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Flipkart Faces $1.35bn Fine Threat Over Alleged Foreign Investment Law Breaches

India’s Enforcement Directorate claims e-commerce giant bypassed rules; Online retailer and Amazon already target of Indian antitrust probe


The notice is the latest regulatory headache for the online retailer. Photo: Reuters

• India’s Enforcement Directorate claims e-commerce giant bypassed rules

• Online retailer and Amazon already target of Indian antitrust probe

 

Walmart’s Flipkart and its founders have been threatened with a $1.35 billion fine by India’s financial-crime agency over allegations that they broke foreign investment laws.

An Enforcement Directorate official told Reuters the case concerned an investigation into claims 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 agency has been investigating e-commerce giants Flipkart and Amazon.com Inc for years for allegedly bypassing its foreign investment laws which strictly regulate the marketplace.

 

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The notice is the latest regulatory headache for the online retailer, which is already facing tougher restrictions and antitrust investigations in India, and a growing number of complaints from smaller sellers.

India’s brick-and-mortar retailers say Amazon and Flipkart favour select sellers on their platforms and use complex business structures to bypass the foreign investment laws, hurting smaller players. The companies deny any wrongdoing.

A so-called “show cause notice” was issued in early July by the agency’s office in southern city of Chennai to Flipkart, its founders Sachin Bansal and Binny Bansal, as well as current investor Tiger Global, demanding an explanation as to why they should not face a fine of 100 billion rupees ($1.35 billion) for the lapses, the agency official claimed.

 

COOPERATION PLEDGE

A Flipkart spokesperson said 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 added.    

It’s believed Flipkart and the others have around 90 days to respond to the notice. WS Retail ceased operations at the end of 2015.

Walmart took a majority stake in Flipkart for $16 billion in 2018, its biggest deal ever. Sachin Bansal sold his interests to Walmart at the time, while Binny Bansal retained a small stake.

 

VALUATION DOUBLED

Flipkart’s valuation has doubled to $37.6 billion in less than three years after a $3.6 billion funding round in July, during which SoftBank Group reinvested in the company ahead of an expected market debut.

The Indian agency’s move was welcomed on Thursday by Praveen Khandelwal, secretary general of the Confederation of All India Traders.

“We urge them to not only impose a heavy fine but recommend the government ban both these portals unless they follow the law in letter and spirit,” said Khandelwal. The confederation represents millions of mom-and pop stores in India. 

 

  • By Reuters and Sean O’Meara

 

Read more:

Walmart’s Flipkart Takes Antitrust Probe Challenge to Indian Supreme Court

Indian small traders fight back Amazon, Walmart-Flipkart

 

Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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