Flipkart Served Rs 10,600 Cr Show-Cause Notice for Forex Contraventions

The Quint
·2 min read

Indian e-commerce company Flipkart has been pulled up by the Enforcement Directorate (ED) under the Foreign Exchange Management Act (FEMA), for its alleged contravention of foreign exchange rules. The ED has imposed a show-cause notice of Rs 10,600 crore on the founders, Sachin Bansal and Binny Bansal, as well as nine others linked to the company.

The ED is investigating Flipkart for flouting various forex provisions, including those dealing with transfer and issue of security to an entity outside India, as per a report by The Business Standard.

The online retailing company has come under the ED's radar for allegedly attracting foreign investment, and using a related party, WS Retail, to then sell goods to users on its website, Reuters reported.

The ED has been probing Walmart-owned Flipkart and e-commerce giant Amazon for years, for allegedly evading foreign investment laws that limit such companies to operate a marketplace for sellers, Reuters reported.

"The company was found to have indulged in multi-brand retailing while it claimed it was engaged in wholesale trading activities," an ED source told The Business Standard.

Flipkart's founders, as well as the company's current financial backer, Tiger Global, had been served ED's biggest show-cause notice of Rs 10,600 crore in July, asking them to demonstrate why they should not suffer a Rs 100 billion fine for their breaches.

A Flipkart spokesperson told Reuters that the firm is "in compliance with Indian laws and regulations," adding that the company will cooperate with the authorities on the issue pertaining to the period 2009-2015.

The online retailing company has 90 days to respond to ED's notice.

Previous Allegations Against Flipkart

The Confederation of All India Traders (CAIT) in December 2020 had urged the Reserve Bank of India and the ED to take action against Amazon, Flipkart, and Walmart, for their allegedly illegitimate structuring and investment practices, which were in violation of FEMA provisions and the foreign direct investment (FDI) policy, The Financial Express had reported.

CAIT had raised objections to the Rs 1,500 crore deal between Flipkart Group and Aditya Birla Fashion and Retail (ABFRL), alleging that it went against the FDI policy, due to Flipkart's evident intent to make ABFRL a preferred seller on its platforms, FE reported.

The FDI policy restricts a foreign company from venturing into any form of multi-brand retail trading by having any equity interests in the sellers on its marketplace platform.

Flipkart had acquired a 7.8 percent stake in Aditya Birla Fashion in October 2020.

(With inputs from Reuters and The Business Standard)

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