Three sources and an agency official told Reuters that India’s financial-crime agency has asked Walmart’s Flipkart and its founders to explain why they shouldn’t face a $1.35 billion penalty for allegedly violating foreign investment regulations.
For years, the Enforcement Directorate has been probing e-commerce behemoths Flipkart and Amazon.com Inc for allegedly circumventing foreign investment regulations that govern multi-brand retail and limit such businesses to maintaining a platform for sellers.
The case involved an inquiry into claims that Flipkart solicited foreign investment and a linked business, WS Retail, then sold items to customers on its shopping platform, which was illegal under the law, according to the Enforcement Directorate officer, who did not want to be identified.
The agency’s office in Chennai issued a ‘show cause notice’ to Flipkart, its founders Sachin Bansal and Binny Bansal, as well as current investor Tiger Global, in early July, asking them to explain why they should not face a fine of 100 billion rupees ($1.35 billion) for the lapses, said the agency official and the sources, who are all familiar with the content of the notice.
The firm is ‘in conformity with Indian rules and regulations,’ as per a Flipkart spokeswoman. ‘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.
Such notices sent to parties during an inquiry are not made public by the Indian agency.
According to one source, Flipkart and other companies have 90 days to reply to the notification. WS Retail discontinued its business at the end of 2015, the individual added.
Tiger Global did not respond to a request for comment. Binny Bansal and Sachin Bansal did not immediately respond to requests for comment. The Enforcement Directorate also did not respond outside regular business hours.
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In 2018, Walmart paid $16 billion for a controlling interest in Flipkart, making it the largest acquisition in history. At the time, Sachin Bansal sold his stock to Walmart, but Binny Bansal kept a minor interest. A request for comment from Walmart was not returned.
When a $3.6 billion funding round in July, Flipkart’s valuation more than quadrupled to $37.6 billion in less than three years, with SoftBank Group reinvested in the firm ahead of an expected market debut.
The warning is the latest regulatory problem for the online retailer, which is already dealing with tighter limits, antitrust probes and an increasing number of complaints from smaller vendors in India.
Amazon and Flipkart, according to India’s brick-and-mortar merchants, favour chosen vendors on their platforms and employ complicated company structures to circumvent foreign investment rules, harming smaller businesses. The businesses deny any misconduct on their part.
Based on Amazon documents, a Reuters investigation https://www.reuters.com/investigates/special-report/amazon-india-operation revealed in February that the company had given a small group of sellers preferential treatment for years, publicly misrepresented ties with them and used them to circumvent Indian law. Amazon says it gives no preferential treatment to any seller.
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