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Indian authorities are threatening to fine Walmart-owned ecommerce group Flipkart and its founders for alleged historic violations of the country’s foreign investment laws.
Flipkart confirmed on Thursday that it was under investigation by the country’s Enforcement Directorate, with reports saying the group faced a fine of $1.35bn.
The development comes after Flipkart last month raised $3.6bn in a funding round that valued the company at more than $37bn. Walmart led the round alongside Japan’s SoftBank and Singapore’s sovereign wealth fund GIC.
India’s Enforcement Directorate, an agency that investigates financial crimes, launched a probe into Flipkart in 2014 to determine whether the start-up was violating a ban at the time on foreign direct investment in the retail sector.
Flipkart was founded in 2007 by two former Amazon employees and raised money from foreign investors early on to grow its platform, which became emblematic of India’s flourishing digitalisation and start-up sector.
Walmart purchased a controlling stake in Flipkart for $16bn in 2018, the biggest-ever single foreign direct investment in India.
Flipkart said the Enforcement Directorate probe related to activities between 2009 and 2015, but that the company “will co-operate with the authorities”.
“Flipkart is in compliance with Indian laws and regulations, including FDI regulations,” it said in a statement.
Flipkart declined to confirm the amount of the potential fine, but Reuters and India’s Business Standard reported that the Enforcement Directorate was seeking $1.35bn.
Enforcement Directorate officials did not respond to requests for comment. Flipkart’s founders, Sachin Bansal and Binny Bansal, could not be reached for comment.
A person familiar with the matter said 10 individuals or entities, all current or former shareholders, as well as the company itself, had received notices regarding the matter. The individuals reportedly included the two founders.
The legal notice marked the latest challenge for Walmart-owned Flipkart, which many analysts believe is gearing up for an initial public offering next year. The group is in a fierce battle with global rival Amazon and powerful industrialist Mukesh Ambani’s Reliance Jio.
A few months after Walmart purchased its stake in Flipkart, Prime Minister Narendra Modi’s government imposed strict rules on ecommerce companies in response to an outcry from local retail lobbyists that saw online rivals as a grave threat.
Modi’s government is also considering sweeping consumer protection rules that would make ecommerce groups liable for any problems or defects in the merchandise they sell.
India’s complex rules governing FDI in retail and ecommerce have changed repeatedly over the years and New Delhi has long thwarted the entry of foreign-owned bricks-and-mortar multi-brand retailers into the local market.
When Flipkart was founded out of a Bangalore bedroom, India’s nascent online retail sector was largely unregulated.
The group’s founders raised money from foreign funds including Silicon Valley-based Accel Partners and New York’s Tiger Global Management.
Amid growing clamour from small businesses, India’s then-ruling Congress party in 2012 banned any foreign ownership of internet retailers, forcing Flipkart to restructure its operations.
Flipkart and Amazon face continued scrutiny from domestic agencies, including an investigation by the Competition Commission of India.
The politically influential Confederation of All India Traders, which represents mom-and-pop shops and large distributors, hailed the Flipkart probe and called for similar action against Amazon.
Additional reporting by Jyotsna Singh in New Delhi and Andrea Rodrigues in Mumbai