We are halfway through 2021 and still, things have not improved for US-based firms in the world’s second-largest internet market. Not only did CCI receive the nod to continue its investigation into American e-commerce companies Flipkart and Amazon, business was also restricted thanks to a new set of guidelines, as India continues to regulate internet based businesses.
Now, according to a report by Reuters, Walmart’s Flipkart faces yet another challenge after it was slammed with the biggest FEMA show-cause notice by India’s financial crime agency, the Enforcement Directorate (ED).
Flipkart and Amazon have been accused of leveraging their dominant status in the market to stifle competition, favor certain sellers, and bypass foreign investment laws that regulated multi-brand retail and restrict such companies to operate a marketplace for sellers. This time, the ED has asked Flipkart and its founders to provide an explanation as to why they should not be facing a penalty of $1.35 billion for allegedly flouting the foreign exchange rules of the land. It is said that Flipkart has nearly 90 days to respond to the show-cause notice.
According to an ED official, this concerns an investigation that alleges that the 14-year-old Flipkart violated the regulations of FEMA as it attracted foreign investment from 2009 to 2015, and then selling goods to consumers on its shopping website, which was prohibited under law. The Bengaluru-based Flipkart is one of the biggest names in the e-commerce sector in India. Walmart had acquired a stake in Flipkart in a record deal of $16 billion three years ago. Tiger Global has invested in several firms this year, some of which have evolved into unicorns.
It is not only the founders of Flipkart – Sachin and Binny Bansal – but also nine other entities/ individuals linked to the e-commerce powerhouse, including Tiger Global, who have fallen victim to the notice. The ED charged them by an order issued under Foreign Exchange Management Act (FEMA) back in July.
According to a Flipkart spokesperson, the firm complied with the laws and regulations of the land, and would be cooperating with the proper authorities as they looked at the issue pertaining to the period 2009-15 “as per their notice.”