The Enforcement Directorate (ED) has issued a show-cause notice of Rs 10,600 crore to Flipkart and its promoters for alleged violation of the foreign exchange (FEMA) law, official sources told PTI on Thursday, August 5. Responding to the notice, Walmart-owned Flipkart on Thursday said the company is in compliance with Indian laws, including FDI regulations, and will cooperate with the Enforcement Directorate on the notice sent to the e-commerce major.
"We will cooperate with the authorities as they look at this issue pertaining to the period 2009-2015 as per their notice," Flipkart added. According to PTI, the sources said that the notice under various sections of the Foreign Exchange Management Act (FEMA) was issued to a total of 10 notices last month that includes Flipkart, its founders Sachin Bansal and Binny Bansal among others. The notice was issued after completion of the investigation and the charges include violation of foreign direct investment (FDI) rules and those that regulate multi-brand retail, they added.
The case of alleged FDI rules violation against Flipkart has been under the ED scanner since 2012, and the agency, as per official sources, has found alleged violations of FEMA under various counts including an instance of transfer and issue of security to a person/entity outside India. The Commerce and Industry Ministry in 2012 had informed the Lok Sabha that Flipkart was under the ED’s scanner for alleged violation of foreign investment rules. A Finance Ministry official had told the Economic Times that the investigating agency has prima facie evidence that the company has flouted the country’s FDI rules.
In December 2020, the Union government had asked the ED and the Reserve Bank of India (RBI) to take “necessary action” against Amazon and Flipkart for alleged violation of the FDI policy and the Foreign Exchange Management Act (FEMA). It had taken this step based on the complaints filed by the Confederation of All India Traders (CAIT) against the e-commerce giants.
The Department for Promotion of Industries and Industrial Trade (DPIIT), in its letter dated December 22, had forwarded four complaints to the ED and RBI which included: alleged violation of the FDI policy in the deal between Flipkart and Aditya Birla Fashion & Retail; e-commerce players misusing FDI policy in manufacturing for multi-brand retailing of grocery; alleged violation of FEMA rules by Amazon; and “blatant violation” of FDI and FEMA loopholes by Flipkart and Amazon.
Notably, the US-based retail giant Walmart Inc had picked up a 77% stake in Flipkart for $16 billion in 2018. Its founders and many of its investors had taken a partial or complete exit at that time. Sachin Bansal had exited from Flipkart, selling his about 5.5% stake in the company.
Last month, Flipkart Group had announced raising $3.6 billion (about Rs 26,805.6 crore) in funding led by GIC, Canada Pension Plan Investment Board (CPP Investments), SoftBank Vision Fund 2, and Walmart, valuing the e-commerce giant at $37.6 billion.
With this deal, SoftBank re-entered Flipkart's cap table (shows the breakdown of a company’s shareholders’ equity). SoftBank had sold its approximately 20% share when Walmart bought a stake in Flipkart.
(With inputs from PTI)