,” chief executive Stephen McMahon said. “A lot more needs to be done to stop these dangers”.

BJP Led Government May Not Be Against FDI In Multi-Brand Retail In India

BJP Led Government May Not Be Against FDI In Multi-Brand Retail In IndiaThe business structuring of e-commerce in India has seen many ups and downs in India. Allowing foreign direct investment (FDI) in multi brand retail and regulatory compliances are two of the most crucial areas that any government in India needs to take care of on priority basis. For instance, Flipkart and Myntra are under regulatory scanner these days for possible violation of FDI norms. As on date the e-commerce entrepreneurs in India are not following the Indian regulatory requirements at all and the new government must scrutinise their affairs in very minute details.

As on date, the commerce and industry ministry of India favours 100 per cent FDI in B2C e-commerce sector of India. Even the Supreme Court of India has declared the FDI policy of India in multi brand retail sector to be constitutional.

It is a common perception that the Bharatiya Janata Party (BJP) and its allies are against allowing FDI in multi brand retail sector of India. However, as per media reports, BJP’s prime ministerial candidate Narendra Modi has signalled that if elected, his government need not necessarily reverse the decision to allow FDI in multi-brand retail.

This is a significant indication as many retail outlets and entrepreneurs have to decide their policies and strategies accordingly. For instance, Carrefour is carefully analysing its Indian strategy these days.  Similarly, companies like Google, Amazon, Rakuten, Twitter, Facebook, etc are also trying their hands on e-commerce business. However, income tax liability of these companies is still not clear in India and the same must be clarified by the new government immediately.

This should bring relief to foreign retailers, many of whom feared the worst after the BJP unambiguously stated in its manifesto that it was opposed to the decision of the Congress-led United Progressive Alliance allowing foreign investment in supermarkets. “The government is a continuous process. But it is very unfortunate when one political party reverses the decision of another. The country cannot run this way. Mature decisions must be taken”. This was Modi’s reply to a question when he was asked if he would reverse the multi-brand retail decision as promised in his party manifesto.

In its manifesto, the BJP said it would allow FDI across sectors wherever needed for job and asset creation, infrastructure, and acquisition of niche technology and specialized expertise, but not in supermarkets. “The BJP is committed to protecting the interest of small and medium retailers, SMEs and those employed by them,” it added.

Google Seeks To Grab More Advertisement Revenue In The Travel And Hotel Industry Segment

Google Seeks To Grab More Advertisement Revenue In The Travel And Hotel Industry SegmentGoogle has tremendous wisdom and knowledge of most of the Internet users who search for their specific problems and requirements through its search engine. By converting the raw information and queries into meaningful and commercially viable inputs, Google decides about its future commercial projects and initiatives. Google’s flight travel search service is an example of this strategy of Google.

Google has now entered into partnerships with hotel chains but this has raised concern among others in the travel industry. Carlson Rezidor Hotel Group, which includes the Radisson and Country Inns & Suites chains, announced a pilot program late last year allowing guests to search, shop and pay for hotel stays using Google Hotel Finder, Google Business Photos and Google Wallet payment applications. The Best Western chain also signed up to have interactive photos appear in Google search results.

Some believe that these partnerships of Google’s are directed towards grabbing more advertisement revenue. This situation has also created environment of fear and uncertainty among many travel industry stakeholders. Travel industry has been very active in spending over online advertisements at various platforms and Google is well aware of this potential revenue area. Google intends to get a share out of this advertisement pie as that is the core strength and main source of revenue of Google.

Google already owns ITA software, a flight information provider, and has a hotel price ad program that routes consumers to hotel websites for booking. In recent months, hotels have agreed to test Google products, and last month, Google reached a licensing agreement with a startup called Room 77 that lets guests compare hotel prices and book rooms. While many analysts don’t think Google is a big threat to online travel agencies in the immediate future, such agreements have sparked buzz about what it could eventually do in the travel sector.

Industry researchers don’t believe Google is looking to get into the business of processing purchases done by online travel agencies, which are some of its biggest advertisers. They add the transaction business would require certain capabilities that would bring new overhead and fixed costs. But Google would like to court more travel advertising revenue. Google doesn’t want to process travel bookings because there are better profit margins in travel advertising and search engine marketing, less complicated businesses.

Of the $4.7 billion spent on US travel advertising last year, 52% went to websites and other digital channels. Of that, hotels spent the most, followed by online travel agencies and airlines. However, the taxation issues are yet to be resolved by Google especially in India where its online presence can be easily attached to tax liability in India. Nevertheless this is a worth shot that Google is well committed to take.

French Retail Major Carrefour Plans To Exit India

French Retail Major Carrefour Plans To Exit IndiaE-commerce segment of India is passing through tough times. Initially many e-commerce entrepreneurs started their initiative but they failed to sustain themselves in the competitive times. Most of the small e-commerce projects and websites have already been closed. Even the bigger players like Flipkart, Myntra, etc are facing regulatory heats.

The legal risks for websites companies developing e-commerce websites in India have also increased significantly. Similarly, entrepreneurs dealing with the fields like encryption, cloud computing, m-health, telemedicine, online pharmacies, Bitcoins exchanges, adult merchandise, online travel, online gaming including online poker, etc are not complying with techno legal requirements of Indian laws. Investing in such legally risky ventures without complying with Indian laws and regulations is not a viable strategy

Although the Commerce and Industry Ministry of India favours 100 Per Cent foreign direct investment (FDI) in B2C e-commerce sector yet this is a distant dream as on date. With no hope for the FDI in multi-brand retail segment in India and top level executives quitting the company, French retail major, Carrefour, the world’s second largest retailer, is said to be preparing to exit India. (See Update: 08-05-2014 below for contrary view)

The company was in talks with Bharti Group, after the latter broke its joint venture partnership with American retail giant Walmart. However, talks to sell Carrefour’s five wholesale stores based in Delhi, Jaipur, Bangalore, Meerut and Agra, to Sunil Mittal’s Bharti Group are said to have failed.

This is a first multi-brand retail casualty after the government left the decision to allow foreign retailers to the state governments, while allowing 51 percent investment in the sector. With the BJP and several regional parties announcing their opposition to FDI in retail, overseas players have not much hope left. Now the BJP has announced in its manifesto that it will not allow FDI in multi-brand retail, while promising to push foreign investment in other sectors of the economy.

Update: 08-05-2014

Carrefour India’s Managing Director Jean Noel Bironneau has refuted the media reports. Speaking to employees, he asked them to ignore rumours and continue work as usual. Carrefour India’s current business is operating wholly-owned wholesale venture through cash-and-carry retailing in which 100 percent foreign ownership is allowed. So the media reports of its exit from India seem to be exaggeration of the facts and situation.

Myntra Comes Under Regulatory Scanner Of Enforcement Directorate Of India For Possible Violations Of FDI Norms Of India

Myntra Comes Under Regulatory Scanner Of Enforcement Directorate Of India For Possible Violations Of FDI Norms Of IndiaE-commerce in India is in the process of consolidation. However, in the race to establish themselves, most of the e-commerce websites of India are not complying with the laws and regulations of India. They easily forget that e-commerce websites are required to comply with Indian laws as well.

There are many essential legal formalities that every e-commerce website operating in India is required to comply with. These include cyber law due diligence (PDF), Internet intermediary liability and e-commerce due diligence requirements as well. Even mobile payment providers, payment gateways, mobile application developers, etc are required to comply with India e-commerce and other techno legal laws.

The matter does not end here. The cyber law due diligence is also mandatory for foreign investors in e-commerce and technology ventures of India. However, this is not happening in India. Recently the Enforcement Directorate (ED) was planning to issue a show cause notice to Flipkart. Now it has been reported that Myntra has come under ED’s scanner for possible violations of foreign direct investment (FDI) norms of India. Further, the talks of possible merger and acquisitions between Flipkart and Myntra are also in troubled waters.

While Indian e-commerce players are passing through difficult times yet foreign e-commerce players are emerging very strong. For instance, Amazon has started selling apparels on its Indian website. Similarly, Rakuten Inc is planning to explore Indian e-commerce market starting with a travel and hospitality portal. Twitter is also planning to use its platform for e-commerce purposes. Google’s flight travel search service has already panicked Indian e-commerce portals.

It seems that foreign e-commerce players are stressing upon regulatory compliances but Indian e-commerce players are acting in great disregard of the same. The present actions of ED against Flipkart, Myntra, etc may be attributable to possible regulatory non compliances.

The legal risks for websites companies developing e-commerce and online gaming websites in India have also increased significantly. Similarly, entrepreneurs dealing with the fields like encryption, cloud computing, m-health, telemedicine, online pharmacies, Bitcoins exchanges, adult merchandise, online travel, online gaming including online poker, etc are not complying with techno legal requirements of Indian laws. Investing in such legally risky ventures is not a viable strategy.

Currently foreign investment is barred in e-commerce activities and firms have formed multiple corporate entities to legally confirm to the norms. The front end e-commerce website is owned by locals, while the venture capital money flows into a firm which is essentially into wholesale cash and carry business. This separate firm then supplies to the front end retail site as per law.

Back in 2012, the Indian Government had also started probing venture capital-backed Flipkart Online Services Pvt Ltd for possible violations of FDI norms. “The Reserve Bank of India has informed that matters related to Bharti Wal-Mart/ Cedar Support Services Limited and Flipkart Online Services Pvt Ltd, respectively, have been referred to the Directorate of Enforcement for further investigation,” read a statement issued in Parliament at the time.

Enforcement Directorate Likely To Send Show Cause Notice To Flipkart For Violating Indian FDI Rules

Enforcement Directorate Likely To Send Show Cause Notice To Flipkart For Violating Indian FDI RulesFlipkart and Bharti Walmart have been accused of violating Indian foreign direct investment norms in the past. The Indian Government has even referred the cases of these two companies to Enforcement Directorate (ED) for ascertaining the alleged violation of FDI regulations of India.

There is a growing concern among Indian Government to check the legality of e-commerce businesses operating by bypassing FDI regulations. Many media reports have claimed that Flipkart is under the scanner for allegedly flouting FDI rules which allow e-commerce companies with foreign investment to carry out only business-to-business (B2B) transactions but not business to consumer (B2C) transactions by creating complex structures that may not be permissible.

The business structuring of e-commerce in India is not an easy task. The stakeholders have to comply with techno legal requirements in order to successfully run e-commerce businesses in India. As on date e-commerce due diligence in India is neglected by investors and financial institutions.

As per the Consolidated FDI Policy of India 2013 by Department of Industrial Policy and Promotion (DIPP) (PDF), the foreign direct investment (FDI) in e-commerce activities in India is allowed upto 100% through automatic route. E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.

As per the present FDI policy, FDI in Single Brand product retail trading is allowed upto 100% through government approval route and is allowed upto 51% in multi brand retail trading through government approval. This is subject to compliance with additional requirements as prescribed by the policy. The Commerce and Industry Ministry of India is in favour 100 Per Cent FDI in B2C E-Commerce sector but that may take some time. Till then FDI norms must be strictly adhered to by e-commerce stakeholders of India.

However, this is not happening in India and most of the e-commerce players of India are openly violating many laws of India including the FDI rules and regulations. In one such case, the ED is likely to send a show-cause notice to Flipkart for alleged violation of foreign investment rules for an amount of Rs 1,400 crore.

In late 2012, the commerce and industry ministry had told the Lok Sabha that Flipkart Online Services, India’s leading e-commerce company, was under ED’s scanner for possible violation of foreign investment rules. Now, the agency has prima facie evidence that the company has flouted the country’s FDI rules, a finance ministry official said.

The ED probe is for the period before April 2013, when Flipkart shifted to the marketplace model, converting itself into a platform for independent buyers and sellers to conduct business on its site. It junked its earlier model where it had control over goods sold through its e-commerce site which is not allowed under the current FDI norm. Foreign private equity investors, including Accel Partners, Tiger Global, Iconiq Capital and Naspers Group, have invested in Flipkart Online Services.