According to three sources and an agency official, India’s financial-crime branch, the Enforcement Directorate (ED), has asked Walmart’s Flipkart and its founders to justify their argument for not being fined $1.35 billion for alleged violations of foreign investment regulations.
For years, the Enforcement Directorate has been looking into e-commerce conglomerates Flipkart and Amazon.com Inc for allegedly circumventing foreign investment regulations that rigorously control multi-brand retail and limit such businesses to managing a platform for merchants.
According to ED sources, between 2009 and 2015, Flipkart broke the Foreign Exchange Management Act (FEMA) norms when seeking foreign investment.
Sachin Bansal, Binny Bansal, and nine other Flipkart-related businesses have been served with a show cause notice worth Rs. 10,600 crore.
The firm has been given 90 days to reply to the notice.
“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.
The ED has been investigating Flipkart for suspected FDI regulations breaches since 2012, and according to official sources, the agency has discovered alleged FEMA violations on several counts, including a transfer and issue of security to a person or organisation abroad.
Walmart Inc, a US-based retail company, purchased a 77% interest in Flipkart for USD 16 billion in 2018. At that time, the company’s founders and many of its investors made partial or total exits.
Flipkart Group said last month that it had raised USD 3.6 billion (about Rs 26,805.6 crore) in investment led by GIC, CPP Investments, SoftBank Vision Fund 2 and Walmart, valuing the e-commerce firm at USD 37.6 billion.
A Reuters investigation based on Amazon records revealed in February shows that the company had granted a tiny group of merchants special treatment for years, openly misrepresented their relationships with them, and exploited them to circumvent Indian legislation. According to Amazon, no vendor receives special consideration.