The Enforcement Directorate agency has been investigating
e-commerce giants Flipkart and Amazon.com Inc for years for allegedly bypassing
foreign investment laws that strictly regulate multi-brand retail and restrict
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
attracted foreign investment and a related party, WS Retail, then sold goods to
consumers on its shopping website, which was prohibited under law.
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, to
explain why they should not face a fine of 100 billion rupees ($1.35 billion)
for the lapses, said the agency official and the sources, who are all familiar
with the content of the notice.
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.
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 ceased operations at the end of 2015,
the person added.
Tiger Global declined to comment. Binny Bansal and Sachin
Bansal did not immediately respond to requests for comment. The Enforcement
Directorate also did not respond outside regular business hours.
Walmart took a majority stake in Flipkart for $16 billion in
2018, its biggest deal ever. Sachin Bansal sold his stake to Walmart at the
time, while Binny Bansal retained a small stake. Walmart did not respond to a
request for comment.
Flipkart’s valuation 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 select sellers on their platforms and use complex business structures to
bypass the foreign investment laws, hurting smaller players. The companies deny
any wrongdoing.
In February, a Reuters investigation based on Amazon
documents showed it had given preferential 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.
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