E-commerce giant Flipkart has been offered the option of admitting its mistake and paying a penalty to close a case regarding Foreign Exchange Management Act (FEMA) rules violation, revealed sources aware of the development.
The offer was made by the Enforcement Directorate (ED) to the Walmart group firm last week under the compounding rules of FEMA, the source added, although Flipkart has not made any comments regarding this so far.
“ED has given the option of compounding to Flipkart, asking it to admit its mistake, pay a penalty and dismantle the seller network associated with it,” the source told a news agency.
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.
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An official of one of the e-commerce firms shared on condition of anonymity that the compounding option given by ED is “to strengthen India’s negotiating power during the ongoing bilateral trade negotiation with the US”.
Flipkart and Amazon India have been under ED’s scrutiny for alleged breach of FEMA provisions that include pushing discounts on their platforms 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 (FDI) rules and regulations should not be initiated against them based on alleged violations during the period from 2009 to 2015 – before a majority stake in Flipkart was acquired by US major Walmart in 2018.
The most recent notice was served to the company in April this year.
Meanwhile, 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.
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