With the spotlight once again falling on Flipkart, the Enforcement Directorate (ED) has asked Walmart to explain why it shouldn’t face a $1.35 billion fine for alleged violation of foreign investment laws.
The case concerns 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. It should be noted that WS Retail ceased operations at the end of 2015.
In 2018, Walmart took a majority stake in Flipkart for $16 billion. Founder, Sachin Bansal sold his stake to Walmart at the time, while Binny Bansal retained a small stake. As such, Flipkart’s valuation doubled to $37.6 billion in less than three years at a $3.6 billion funding round in July, during which SoftBank Group re-invested in the company ahead of the expected market debut.
The ED had issued a show cause notice in early July in Chennai to Flipkart, its founder Sachin Bansal and Binny Bansal as well as current investor Tiger Global. It also sought an explanation as to why the e-commerce platform should not face a fine of $1.35 billion for the lapses.
A Flipkart spokesperson told Reuters that the company is in compliance with the 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.” A source said Flipkart and others have about 90 days to respond to the notice.
The notice is a major hurdle for the e-commerce platform, which is already facing tougher restrictions and anti-trust investigations in India, and to add to that, there is a growing number of complaints from smaller sellers. The brick-and-mortar retailers believe Amazon and Flipkart favor select sellers on their platforms and use complex business structures to bypass the foreign investment laws. And this hurts the smaller players. However, the platforms have rejected this.
But an investigation by Reuters had highlighted that Amazon had given preferential treatment to a small group of sellers, publicly misrepresented ties with them and used them to bypass the Indian law.