Flipkart, the showpiece of India's online retail industry, is under regulatory scanner for probable violation of foreign exchange laws.
The Enforcement Directorate (ED), which tracks money laundering deals that involve overseas transactions, is "looking at the possibility" to tender a show-cause notice to Flipkart for alleged violation of foreign investment rules. Foreign direct investment (FDI) is not allowed in e-commerce companies that sell directly to customer, though it is allowed in portals that act as a platform for vendors to showcase and sell their products.
A clutch of foreign private equity players — Accel Partners, Naspers, and Tiger Global among others — have invested millions of dollars in Flipkart since it was set up in 2007
"We are looking into the possibility of issuing a show-cause notice under the Foreign Exchange Management Act (Fema) to Flipkart," said a senior ED official requesting anonymity. The ED officials declined to peg a figure of the alleged Fema violation saying the probe it still on.
The investigation dates back to 2012. "The RBI has informed ….that matters related to Flipkart Online Services have been referred to the directorate of enforcement for further investigations," the commerce minister said in its written reply in Lok Sabha on December 3, 2012.
FDI norms allow foreign investment only in those online companies that have a "marketplace model".
Flipkart, set up by two former Amazon.com employees — Sachin and Binny Bansal — had switched over to the marketplace model after the government made it clear that policies do not allow foreign investment in direct e-retail ventures in India.
But the investigation pertains to the period before the switch.
"Flipkart is in complete compliance with the laws of the land. We will continue to support the authorities whenever we are approached," said a Flipkart spokesperson.