ED uncovers Amazon and Flipkart's direct links with sellers

The Enforcement Directorate (ED) has found “direct links” between the e-commerce giants Amazon and Flipkart and their preferred sellers, people in the know told ET.

The federal agency, investigating alleged foreign investment law violations, has quizzed the “top” five sellers of both Amazon and Flipkart and discovered that most of them are “directly related” to the e-commerce giants.

“The investigation (under FEMA) has revealed that most of their preferred sellers are either their former employees or kin of former associates/employees of Amazon and Flipkart,” a government official told ET on the condition of anonymity.


The agency has recovered “significant email dumps” from the sellers of Amazon and Flipkart who were recently quizzed. “A scrutiny of certain emails establishes the direct control of the ecommerce giants over their preferred sellers,” another government official told ET.

"Both ecommerce giants refused comment. Neither Amazon nor Flipkart has received any summons or correspondence from ED so far".

Besides perusing the emails between the preferred sellers of Amazon and Flipkart, the agency has also gathered evidence to establish that from “warehouses to inventory to profit margins,” almost everything is under “direct control” of Amazon and Flipkart.

Sample this: the agency quizzed a preferred seller of one of the e-commerce giants. His questioning revealed that while the seller’s annual turnover ran into over a few thousand crores, his annual profit was merely Rs 20 lakhs. The said seller in question lives in a two-room apartment.

“The gaping difference between his annual turnover and his profit margins are appalling. This only goes on to indicate that the profit margins are also controlled by them (Amazon and Flipkart)”, the official added.

The agency’s investigation has further revealed that even the accounts (bank statements) of preferred sellers are prepared and monitored by the officials of Amazon and Flipkart.

The agency has also found flaws in the “Just in time” (JIT) model of stock gathering by e-commerce giants. The Foreign Direct Investment (FDI) law stipulates making a strong market place where everyone including the small-time retailers can sell their products. But by controlling the inventory, stock, warehouses, profit margins and auditors of their sellers they (Amazon and Flipkart) have infringed FDI rules by reducing the marketplace into a multi brand sale platform only for their own gains”, the official added.

ET has learnt that the federal agency will file its final complaint against Amazon and Flipkart under FEMA for allegedly violating FDI rules before the adjudicating authority within three months.

Before that, the agency will quiz top officials of Amazon and Flipkart. “The evidence gathered so far and the questioning of preferred sellers is being examined after which their (Amazon and Flipkart) officials will be summoned for questioning,” the official told ET.

According to the procedure, after filing of the complaint the adjudicating authority will issue show cause notice to the e-commerce giants and decide on whether to impose penalty against them under FEMA.

The ED, which had been scrutinising the business practices of the duo for years, had virtually hit a legal roadblock after the two companies received orders in their favour from the courts.

The agency had been wanting to lay its hands on the email dumps between the two companies and their sellers. Hit by orders from the court, the agency decided to shift its focus on the sellers of Amazon and Flipkart so that the said email dumps can be retrieved from the sellers.

As a result, the ED earlier this month carried out raids on sellers associated with Amazon and Walmart-owned Flipkart. The pan-India operation included searches at seller locations and Amazon and Flipkart subsidiaries across major cities like Delhi, Mumbai, Hyderabad, and Bengaluru. The raids spanned 19 locations in India.

The raid followed findings from India’s antitrust body that concluded both Amazon and Flipkart, along with some of their sellers, violated competition laws by favouring specific sellers. Both companies have consistently claimed adherence to Indian regulations.

Amazon's biggest seller in India, Appario, was also reportedly among those raided earlier this month. The ED sleuths inspected financial books and questioned executives about their dealings with the e-commerce giants.