Walmart’s Flipkart and its founders will be fined $1.35 billion

According to reports, three people familiar with the situation and a government agency official revealed that the Indian Financial Crime Investigation Agency has asked Walmart’s Flipkart and its founders to explain why they should not be suspected of being involved. Violating the foreign investment law and facing a penalty of $1.35 billion.

For many years, the Indian Enforcement Agency has been investigating e-commerce giants Flipkart and Amazon for allegedly bypassing investment laws that strictly regulate multi-brand retail and restricting such companies from operating markets for sellers.

An Indian Law Enforcement Bureau official who refused to disclose his identity stated that the case involved an investigation into Flipkart’s allegations that Flipkart attracted investment and related parties, WS Retail, and then sold goods to consumers on its shopping website, which is prohibited by law.

The investigating agency official revealed that in early July this year, the agency had already reported to Flipkart, the company’s founders Sachin Bansal, Binny Bansal, and current companies in Chennai, southern India. Tiger Global, an investor, sent a notice asking them to explain why they should not face a fine of 100 billion rupees for these wrong practices.

A spokesperson for Flipkart said the company has been abiding by Indian laws and regulations. The spokesperson also added: We will cooperate with the authorities, and in accordance with their notice, the regulator is studying this issue related to the period 2009-2015.

Under normal circumstances, Indian institutions will not issue such public notices to all parties during the investigation. A source revealed that Flipkart and other companies have about 90 days to go back and forth to be notified. The person added that WS Retail ceased operations at the end of 2015.

Tiger Global declined to comment on this. Bini Bansal and Sachin Bansal did not immediately respond to requests for comment. As it was not during normal office hours, the Indian Law Enforcement Agency did not respond to a request for comment.

In 2018, Wal-Mart spent $16 billion to acquire most of Flipkart’s shares, which was the largest transaction that Wal-Mart has ever conducted. Sachin Bansal sold his shares to Wal-Mart at the time, while Bini Bansal retained a small portion of the shares. Wal-Mart did not respond to a request for comment.

After less than 3 years, Flipkart completed a $3.6 billion round of financing in July this year, and its valuation doubled to $37.6 billion. Before the expected IPO, the SoftBank Group reinvested in the company.

For the Indian online retail giant, the notification from the regulator has become its latest challenge. The company is already facing stricter restrictions and antitrust investigations in India, and complaints from small sellers are increasing.

Physical store sellers in India said that Amazon and Flipkart favored specific sellers on their platforms and used complex business structures to bypass investment laws, hurting small businesses. However, the two companies have denied any wrongdoing.

In February of this year, an investigation revealed that Amazon has been providing preferential treatment to a small group of sellers for many years, and concealed their relationship with them in public, using these sellers to bypass Indian laws. Amazon previously stated that it did not provide preferential treatment to any sellers.

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