RBI to tighten norms for E-Commerce Companies through Auditors certificate

RBI to tighten norms for E-Commerce Companies through Auditors certificate

By- Mala Mahto (CS, LLB)

What is an E-commerce Company? 
E-commerce: E-Commerce means to buy and sell the goods and services including digital products over a digital and electronic network.

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

Inventory based model of E-commerce: Inventory based model of e-commerce means a business model where an inventory of goods and services is owned by e-commerce entity and is sold to people directly without any facilitator or aggregator.

Marketplace based model of E-commerce: Marketplace based model of e-commerce Means providing of an online platform by an e-commerce entity on a digital & electronic network to act as a facilitator or aggregator between buyer and seller.

Press Note 2 of 2018

Press Note 2 was released by the Department for Promotion of Industry and Internal Trade (DPIIT) in December 2018 to tighten and amend India’s FDI e-commerce policy.

The FDI Policy on e-commerce, first pronounced through Press Note 2 of 2000, permitted 100% FDI in B2B e-commerce activities. With a view to clarifying already existing policy framework, after extensive stakeholder consultations, Press Note 3 was issued by DPIIT in 2016. Through the Press Note 2 (2018) issued on 26 December 2018 Government has only reiterated the policy provisions to ensure better implementation of the Policy in letter and spirit, without making any change in the underlying principle but the Press Note has introduced key changes which will have a sweeping impact on e-commerce in India.

RBI came with this change in policy at the time when there were alleged non-compliance of FDI policy and predatory pricing against Amazon and Flipkart.

It has also opened up major compliance issues for most e-commerce players in India. These e-commerce players will have to take another look at their business arrangements. They will also have to restructure their business models in terms of interactions with the sellers. 

The development comes at a time when the government is also working on a comprehensive e-commerce policy.

Audit Requirement

The most importance and the new provision in Press Note 2 of 2018 is the audit requirement in case of the e-commerce marketplace. The provision says that the e-commerce marketplace shall have to submit a certificate along with the report of the statutory auditor every year latest by 30th September. So the first report after the introduction of this provision has to be submitted on or before 30th September 2019. However, the irony is that the RBI has not come up with any notification regarding details and procedure for filing of this annual compliance with RBI. Now three months prior to the last date of filing the form, Commerce and Industry Minister Piyush Goyal had to step in. In a meeting which was held on 24th June 2019 for discussing the draft e-commerce policy with the e-commerce giants including Flipkart, Amazon, Shopclues, Zomato. Swiggy etc., the minister has asked the officials to work with the Reserve Bank of India (RBI) to fast-track the implementation of a clause in Press Note 2 that directs e-commerce companies to submit statutory audits to the RBI on annual basis.

The minister was curious as to why the law had already been passed, but the RBI hadn’t introduced the notification yet. Mr. Goyal asked the DPIIT to work with the RBI to expedite the notification,” said a person who attended the meeting 

Through this new audit requirement RBI basically wants the auditor to certify and make them accountable that the e-commerce company has complied with all FDI norms during the particular year.

Officers from the Department for Promotion of Industry and Internal Trade present at the meeting specified the reason for the delay in notification and told that the RBI had reservations with regard to some technicalities that’s why the delay in notifying the form By RBI.
E-commerce Companies are welcoming these steps taken by RBI and said that they are compliant with the laws and they will comply with audit requirement also.

Mr. Goyal also told the e-commerce companies to follow the FDI e-commerce guidelines in both letter and spirit. 

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This extra compliance may please the offline retailers but would be an extra burden on the e-commerce entities and non-compliance may also lead to penalties. Now we have to wait and see that how RBI will act to these statements of the minister and how quick RBI will formulate the guideline for the annual compliance or would there be any penalty for such non-compliance.

In the last few years RBI has come up with the various norms and guidelines to regulate e-commerce entities but given the growth of the e-commerce entities, rise in the sales through online market be it for shopping, foods, travel etc, and the possibility of any new developments or loopholes that may arise in future, it is the high time that a separate regulator be established so that RBI is not overburdened and can focus on their core areas of functioning.

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eStartIndia Team

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