ED books Amazon to probe alleged FEMA, FDI violations

Updated on Jan 28, 2021 10:08 PM IST

In a judgment last month, the Delhi High Court said that Amazon appeared to have indirectly obtained control of Future Retail's Big Bazaar without the government’s approval.

FILE PHOTO: The logo of Amazon is pictured inside the company's office in Bengaluru, India, April 20, 2018. REUTERS/Abhishek N. Chinnappa(REUTERS)
FILE PHOTO: The logo of Amazon is pictured inside the company's office in Bengaluru, India, April 20, 2018. REUTERS/Abhishek N. Chinnappa(REUTERS)

The Enforcement Directorate (ED) has registered a case against US e-commerce giant Amazon to investigate alleged violation of India’s foreign exchange and foreign direct investment laws, people familiar with the development, requesting anonymity, said on Thursday.

The investigation, launched under various sections of the Foreign Exchange Management Act (FEMA) is based on a recent Delhi High Court observation that the US-based Amazon’s attempt to control Future Retail through a conflation of agreements it has with an unlisted unit of a Indian company without government’s approval will be considered a violation of FDI (foreign direct investment) rules and FEMA, they said.

On Amazon’ plea to challenge the acquisition of Kishore Biyani-led Future Retail by Mukesh Ambani’s Reliance Industries Ltd for 24,713 crore in August 2020, the high court had said in its judgment last month that Amazon appeared to have indirectly obtained control of Big Bazaar without the government’s approval.

Subsequently, the agency had received a reference from the Centre seeking action against e-commerce players including Amazon on the complaint of Confederation of All India Traders (CAIT), which has alleged that these companies were violating norms in multi-brand retailing and indulged in malpractices.

In a response to an email query by HT, an Amazon spokesperson said - “We are not aware of any new case by the ED against Amazon India.”

ED officials dealing with the probe said they will examine all the issues pertaining to Amazon’s investment in Future Retail and points highlighted by CAIT in its complaint to the commerce ministry. “We will seek details from Amazon and other stakeholders,” an officer said, requesting anonymity.

CAIT had alleged that these e-commerce companies were in violation of FEMA and FDI rules by adopting illegal structuring/investments and practices.

CAIT secretary general Praveen Khandelwal welcomed the ED probe. “It’s a welcome step that ED has registered a case against Amazon. We had complained directly to the ED as well as the commerce ministry seeking action against malpractices of the e-commerce company. Delhi high court has clearly said that there is a violation of FDI and FEMA by Amazon. As complainants, we really appreciate the step taken by the ED and expect that speedy action will be taken,” he said.

In August 2019, Amazon had agreed to purchase 49 per cent of one of Future's unlisted firms, Future Coupons Ltd (which owns 7.3 per cent equity in BSE-listed Future Retail Ltd through convertible warrants), with the right to buy into the flagship Future Retail after a period of three to 10 years.

Billionaire Jeff Bezos’ Amazon had taken Future Group to arbitration at Singapore International Arbitration Centre (SIAC), arguing that Future violated the contract by entering into the deal with rival Reliance. An interim order was passed in favour of Amazon on October 25, 2020 by an arbitrator saying the deal should be put on hold.

When Future Group filed a plea with the Delhi High Court, a single member bench last month rejected the plea to restrain Amazon from writing to regulatory authorities about the SIAC arbitral order but gave a go-ahead to the regulators to decide on the deal.

The court had also made several observations indicating that Amazon's attempt to control Future Retail through a conflation of agreements Amazon has with an unlisted unit of the Indian company will be violative of the FEMA & FDI rules.

Amazon has filed a separate petition in the Delhi High Court seeking detention of Future Group founders, including CEO Kishore Biyani, and seizure of their assets as it sought to block the Future-Reliance deal.

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