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Foreign Direct Investment in Indian E-commerce – Marketplace Model

Published: 12 Jan 2018

The Government of India has allowed 100 per cent foreign direct investment (FDI) through the automatic route in the marketplace model of e-commerce retailing, bringing in long overdue clarity on FDI policy for the sector as well as some important definitions.

As per these guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign direct investment has not been permitted in inventory-based model of e-commerce.

 FDI Policy before the Press note dated 29 March, 2016

 The FDI policy, contained in the ‘Consolidated FDI Policy Circular 2015 (FDI Policy) as amended from time to time, permitted FDI up to 100% under automatic route in Business to Business (B2B) e-commerce. No FDI is permitted in Business to Consumer (B2C) e-commerce except in following circumstances:

 1. A manufacturer is permitted to sell its products manufactured in India through e-commerce retail.

2. A single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.

3. Indian manufacturer is permitted to sell its own single brand products through e-commerce retail. Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers.

 New Policy post 29 March, 2016

 In order to provide clarity to the extant policy, fresh guidelines for FDI in e-commerce sector have been formulated and are enumerated below:

 Definitions:

 i) E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.

 ii) E-commerce entity- E-commerce entity means a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

 iii)        Inventory based model of e-commerce- Inventory based model of e- commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

 iv) Marketplace based model of e-commerce- Marketplace based model of e- commerce means providing of an information technology platform by an e- commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

 Some other Conditions:

 i) Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

 ii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

 iii)        E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.

 iv) E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.

 v) An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.

 vi) In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

 vii)       In marketplace model, payment for sale may be facilitated by the e-commerce entity in conformity with the guidelines of Reserve Bank of India.

 viii)      In marketplace model, any warrantee/guarantee of goods and services sold will be responsibility of the seller.

 ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain level playing field.

Author is an international senior corporate lawyer and can be contacted at bhumesh.verma@corpcommlegal.com

Bhumesh Verma

Firm: Corp Comm Legal
Country: India

Practice Area: Contract

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