Exclusive: India enforcement agency threatens Flipkart, founders with $1.35 billion fine

© Reuters. FILE PHOTO: Small toy purchasing cart is seen in entrance of displayed Flipkart brand on this illustration taken, July 30, 2021. REUTERS/Dado Ruvic/Illustration

By Aditya Kalra, Aftab Ahmed and Sanjeev Miglani

NEW DELHI (Reuters) – India’s financial-crime company has requested Walmart (NYSE:)’s Flipkart and its founders to clarify why they should not face a penalty of $1.35 billion for alleged violation of overseas funding legal guidelines, three sources and an company official advised Reuters.

The Enforcement Directorate company has been investigating e-commerce giants Flipkart and Amazon.com Inc (NASDAQ:) for years for allegedly bypassing overseas funding legal guidelines that strictly regulate multi-brand retail and prohibit such corporations to working a market for sellers.

The Enforcement Directorate official, who declined to be named, mentioned the case involved an investigation into allegations that Flipkart attracted overseas funding and a associated social gathering, WS Retail, then offered items to shoppers on its purchasing web site, which was prohibited beneath legislation.

A so-called “present trigger discover” was issued in early July by the company’s workplace in southern metropolis of Chennai to Flipkart, its founders Sachin Bansal and Binny Bansal in addition to present investor Tiger International, to clarify why they need to not face a high-quality of 100 billion rupees ($1.35 billion) for the lapses, mentioned the company official and the sources, who’re all conversant in the content material of the discover.

A Flipkart spokesperson mentioned the corporate is “in compliance with Indian legal guidelines and rules”.

“We’ll cooperate with the authorities as they have a look at this problem pertaining to the interval 2009-2015 as per their discover,” the spokesperson added.

The Indian company doesn’t make public such notices issued to events throughout an investigation.

One of many sources mentioned Flipkart and others have round 90 days to answer the discover. WS Retail ceased operations on the finish of 2015, the particular person added.

Tiger International declined to remark. Binny Bansal and Sachin Bansal didn’t instantly reply to requests for remark. The Enforcement Directorate additionally didn’t reply outdoors common enterprise hours.

Walmart took a majority stake in Flipkart for $16 billion in 2018, its greatest deal ever. Sachin Bansal offered his stake to Walmart on the time, whereas Binny Bansal retained a small stake. Walmart didn’t reply to a request for remark.

Flipkart’s valuation doubled to $37.6 billion in lower than 3 years at a $3.6 billion funding spherical in July, throughout which SoftBank Group reinvested within the firm forward of an anticipated market debut.

The discover is the newest regulatory headache for the web retailer, which is already going through more durable restrictions and antitrust investigations in India, and a rising variety of complaints from smaller sellers.

India’s brick-and-mortar retailers say Amazon and Flipkart favour choose sellers on their platforms and use advanced enterprise constructions to bypass the overseas funding legal guidelines, hurting smaller gamers. The businesses deny any wrongdoing.

In February, a Reuters investigation https://www.reuters.com/investigates/special-report/amazon-india-operation primarily based on Amazon paperwork confirmed it had given preferential therapy for years to a small group of sellers, publicly misrepresented ties with them and used them to bypass Indian legislation. Amazon says it offers no preferential therapy to any vendor.

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