ED issues notice to Flipkart over ‘violation’ of foreign investment laws

The Enforcement Directorate has asked Walmart’s Flipkart and its founders to explain why they should not face a penalty of $1.35 billion for alleged violation of foreign investment laws, Reuters quoted sources and an agency official as saying.

The Enforcement Directorate has been investigating e-commerce giants Flipkart and Amazon.com Inc for years for allegedly bypassing foreign investment laws that strictly regulate multi-brand retail and restrict such companies to operating a marketplace for sellers.

The case involves 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.

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A ‘show cause notice’ was issued early July by the agency’s office in southern city of Chennai 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 ₹100 billion ($1.35 billion) for the lapses, said the ED official.

A Flipkart spokesperson said the company is “in compliance with Indian laws and regulations”.

“We will cooperate with the authorities as they look at this issue pertaining to the period 2009-2015 as per their notice,” the spokesperson added.

Flipkart and others have around 90 days to respond to the notice. WS Retail ceased operations at the end of 2015.

Tiger Global declined to comment. Binny Bansal and Sachin Bansal did not immediately respond to requests for comment.

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Walmart took a majority stake in Flipkart for $16 billion in 2018, its biggest deal ever. Sachin Bansal sold his stake to Walmart at the time, while Binny Bansal retained a small stake. Walmart did not respond to a request for comment.

Flipkart’s valuation doubled to $37.6 billion in less than three years at a $3.6 billion funding round in July, during which SoftBank Group reinvested in the company ahead of an expected market debut.

India’s retailers say Amazon and Flipkart favour select sellers on their platforms and use complex business structures to bypass the foreign investment laws, hurting smaller players. The companies deny any wrongdoing.