New Delhi: In a new turn of events, the Enforcement Directorate has asked Walmart's Flipkart and its founders to give reasons why they should not be levied a penalty of $1.35 billion for alleged violation of foreign investment laws, according to a Reuters report.
What is the alleged violation by Flipkart?
The investigation agency has been looking into the issue of e-commerce giants Flipkart and Amazon.com Inc for allegedly evading foreign investment laws that strictly regulate multi-brand retail and restrict such companies to operating a marketplace for sellers.
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The above case is related to the investigation into allegations that Flipkart attracted foreign investment and a related party, WS Retail, then sold goods to consumers on its shopping portal, which is against the law, as per the Reuter’s official sources in the Enforcement Directorate.
The agency in Chennai issued a "show cause notice" in July to Flipkart founders Sachin Bansal and Binny Bansal along with its current investor Tiger Global seeking an explanation on why they should not face a fine of 100 billion rupees ($1.35 billion) for the lapses, as per the agency.
What’s Flipkart’s stance?
On the other hand, the agency quoted a Flipkart spokesperson saying 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 told the agency.
However, such notices issued to parties during an investigation are not made public. The parties affected including Flipkart and others have around 90 days to respond to the notice. WS Retail ceased operations at the end of 2015. .
In the biggest e-commerce deal, Walmart acquired a majority stake in Flipkart for $16 billion in 2018. Sachin Bansal sold his stake to Walmart, while Binny Bansal retained a small stake.
How does it impact Flipkart?
The current notice is seen as the regulatory hurdle for the online retailer at a time when tougher restrictions and antitrust investigations in India amid the growing number of complaints from smaller sellers make it a difficult proposition for them.
Brick-and-mortar retailers blame the e-commerce giants Amazon and Flipkart for favouring select sellers on their platforms and use complex business structures to bypass the foreign investment laws, hurting smaller players. The companies deny any wrongdoing.
The investigation by Reuters based on Amazon documents has revealed that it had given preferential treatment for years to a small group of sellers, publicly misrepresented ties with them, and used them to bypass Indian law. While Amazon denied such preferential treatment to any seller.