After US retail giant Wal-mart, the Enforcement Directorate has come after homegrown Flipkart for alleged violation of the existing FDI rules, Medianama reported earlier today.
Flipkart is under the scanner for flouting FDI rules which allow e-commerce companies with foreign investment to carry out business-to-business transactions but not business to consumer transactions.
To date, Flipkart has raised $180 million dollars from Tiger Global and Accel Partners .Screengrab from site
A Press Information Bureau release following a written reply in the Lok Sabha by Dr S Jagathrakshakan, Minister of Commerce and Industry stated:
“Violation of FDI regulations is covered by the penal provisions of the Foreign Exchange Management Act, 1999 (FEMA). The Reserve Bank of India has informed that matters related to Bharti Wal-Mart/ Cedar Support Services Limited and M/s Flipkart Online Services Pvt. Limited, respectively, have been referred to the Directorate of Enforcement for further investigation.”
In an earlier notification by the Ministry of Commerce and Industry, the government had decided not to allow online sales by companies which have foreign investors.
To date, Flipkart has raised $180 million dollars from Tiger Global and Accel Partners, with the latest round of funding that came in February earlier this year where the existing investors pumped in $150 million.
Industry experts note that clarity on the issue is absolutely vital especially when the industry is growing exponentially. “Most companies are breaking the law in spirit. I hope that this probe brings come clarity on the issue and we get closure on this. The industry cannot grow when are there are so many grey areas,” said K Vaitheeswaran founder and CEO of Indiaplaza.com, one of the early e-commerce ventures.
Disclosure: Firstpost is owned by Network18 that also owns Homeshop18 that competes with Flipkart
