Just a week after the government revised, and implemented its new FDI policy, which prohibited e-commerce firms from selling their authorized-firm products on their own site, e-commerce giant, Amazon has recalled its largest sellers, Cloudtail, on their own sites. Meanwhile, Amazon called Cloudtail back online by supposedly reorganizing the shareholding, legal experts stated the e-commerce firms will apply different methods to sustain huge discounts online, the financial express reported.
E-commerce firms may have to provide subscription service for sellers in place of the support provided by them in terms of logistics, payments, etc, after the revised policy prohibits them to hold equity stake in sellers on their site.
“We have seen them thinking of possibly offering subscription service. For instance, sellers who subscribe to that service voluntarily will get better terms of listing their products for offering them at more competitive pricing. Also, companies can help sellers through offerings like discounts on logistics cost etc. So there are certain thoughts on how to do it,” Archana Tewary, Partner, J Sagar Associates told the Financial Express.
Previously, the government prohibited companies holding equity stake by FDI-aided e-commerce marketplaces or its group companies to sell its products on the platform run by such marketplaces.
Friendship agreement
E-com giants like Amazon and Flipkart might also enter into an agreement called ‘Best Friends’ agreement which doesn’t lawfully chains a firm to operate business with a specific company.
Companies, much like Amazon, can fully divest their stakes in the seller organisations for them to function as independent sellers. Companies can then enter into a Best Friends alliance
E-commerce firms like Amazon, can freely dispossess their stakes in the seller’s firm for them to acts as independent sellers. Firms can then forge a Best Friends partnership to proceed with their support to them simultaneously pulling in investors to take care of the investment portion.
“Through Best Friends agreement, for example, Amazon after divesting its equity can get investors to invest in the seller company saying that it will continue its support to the seller but the investments will be done investors,” Ravi Singhania, Managing Partner, Singhania & Partners, told the Financial Express.
“Investors may invest in it even if there is a certain limit by the government ahead,” Anil Joshi, Founder and Managing Partner at Unicorn India Ventures told the Financial Express.
Best Friend partnership can happen theoretically and is easily applicable, stated Kartik Maheshwari, a technology lawyer, Nishith Desai Associates. It may be a faultless argument to be made by the autonomous seller for such agreement that it is attempting to build its brand or develop etc., through the support received by other company, Maheshwari added.
After February 1, 2019, Amazon removed thousands of items retailed by its top dealers Cloudtail and Appario on its commercial center because Amazon possessed indirect stake of 49 per cent in the two sellers, the Financial Express reported.
Although, Cloudtail had reportedly rejoined Amazon with its above 300,000 products after Amazon lowered its holding in the company from 49 to 24 per cent, Reuters had reported earlier.
(With agency inputs)
