Press Note 3 of 2016: A level playing field?

On account of a legal vacuum on the permissibility of foreign direct investment (FDI) in e-commerce activities being undertaken using a marketplace model, many entities with foreign investment have been operating on the “view” that using this model would not fall foul of the extant foreign exchange regulations. The Department of Industrial Policy and Promotion has, through Press Note 3 at of 2016, attempted to bless the operations of many e-commerce giants, bringing much needed clarity to the FDI policy in the e-commerce sector.

Press Note 3 has given specific meanings to terms such as “e-commerce”, “e-commerce entity”, “marketplace model” and “inventory based model”. The FDI Policy, 2015, vaguely defined e-commerce as the “buying and selling by a company through the e-commerce platform”. Under Press Note 3, e-commerce is defined as “buying and selling of goods and services including digital products over digital and electronic network”, thus including even service providers, such as food, taxi and other service aggregators, and digital content providers, which tend to be shadowed by the discussions around the big players in the e-commerce segment.

An e-commerce entity is defined as “a company incorporated under the Companies Act 1956 or Companies Act 2013 or foreign company covered under section 2(42) of the Companies Act 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of the Foreign Exchange Management Act, 1999, owned or controlled by a person resident outside India and conducting the e-commerce business”.

Luthra & Luthra Law Offices is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. Samir Dudhoria is a partner and Ankita Kansil is an associate at the firm. The views of the authors are personal. This article is intended for general information purposes only and is not a substitute for legal advice.