ED warns Flipkart Founders with $1.35bn Fine for Violating Foreign Investment Laws
Flipkart, India's homegrown online marketplace and Amazon's main competitor in the country, could face a massive fine. The Enforcement Directorate Agency, India's financial-crime agency, has asked Walmart-owned Flipkart and its founders to explain why a $1.35 billion penalty should not be imposed.
According to Reuters, the agency is alleging violations of foreign investment laws, citing three people and an agency official as sources. According to an unnamed agency official, 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.
The news comes at a time when Flipkart is already dealing with regulatory issues, stricter restrictions, and antitrust investigations in India. Furthermore, complaints from smaller sellers are increasing.
The notice to the company was issued by the agency's Chennai office last month. Along with Flipkart, its founders Sachin Bansal and Binny Bansal, as well as investor Tiger Global, have been served with the “show causes” notice. It requests an explanation as to why they should not face a fine of 100 billion (approximately $1.35 billion) for the lapses. They have 90 days to respond to the notice, according to reports.
A Flipkart spokesperson told Reuters that the company “is in compliance with Indian laws and regulations,” and that the company “will cooperate with the authorities as they look into this issue pertaining to the period 2009-2015 as per their notice.”
For years, India's Enforcement Directorate has been investigating e-commerce behemoths Flipkart and Amazon for allegedly skirting foreign investment laws that strictly regulate multi-brand retail and limit such companies to operating a marketplace for sellers.
Flipkart, founded in 2007 by Sachin Bansal and Binny Bansal, was purchased by retail behemoth Walmart for $16 billion in 2018. Sachin Bansal sold his stake to Walmart at the time, while Binny Bansal retained a small stake. In July, the company raised $3.6 billion in funding, valuing the Indian e-commerce behemoth at $37.6 billion.
According to Reuters, the agency is alleging violations of foreign investment laws, citing three people and an agency official as sources. According to an unnamed agency official, 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.
The news comes at a time when Flipkart is already dealing with regulatory issues, stricter restrictions, and antitrust investigations in India. Furthermore, complaints from smaller sellers are increasing.
The notice to the company was issued by the agency's Chennai office last month. Along with Flipkart, its founders Sachin Bansal and Binny Bansal, as well as investor Tiger Global, have been served with the “show causes” notice. It requests an explanation as to why they should not face a fine of 100 billion (approximately $1.35 billion) for the lapses. They have 90 days to respond to the notice, according to reports.
A Flipkart spokesperson told Reuters that the company “is in compliance with Indian laws and regulations,” and that the company “will cooperate with the authorities as they look into this issue pertaining to the period 2009-2015 as per their notice.”
For years, India's Enforcement Directorate has been investigating e-commerce behemoths Flipkart and Amazon for allegedly skirting foreign investment laws that strictly regulate multi-brand retail and limit such companies to operating a marketplace for sellers.
Flipkart, founded in 2007 by Sachin Bansal and Binny Bansal, was purchased by retail behemoth Walmart for $16 billion in 2018. Sachin Bansal sold his stake to Walmart at the time, while Binny Bansal retained a small stake. In July, the company raised $3.6 billion in funding, valuing the Indian e-commerce behemoth at $37.6 billion.
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