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ED finds FEMA violation against Flipkart, penalty likely to be around Rs 1,000 crore - The Economic Times
After over two years of probe Enforcement Directorate is ready to slap a showcause notice to Flipkart.
Top sources in the Directorate told ET Now that, " Our investigation is over and our Bangalore team has found evidence of FEMA violation against Flipkart." Adding that a showcause notice will be issued soon. The source who refused to be identified explained that India's top e-commerce company had violated provisions of FEMA as WS Retail, the holding company had investments from companies overseas.
FDI norms in India do not allow FDI in e-commerce especially in business to consumer models. In 2013, a year after ED's probe began, Flipkart changed its business model allowing buyers and sellers to deal independently on their platform.
Sources in ED say that, "We are aware of the change in their business model. But we will charge Flipkart for violations till 2013." In fact, as per the FEMA norms, ED can slap a penalty upto three times of the contravention or foreign investment received in this case. ED is likely to showcause the e-tailer over Rs 1000cr as penalty.
"The case has been made out by our investigating team and now the Adjudicating Officer is analyzing the case to take a finally call on the penalty amount" explained a top source in the Directorate. An Adjudicating Officer is a senior official in ED, generally belonging to the rank of a special director. The Adjudicating Officer analyses the investigation report to ensure the case stands the test of law. Officials in ED explain that once a showcause is issued the company is given the opportunity to contest before the Directorate. In fact, the company could also compound the offences by appearing before the RBI and pleading guilty of the contravention. But in most cases of FEMA violations the matter ends up in long protracted litigation. "FEMA cases are civil cases to there is no question of criminal proceedings or attachments" explains an official in the Directorate.
But Flipkart is not the only e-tailer on ED's radar, the Directorate is also probing Myntra. But sources tell ET Now that this probe is only in its initial stages. This probe came to light when in 2012 Anand Sharma the then commerce & industry ministry informed the Parliament about ED's scanner on Flipkart.
