ED offers Flipkart to close FEMA violation case by paying penalty, admitting mistake

The Enforcement Directorate (ED) is learnt to have offered the option of closing a FEMA violation case against e-commerce major Flipkart if the Walmart group firm admits its mistake and pays a penalty, sources aware of the development said.

The option was given by the Enforcement Directorate to Flipkart last week under the compounding rules of FEMA (Foreign Exchange Management Act).

"ED has given the option of compounding to Flipkart. ED has asked Flipkart to admit its mistake, pay a penalty and dismantle the seller network associated with it," a source told PTI.

An email query sent to Flipkart elicited no reply.

The ED had also summoned Amazon India to check the status of the company.

When contacted, an Amazon India spokesperson said, "We do not comment on ongoing investigations..

A query sent to ED in this matter also received no response.

An official of one of the e-commerce firms, on condition of anonymity, said that the compounding option given by ED is to strengthen India's negotiating power during the ongoing bilateral trade negotiation with the US.

The compounding rules allow companies to voluntarily admit breach of the provision under the FEMA and settle the case by paying a penalty for the contraventions without undergoing lengthy enforcement actions.

Flipkart and Amazon India have been under ED scrutiny for alleged breach of FEMA provisions.

There have been allegations that these companies are pushing discounts on their platform to garner sales.

The ED had first issued a show cause notice to Flipkart, related firms and individuals in July 2021, seeking its reply as to why further proceedings under India's Foreign Direct Investment rules and regulations should not be initiated against them based on alleged violations during the period from 2009 to 2015.

The notice was related to the period between 2009 and 2015, before the majority stake in Flipkart was acquired by the US major Walmart.

Walmart had acquired a majority stake in Flipkart in 2018.

ED has also served notice to Flipkart even after acquisition by Walmart for investigation in its business after 2016 as well.

The most recent notice was served to the company in April this year.

The Competition Commission of India is also conducting an investigation against Flipkart regarding alleged competition law violations by certain subsidiaries of Flipkart in India and other parties.

In September 2024, a non-confidential version of the CCI DG's Investigation Report was received by one of the Flipkart subsidiaries that alleged certain competition law violations.