The Enforcement Directorate (ED) is probing Amazon.com and Future Retail’s (FRL) deal for violations under the Foreign Exchange Management Act, (FEMA) 1999.
Hearing Amazon’s suit against FRL, the Delhi High Court said on December 21 that the resolution approving proposed scheme of arrangement between Future Group and Reliance Retail was in accordance with Indian laws and could not be intervened with. It, however, added that Amazon was entitled to make representations and could not be injuncted from drawing regulators.
The ED action comes after the Delhi HC during the hearing observed that Amazon and FRL’s deal had been done in three agreements – which appeared to be in violation of FEMA, The Economic Times reported
Moneycontrol could not independently verify the report.
Amazon said in a statement, “We are not aware of any new case by the ED against Amazon.”
The Delhi HC’s observations were in line with expert opinion that Amazon might have exposed itself to legal danger by its actions in trying to secure an indirect foothold in the owner of the retail chain Big Bazaar.
By skirting mandatory government approvals, the US-based online retail giant has laid itself open to action by the ED and the Securities and Exchange Board of India (SEBI), lawyers and analysts believe. Furthermore, by not disclosing that it attempted to obtain control over Future Retail through the back door, Amazon has fallen afoul of Foreign Direct Investment rules, as well as securities regulations, which would have required it to make an open offer.
Notably, Indian laws allow FDI in multi-brand retail only with stringent conditions such as using 50 percent of the investment for back-end infrastructure, mandatory local sourcing of goods and services and so on. Most crucially, government permission is needed for such investment. Thus, what the Seattle-headquartered company did was a two-step duck-and-weave of Indian regulations.