Ecom Firms May Face Fresh Trouble With Govt Mulling Ban On Related Party Sales

The Indian government may come out with rules that will prohibit ‘related party’ or ‘associated enterprises’ of internet marketplaces to sell products or services to a registered merchant on their platforms.

Currently, the Consumer Affairs Ministry is leading the discussions on the matter. An inter-ministerial discussion with the Department for Promotion of Industry and Internal Trade (DPIIT) and The Ministry of Electronics and Information Technology (MeitY) was also held, ET reported.

If such rules are enforced, ecommerce players including Flipkart and Amazon India will not be able to offer their in-house logistics services, Ekart and Amazon Transportation Services, to their merchants.

Moreover, food-delivery firms may also be prohibited from offering their delivery fleet to restaurant partners as these companies would come under the purview of a proposed clause on related parties or associated enterprises.

There have also been discussions with points that in-house brands should not be licensed to third-party sellers to sell online. If such rules come into force, Amazon will not be able to licence its private-label ‘Solimo’ to outside vendors.

Currently, companies are checking the implication of the ‘related party’ or an ‘associated enterprise’ clause and their legalities. However, there is no doubt that if these clauses are introduced, there will be significant impact on ecommerce platforms.

Ecommerce majors such as Flipkart and Amazon serve the majority of their orders through Ekart and Amazon Transportation Services.

The draft ecommerce rules released in 2021 also suggested that ecommerce firms should ensure that none of their ‘related parties and associated enterprises’ are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform.

DPIIT was also reportedly seeking to bring a proper distinction between the marketplace model and the inventory-based model. Under the inventory-based model, inventory of goods and services is owned by the ecommerce entity itself and is sold to the consumers directly. On the other hand, the marketplace model implies offering a digital platform to act as a facilitator between buyer and seller.

The government is taking many measures to tighten its grip around ecommerce platforms. For example, the Centre last year unveiled a framework to curb deceptive and fake reviews on ecommerce platforms.

The Covid-19 pandemic has accelerated the shift towards online shopping all over the world and India is no exception. Driven by the rise of digital infrastructure, ecommerce in India is set to reach $400 Bn by 2030, according to Inc42 analysis.

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