Enforcement Directorate’s investigation into e-tailer Flipkart has so far not found the online merchant guilty of violation of FDI rules and any immediate showcause notice to the company was unlikely, sources said, adding that the firm’s business structuring fell in a grey area of law.
If any, serving a showcause notice would be only after detailed consultations with agencies such as FIPB, RBI and finance ministry that are responsible for implementation of the FDI policy and foreign exchange rules. Some of these agencies believe a fool-proof case cannot be built against Flipkart, sources said.
The investigating agency had earlier dropped case against Walmart’s 2010 investment in Cedar Support Services, the holding entity through which Bharti controls its retail chain Easyday.
ED was told to investigate whether Flipkart operated any retail business between 2008 and 2012 when it had received close to $180 million foreign direct investments in violation of the policy that prohibited multibrand retail operations by foreign-funded entities.
Sources told FE that the questions involved in the probe squarely fall in a grey area in law. These questions include whether having an association with an online retail company (performing business to consumer sales) would make an FDI-funded online wholesale trader such as Flipkart guilty of foreign investment rules.
“Foreign Exchange Management Act only deals with compliance in receiving foreign investment by entities in specified sectors. Investigating what the company does with such funds is not within the scope of this law,” said a source.
Gireesh Chandra Prasad | The Financial Express