The Ministry of Commerce & Industry has, by way of the Press Note 2 (2018 Series) dated 26th December 2018 (Press Note), issued revised norms vis-à-vis foreign direct investment in e-commerce entities. While the Press Note continues to allow 100% foreign direct investment into e-commerce activities, it prescribes certain additional conditions with respect to e-commerce entities which are owned or controlled by a person resident outside India and conducting e-commerce business in India.

The key additional conditions are summarised below:

  1. The e-commerce entity will not be permitted to exercise ownership and control over the inventory of goods purported to be sold. In this regard, it is pertinent to note that the inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group entities;
  2. An entity in which the e-commerce entity has equity participation or control over the inventory, will not be permitted to sell its products on the platform run by such marketplace entity;
  3. E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Services should be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control, to vendors on the platform at arm's length and in a fair and non-discriminatory manner;
  4. E-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.

The Press Note has been issued in furtherance to the norms that were issued in Press Note No 3 (2016 series) dated 29th March 2016, which inter alia, stipulated that the e-commerce entities will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field.

To sum up, the Press Note appears to be another step by the law makers in the direction of creating a level playing field for sellers on on-line market places. The idea behind this recent development also seems to be to ensure that the on-line market places only provide the platform for selling and buying of goods and consumer products and the on-line market places do not themselves become the sellers, directly or indirectly.

The Press Note may also impact agreements with respect to equity investment by the e-commerce entity, or exclusivity contracts with third parties, which are in the pipeline.

This Press Note will come into effect from 1st February 2019.

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