Government Defines E-Commerce Marketplace Rules, Allows 100% FDI

The Department of Industrial Policy & Promotion (“DIPP”) has vide a Press Note dated 29th March, 2016 issued Guidelines for Foreign Direct Investment (“FDI”) in E-commerce. The FDI policy as amended from time to time permits 100% FDI under automatic route in Business to Business (B2B) e-commerce. FDI in B2C e-commerce is not permitted however was later permitted (vide Press Note dated 24th Nov.2015) only for certain manufacturers engaged in single brand retail. Under the said DIPP Press Note following clarifications have been brought out –

  1. E-commerce entities have been defined to include the following entities provided that they conduct e-commerce activities i.e. buying and selling of goods and services including digital products over the digital and electronic network –
    1. company incorporated under the Companies Act, 1956, or the Companies Act, 2013;
    2. foreign company covered under Section 2(42) of the Companies Act, 2013;
    3. an office, branch or agency in India as provided in Section 2(v)(iii) of Foreign Exchange Management Act, 1999 owned and controlled by a person resident outside India;
  2. 100% FDI under automatic route is permitted in marketplace model of e-commerce where the term “marketplace model” has been defined to as providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer & seller. Marketplace Model of e-commerce are permitted to –
    1. Enter into transactions with sellers registered on its platform on B2B basis &
    2. Support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection & other services.

    However they are not permitted to –

    1. Each seller or its group companies cannot sell more than 25% of the total sales of the Marketplace Model entity;
    2. Directly or indirectly influence the sale price of goods or services’ and are obligated to maintain a ‘level playing field’;
    3. Exercise ownership over the inventory, i.e., goods purported to be sold, otherwise such ownership over the inventory will render the business into Inventory Model;
    4. Take responsibility for delivery of goods to customers, ensuring customer satisfaction, warrantee/guarantee or return of goods and services sold would be that of the seller and not the e-commerce entity.
  3. FDI is not permitted in inventory based model of e-commerce where the term “inventory based model” means an e-commerce activity, where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly.
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