Executive Summary:
This notification, issued by the Reserve Bank of India, amends the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017. The amendments, effective from February 1, 2019, primarily concern regulations for e-commerce entities with foreign investment, focusing on inventory control, pricing, and fair practices. Existing investments must comply with these conditions from January 31, 2019.
Key Points / Main Content:
E-commerce Entity Definition:
* The definition of "E-commerce entity" now includes companies incorporated under either the Companies Act, 1956 or the Companies Act, 2013.
Inventory Control:
* E-commerce entities providing a marketplace cannot exercise ownership or control over the inventory of goods sold.
* Inventory is deemed controlled if more than 25% of a vendor's purchases are from the marketplace entity or its group companies.
Fair Pricing and Level Playing Field:
* E-commerce entities cannot directly or indirectly influence the sale price of goods or services.
* Services provided to vendors (e.g., fulfillment, logistics) must be at arm's length, fair, and non-discriminatory.
* Cash back provided by group companies must be fair and non-discriminatory.
* Services to vendors on terms not available to others in similar circumstances are considered unfair and discriminatory.
Exclusivity:
* E-commerce marketplace entities cannot mandate sellers to sell products exclusively on their platform.
Compliance Deadline:
* All existing investments must comply with these amended conditions from January 31, 2019.
Impact Analysis:
E-commerce Marketplace Entities:
* Impact: Must ensure compliance with revised regulations regarding inventory control, pricing, and fair practices. They need to structure their operations to avoid being classified as controlling vendor inventory and ensure a level playing field for all vendors.
* Action Required: Review existing agreements and practices to align with the new regulations and cease mandating exclusive selling arrangements.
Vendors on E-commerce Platforms:
* Impact: Benefit from regulations promoting fair competition and preventing undue influence from marketplace entities.
* Action Required: Monitor marketplace practices to ensure compliance and report any instances of unfair or discriminatory practices.
Investors in E-commerce Entities:
* Impact: Need to ensure their investments comply with the revised regulations, particularly regarding inventory control and marketplace practices.
* Action Required: Review investment structures and agreements to ensure compliance and make necessary adjustments.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for managing the country's monetary policy and foreign exchange regulations.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Regulations, 2017: Regulations pertaining to the transfer or issuance of security by individuals residing outside India.
Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Fifth Amendment Regulations, 2019: Amendment regulations to the 2017 regulations concerning the transfer or issuance of security by individuals residing outside India.
Companies Act, 2013: An Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.
Companies Act 1956: The previous law governing companies in India, now largely superseded by the Companies Act, 2013 but still relevant in some contexts.
Ecommerce entity: A company incorporated under the Companies Act, 1956 or the Companies Act, 2013.
Mumbai, Maharashtra: The location of the Central Office of the Reserve Bank of India.
Reserve Bank of India
Foreign Exchange Department
Central Office
Mumbai
Notification No.FEMA.20(R) (6)/2019-RB January 31, 2019
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside
India) (Amendment) Regulations, 2019
In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47
of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India hereby
makes the following amendments to the Foreign Exchange Management (Transfer or issue of
Security by a Person Resident outside India) Regulations, 2017 (Notification No.FEMA.20
(R)/2017-RB dated November 07, 2017) (hereinafter referred to as 'the Principal Regulations'),
namely:-
1. Short Title & Commencement
(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) (Fifth Amendment) Regulations, 2019.
(ii) They shall come into force from February 01, 2019.
2. Amendment to Regulation 16.B
In Regulation 16.B,
(i) In the existing SL.No.15.2.3(b) the words ‘E-commerce entity’ means a company
incorporated under Companies Act, 2013 shall be substituted by ‘E-commerce entity’ means a
company incorporated under the Companies Act 1956 or the Companies Act, 2013.
(ii) The existing SL. No 15.2.3(h) shall be substituted by the following, namely:
E-commerce entity providing a marketplace will not exercise ownership or control over the
inventory i.e. goods purported to be sold.
Explanation: 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
companies which will render the business into inventory based model.
(iii) The existing SL.No 15.2.3(i) shall be substituted by the following, namely:
‘An entity having equity participation by e-commerce marketplace entity or its group companies
or having control on its inventory by e-commerce marketplace entity or its group companies, will
not be permitted to sell its products on the platform run by such marketplace entity.’
(iv) The existing SL. No 15.2.3(m) shall be substituted by the following, namely:
E commerce entities providing marketplace will not, directly or indirectly, influence the sale
price of any goods or services and shall maintain level playing field. Services should be providedby 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.
Explanation: Such services will include but not limited to fulfilment, logistics, warehousing,
advertisement/marketing, payments, financing etc. Cash back provided by group companies of
marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this clause,
provision of services to any vendor on such terms which are not made available to other vendors
in similar circumstances will be deemed unfair and discriminatory.
(v) In existing SL.No 15.2.3, after the existing clause (n), a new clause (o) shall be inserted,
namely:
No e-commerce marketplace entity shall mandate any seller to sell any of their product
exclusively on its platform.
(vi) In existing SL.No 15.2.3, after the clause (o), a new clause (p) shall be inserted, namely:
All existing investments shall have to be in compliance with the above conditions from the date
of issue of this Notification.
(Eugene E. Karthak)
Regional Director
Foot Note:-
The Principal Regulations were published in the Official Gazette vide G.S.R. No. 1374(E) dated
November 07, 2017 in Part II, Section 3, sub-Section (i) and subsequently amended as under.
G.S.R.No.279(E) dated 26.03.2018
G.S.R.No.520(E) dated 01.06.2018
G.S.R. No.823(E) dated 30.8.2018
G.S.R. No.78 (E) dated 31.01.2019