Models of Single Brand E-Commerce –FDI Hurdles and Other Regulatory Compliances

With the world moving online, we have seen a shift in the way businesses are reaching out to customers. In the recent past, several brands have launched their own branded e-commerce websites in addition to their products being available on third party platforms. Having their own websites instead of selling through third party e-commerce platforms allows businesses to engage directly with customers giving them an opportunity to understand consumer behaviour and harness consumer data. This also helps them to innovate as per consumer needs and provide customised services. The business may sell goods either directly to consumers on B2C basis i.e. inventory based model OR onboard their distributors as sellers, who in turn sell on B2C basis. In the latter case, the business acts as a marketplace. In either case, goods sold may be either locally manufactured or imported.

In this article, we discuss relevant laws applicable to these models, with special focus on single brands. FDI RELATED RESTRICTIONS

If the company has foreign direct investment (“ FDI ”), the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“ Non-Debt Rules ”) will be applicable. The Non-Debt Rules deal with foreign direct investment (“ FDI ”) in various sectors.

The Non-Debt Rules prohibit FDI in B2C inventory-based model of e-commerce for sale of goods. 100% FDI is permitted in entities involved in manufacturing and such entities are permitted to sell its products manufactured in India through e-commerce websites. Therefore, so long as the single brand business is selling its manufactured goods through e-commerce, the Non-Debt Rules do not create any hurdles. However, the same business is note permitted to sell imported products on the same platform (unless the business also has or intends to have a brick and mortar store), as it would amount to retail trading activity.

If single-brand companies intend […]

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