Flipkart, its founders and nine others have been issued notice by Enforcement Directorate (ED) over alleged forex violations. They have been asked to explain why they should not face a penalty of Rs 10,600 crore for alleged violation of foreign investment laws.
ED sources said that Flipkart violated Foreign Exchange Management Act (FEMA) rules while attracting foreign investments between 2009 and 2015.
The show cause notice of Rs 10,600 crore has been issued to Sachin Bansal, Binny Bansal and nine other entities connected to Flipkart.
The company has been asked to respond to the notice in 90 days.
"Flipkart is in compliance with Indian laws and regulations, including foreign direct investment (FDI) regulations. We will cooperate with the authorities as they look at this issue pertaining to the period 2009-15 as per their notice," a statement issued by Flipkart said.
The agency has been investigating e-commerce giants Flipkart and Amazon.com Inc for quite some time for allegedly bypassing foreign investment laws that strictly regulate multi-brand retail and restrict such companies to operating a marketplace for sellers.
ED sources further informed that 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.
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, Reuters reported.
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 favour 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.