Flipkart, founders could face Rs10,000-cr fine for flouting FDI rules, say reports
09 August 2021
The Enforcement Directorate (ED) the agency that investigates economic offenses in the country, has asked Walmart-owned Flipkart and its founders to explain why they shouldn't face a penalty of Rs10,600 crore ($1.35 billion) for alleged violation of foreign investment regulations, reports citing sources close to the development said.
Reports citing ED sources said Flipkart violated Foreign Exchange Management Act (FEMA) rules while attracting foreign investments between 2009 and 2015.
The show-cause notice has been issued to Sachin Bansal, Binny Bansal and nine other entities connected to Flipkart, it added.
The Enforcement Directorate has been investigating e-commerce giants Flipkart and Amazon.com Inc for years for allegedly bypassing foreign investment regulations that strictly prohibt multi-brand retail and restrict such companies to operating only a marketplace for sellers.
Reports citing an unnamed ED official said the case concerned an investigation into allegations that Flipkart attracted foreign investment and a related party, WS Retail, then sold goods to consumers on its shopping website, which was prohibited under law.
WS Retail, however, ceased operations at the end of 2015.
The Chennai office of the ED is reported to have issued the “show cause notice” in early, to Flipkart, its founders Sachin Bansal and Binny Bansal as well as current investor Tiger Global, to explain why they should not face a fine of Rs10,000 crore ($1.35 billion) for the lapses.
Flipkart, however, said it is in full compliance of all Indian laws and regulations. "Flipkart is in compliance with Indian laws and regulations, including foreign direct investment (FDI) regulations. We will cooperate with the authorities as they look at this issue pertaining to the period 2009-15 as per their notice," a statement issued by Flipkart said.
“We will cooperate with the authorities as they look at this issue pertaining to the period 2009-2015 as per their notice,” a spokesperson added.
Reports also said Flipkart and others have around 90 days to respond to the notice. The ED did not make any statement regarding any such notice issued to Flipkart or related parties.
US retailer Walmart acqired a majority stake in Flipkart for $16 billion in 2018, its biggest deal. Sachin Bansal sold his stake to Walmart at the time, while Binny Bansal retained a small stake.
Flipkart's valuation doubled to $37.6 billion in less than 3 years at a $3.6 billion funding round in July, during which SoftBank Group reinvested in the company ahead of an expected market debut.
Flipkart is already facing tougher restrictions and antitrust investigations in India amidst rising complaints from smaller sellers that e-commerce firms like Flipkart and Amazon favour select sellers and use complex business structures to bypass the foreign investment laws, hurting smaller players.
Reports had earlier pointed to Amazon giving preferential treatment to a small group of sellers, by misrepresenting ties with them to bypass Indian law. Amazon has denies giving any preferential treatment to any seller.