E-retailers vs Govt: How this saga will play out now

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The government is intensifying the scrutiny of foreign investments in e-commerce companies. The Enforcement Directorate (ED) just a day ago asked Flipkart and its founders to clarify why they should not be slapped with a $1.35 billion penalty for violating foreign exchange rules.

ED issued notice to E-tailers

Flipkart and Amazon India have been facing the wrath of enforcement agencies and regulating bodies since the beginning of 2020. They have been at the receiving end of the government for issues ranging from foreign direct investment (FDI) violations to matters pertaining to antitrust law.

A show-cause notice was sent by ED to company founders Binny and Sachin Bansal and investors like Accel Partners, Tiger Global, WS Retail, Flipkart Online, Flipkart Pvt. Ltd (Singapore based). Board members Subrata Mitra and Lee Fixel have also received it. All of them have 90 days to put forth their responses.

Flipkart is owned by US retail giant Walmart Inc which holds a 77% controlling stake in the company.

The Enforcement Directorate has carried out investigations on Amazon India and Flipkart for alleged violations of FDI rules that prohibit foreign firms from multi-brand retail. The ED began probing Flipkart in 2012 and uncovered evidence related to Foreign Exchange Management Act (FEMA) violations two years later in 2014.

Early in January, an investigation was launched into Amazon India after the ED had received inputs from the Ministry of Commerce and Industry. The Ministry had sought necessary action against e-commerce firms on matters regarding certain multi-brand business operations.

An e-commerce executive said that notice was sent after so many years to make sure the investigation goes on and claims don’t slip through the cracks.

In January, tax surveys were conducted at the Bengaluru offices of Flipkart and online food delivery company Swiggy by officials in the income-tax department. They were carried out in connection with allegations of tax evasions.

Big Fight

The fight between Flipkart- Amazon and the Competition Commission of India (CCI) remains the biggest. In 2020, the CCI had directed a probe against the e-commerce companies for alleged violation of Section 3 of the competition law.

Both the e-commerce companies argued that the CCI had failed to comply with the threshold requirements of enquiry prior to ordering a probe to be launched. In addition to this, they have alleged that the CCI has no evidence to prove that they had given undue benefits to sellers where they had indirect stakes.