ED initiates probe against Amazon for violation of FEMA

The Enforcement Directorate (ED) has launched a probe against global e-commerce giant, Amazon, to determine whether it violated the Foreign Exchange Management Act 1999 (FEMA) in its deal with Future Retail Ltd.

While passing its judgment, last month, on Amazon’s plea challenging the acquisition of Kishore Biyani-led Future Retail by Reliance Industries, the Delhi High Court had observed that the international company appeared to have indirectly obtained control over the Big Bazaar owner without the approval of the government.

The investigation is being conducted under various sections of the FEMA after the ED recently received a communication from the Commerce Ministry seeking “necessary action” against e-commerce players like Amazon and Flipkart pertaining to certain multi-brand retail businesses and an observation made the Delhi High Court in regards to the international company. It said the attempt made by the US-based firm to control Future Retail through a conflation of agreements it has with an unlisted unit of the Indian company will be considered as violative of FEMA and foreign direct investment (FDI) rules.

Reports highlight that under the central probe agency scanner is a recent communication sent to it by the Department for Promotion of Industry and Internal Trade (DPIIT) that functions under the Commerce Ministry. It had forwarded a representation made by the Confederation of All India Traders (CAIT), which alleged that some e-commerce companies were in “violation of FEMA and FDI rules” by adopting illegal structuring, investments and practices.

Also Read: Singapore International Arbitration Centre extends interim ruling for Amazon-Future dispute

The ED has initiated probe against Amazon as the Delhi High Court had made observations that the US-based company objected to the Rs 24,713 crore Future Group-Reliance deal that was sealed in August of 2020. In August 2019, Amazon had agreed to purchase 49 per cent of 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.

As such, the global e-commerce giant dragged Future Group to arbitration at Singapore International Arbitration Centre (SIAC). It argued that the Indian company violated the contract by entering into the deal with Reliance. And the SIAC passed an interim order, which has now been extended, in favour of the former.