New norms in the E- Commerce sector under the Foreign Direct Investment (FDI) Policy Circular 2017

The Department of Industrial Policy and Promotions, Ministry of Commerce and Industry, Government of India, had issued a Press Note No. 2 (2018 Series) bringing new norms for the foreign direct investment in the E-commerce sector (“Press Note”).

The Press Note introduced following additions in Section 5.2.15.2 (E-Commerce Activities) of the Foreign Direct Investment Policy Circular 2017 dated August 28, 2017 (“FDI Policy”):

• A marketplace cannot sell more than 25% of the seller’s inventory on its platform and such marketplace shall deem to have control over such seller’s inventory if the marketplace purchases more than 25% from the seller;

• A marketplace entity cannot have exclusive arrangements with the sellers;

• An entity (i) which is either controlled by a marketplace entity or its group companies; or (ii) has equity participation of such marketplace entity or its group companies, will not be allowed to sell its products/services on such marketplace;

• Further the services that are being provided by the marketplace or other entities of vendor, in which such marketplace or its subsidiaries has control or equity participation, should provide such services (including logistics, warehousing, advertisement/marketing, payments, financing etc) at arm’s length and in a fair and non-discriminatory manner to all its vendors. The cashback provided by such marketplace entity to the buyers has to be fair and non-discriminatory; and

• There has been a new addition with respect to the compliance to be followed by all the marketplace entities. Every marketplace entity will furnish a certificate along with a statutory auditor’s report to Reserve Bank of India, confirming compliance with the e-commerce guidelines for the immediate preceding financial year, by 30th September of each year.