The Enforcement Directorate is looking into alleged violation of foreign direct investment regulations by e-retailer Flipkart Online Services and the cash and carry chain Bharti Walmart, commerce and industry minister Anand Sharma said on Monday.
The Reserve Bank of India has referred the possible circumventing of law by the two companies to the ED, Sharma told the Lok Sabha.
"References alleging that some companies are carrying out activities in violation of the FDI policy have been received. Violation of FDI regulations is covered by the penal provisions of the Foreign Exchange Management Act, 1999," Sharma said in a written reply, adding that Flipkart and Bharti Walmart were the two companies referred to the ED for further investigation by the RBI.
Flipkart has allegedly flouted rules which allow e-commerce companies with foreign investment to carry out business-to-business or B2B transactions but not business to consumer or B2C transactions by creating complex structures that may not be permissible.
E-commerce companies with foreign investments are allowed to do wholesale trading with B2C companies that are unrelated and can do wholesale trading with a group company only if it does not exceed 25 per cent of its total turnover and is used for internal consumption.
The Enforcement Directorate is also probing the Bharti Walmart joint venture for possible violation of foreign exchange norms.
The US retailer has invested $100 million in the holding company Bharti Retail which operates front-end retail stores. A Communist Party MP had complained that this violated Indian rules as this investment took place when FDI in retail was barred in this country.