NEW DELHI, Aug 5 : India's financial-crime agency has asked Walmart's Flipkart and its founders to explain why they shouldn't face a penalty of $1.35 billion for alleged violations of foreign investment laws, three sources and an agency official told Reuters.
The Enforcement Directorate agency has been investigating the e-commerce giants Flipkart and Amazon.com Inc for years for allegedly bypassing the foreign investment laws that restrict their special retail deals and strictly regulate such companies to operating a marketplace for sellers.
The Enforcement Directorate official who declined to be named said the case concerned an investigation into allegations that Flipkart was involved with claims of foreign investment and a related party, WS Retail, sold then goods to consumers on its website, which was prohibited under law.
A so-called show cause notice was issued by the agency in the southern city of Chennai in early July to Flipkart, its founders Sachin Bansal and Binny Bansal as well as current investor Tiger Global, to explain why they cannot face a fine of 100 billion rupees for the lapses, said the agency official and the sources who are familiar with the contents of the notice.
A Flipkart spokesperson said the company is in compliance with Indian laws and regulations.
We will work with the authorities as they look at this issue pertaining to the period 2009 - 2015 as per their notice, the spokesperson added.
The Indian Agency does not make public such notices issued to parties during an investigation.
One of the sources said Flipkart and others have around 90 days to respond to the notice. WS Retail added at the end of 2015 to the location - added.
TigerGlobal declined to comment. Sachin Bansal did not respond to requests for comment. The Enforcement Directorate did not respond to an additional comment request.
Flipkart took a majority stake in Walmart for $16 billion in 2018 -- its biggest deal ever. At the time, Walmart sold its stake to Sachin Bansal while Binny Bansal retained a small stake in Walmart. Walmart did not respond to a request for comment.
The value of Flipkart doubled to $37.6 billion in less than 3 years at a $3.6 billion funding round in July, during which SoftBank Group reinvested in the company ahead of an expected market debut.
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 favor small sellers on their platforms and use complex business structures to bypass the foreign investment laws hurting select players. The companies deny any wrongdoing.
The move by Praveen Khandelwal is welcomed on Thursday by the secretary general of the Confederation of All India Traders.
We urge the government to not only impose a heavy fine but also recommend the government ban both these portals unless they follow the law in letter and spirit, said Khandelwal. The Confederation represents millions of M&S stores in India.
Reuters investigation https: www.reuters.com investigates special-report Amazon-Iraq operation based on Amazon documents showed it had given preferred treatment for years to a small group of sellers, publicly misrepresented ties with them and used them to bypass Indian law. Amazon says it gives no preferential treatment to any seller.
After the story, the Enforcement Directorate has asked Reuters for information and documents from Amazon about its business operations. Reuters is reported https: www.reuters.com article US-amazon - India-operations - idUSKBN 2 B 41 F 6.