According to three people familiar with the matter and a government agency, India's Financial Crimes Agency has reportedly asked Walmart-owned Flipkart and its founders to explain why they should not face a $1.35 billion penalty for allegedly violating foreign investment laws official.
For years, India's Enforcement Agency has been investigating e-commerce giants Flipkart and Amazon for allegedly bypassing foreign investment laws that strictly regulate multi-brand retailing and restrict such companies from operating marketplaces for sellers.
An Indian enforcement agency official, who declined to be identified, said the case involves an investigation into allegations that Flipkart attracted foreign investment and affiliated WS Retail and then sold goods to consumers on its shopping site, a practice prohibited by law.
The investigating agency official revealed that it had sent notices to Flipkart, the company's founders Sachin Bansal and Binny Bansal, and current investor Tiger Global in the southern Indian city of Chennai in early July this year, asking them to explain why they should not be held responsible for these wrongdoings and face a fine of Rs. 100 billion (about $1.35 billion).
A spokesperson for Flipkart said the company "has been complying with Indian laws and regulations. The spokesperson added: "We will work with the authorities, and as per their notification, the regulator is looking into this issue related to the period 2009-2015."
Typically, Indian agencies do not issue such public notifications to parties during investigations.
Flipkart and other companies have about 90 days to respond to that notice, a source said. WS Retail ceased operations at the end of 2015, the person added.
Tiger Global declined to comment on the matter. Binny Bansal and Sachin Bansal did not immediately respond to requests for comment. The Indian Enforcement Agency also did not respond to requests for comment as it was not in regular office hours.
In 2018, Walmart bought a majority stake in Flipkart for $16 billion, the largest deal Walmart has ever made. Sachin Bansal sold his stake to Walmart at the time, while Binny Bansal retained a small portion. Walmart did not respond to a request for comment.
Just under three years later, Flipkart closed a $3.6 billion funding round in July this year, doubling its valuation to $37.6 billion. The SoftBank Group reinvested in the company ahead of an expected IPO.
For the Indian online retail giant, a notice from the regulator has become its latest challenge. The company is already facing tighter restrictions and antitrust investigations in India, and complaints from smaller sellers are becoming more frequent.
Indian brick-and-mortar sellers say Amazon and Flipkart have hurt small businesses by favoring specific sellers on their platforms and using complex business structures to bypass foreign investment laws. But both of these companies deny any wrongdoing on their part.
In February, an investigation revealed that Amazon had been giving preferential treatment to a small group of sellers for years and using them to bypass Indian laws by concealing its relationship with them in public. For its part, Amazon previously said that it did not offer preferential treatment to any sellers.
