‘Admit mistake, pay penalty’: ED offers to close FEMA violation case against Flipkart on conditions — What we know

The Enforcement Directorate (ED) has offered to close the Foreign Exchange Management Act (FEMA) violations-related probe against e-commerce major Flipkart, under certain conditions, PTI reported, citing sources.

The agency has told Flipkart that the case could be concluded if it admits wrongdoing and pays a penalty. “ED has given the option of compounding to Flipkart. ED has asked Flipkart to admit its mistake, pay a penalty and dismantle the seller network associated with it,” a source told PTI.

Flipkart did not respond to queries, the report added.

Notably, the ED is also investigating Amazon India for similar allegations related to discounts and competition law violations. When contacted, an Amazon India spokesperson said, “We do not comment on ongoing investigations.”

ED offers to shut FEMA case against Flipkart: What we know

• ED has offered Walmart-owned Flipkart the option of closing a FEMA violation case if the firm admits its mistake and pays a penalty, sources told PTI.
• The option was given by the Enforcement Directorate to Flipkart last week under the compounding rules of FEMA, it said.
• The ED did not respond to PTI queries, but sources in the investigation agency told PTI that no such offer has been made.
• However, one of the company's officials told the agency that the compounding option given by ED is to strengthen India's negotiating power during the ongoing bilateral trade negotiations with the US.

What are compounding rules?

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.

Flipkart and Amazon India have been under ED scrutiny for alleged breach of FEMA provisions.

What are the allegations against Flipkart, Amazon India?

• Flipkart and Amazon India have been accused of pushing discounts on their platform to garner sales.
• ED first issued a show cause notice in July 2021 to Flipkart, related firms and individuals, seeking response as to why 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.
• The notice was related to the period between 2009 and 2015, before the majority stake in Flipkart was acquired by the US major Walmart in 2018.
• The most recent notice was served to the company in April this year.

CCI probing Flipkart for similar violations

The Competition Commission of India (CCI) 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.

(With inputs from PTI)