India’s EXCLUSIVE law enforcement agency threatens Flipkart and its founders with $ 1.35 billion fine – sources

NEW DELHI, Aug.5 (Reuters) – India’s financial crime agency has asked Walmart’s Flipkart (WMT.N) and its founders to explain why they shouldn’t face a $ 1.35 billion fine of dollars for alleged violation of foreign investment laws, three sources and an agency official told Reuters.

The Law Enforcement Branch’s agency has for years investigated e-commerce giants Flipkart and Amazon.com Inc (AMZN.O) for allegedly circumventing foreign investment laws that strictly regulate selling to multi-brand retail and limit these businesses to operating a marketplace for sellers.

The head of the Enforcement Branch, who declined to be named, said the case concerned an investigation into allegations that Flipkart attracted foreign investment and a related party, WS Retail, subsequently sold goods to consumers on its shopping website, which was prohibited by law.

A so-called “justification notice” was issued in early July by the agency’s office in the southern city of Chennai at Flipkart, its founders Sachin Bansal and Binny Bansal as well as current investor Tiger Global, to explain why they should not face a fine. 100 billion rupees ($ 1.35 billion) for the losses, said the agency official and the sources, all of whom know the contents of the notice.

A spokesperson for Flipkart said the company was “in compliance with Indian laws and regulations.”

“We will cooperate with the authorities as they examine this issue for the period 2009-2015 in accordance with their advice,” the spokesperson added.

The Indian agency does not make public these notices issued to the parties during an investigation.

One of the sources said Flipkart and others have around 90 days to respond to the review. 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 Directorate of Enforcement also did not respond outside of normal office hours.

Walmart took a controlling 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 kept 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 in a $ 3.6 billion funding round in July, in which SoftBank Group (9984.T) reinvested in the company before an expected start in the market. Read more

The notice is the latest regulatory headache for the online retailer, which already faces tighter restrictions and antitrust investigations in India, and a growing number of complaints from small sellers.

Traditional Indian retailers claim that Amazon and Flipkart favor certain sellers on their platforms and use complex business structures to circumvent foreign investment laws, hurting small players. The companies deny any wrongdoing.

In February, a Reuters investigation based on Amazon documents showed it was giving preferential treatment for years to a small group of sellers, publicly distorting its ties to them, and using them to circumvent Indian law. Amazon says it doesn’t give preferential treatment to any seller.

Reporting by Aditya Kalra, Aftab Ahmed and Sanjeev Miglani in New Delhi; Sankalp Pharityal Supplementary Reports; Editing by Kirsten Donovan

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