Reports indicate that India’s Enforcement Directorate (ED) has presented e-commerce giant Flipkart with a potential path to resolve its Foreign Exchange Management Act (FEMA) violation case. This option, reportedly extended last week under FEMA’s compounding rules, would allow the Walmart-owned company to close the investigation by admitting its errors and paying a specified penalty.
Sources close to the development suggest the ED requested Flipkart to acknowledge its mistakes, pay a fine, and dismantle any associated seller network. However, in a conflicting statement, ED sources later clarified that no such formal compounding offer has been made to Flipkart.
Meanwhile, Amazon India has also been under the ED’s scrutiny concerning similar FEMA compliance. An Amazon India spokesperson declined to comment on ongoing investigations. An official from another e-commerce firm, speaking anonymously, speculated that the compounding option, if truly extended, could be a strategic move to bolster India’s position in bilateral trade negotiations with the United States.
The compounding rules under FEMA allow companies to voluntarily admit to breaches of the Act and settle the case by paying a penalty, thereby avoiding prolonged enforcement actions.
Both Flipkart and Amazon India have been subject to ED investigations over alleged breaches of FEMA provisions. These investigations often stem from allegations that these e-commerce platforms offer excessive discounts to boost sales.
The ED’s initial show-cause notice to Flipkart and related entities was issued in July 2021. This notice sought a reply regarding potential violations of India’s Foreign Direct Investment rules and regulations between 2009 and 2015. This period predates the acquisition of a majority stake in Flipkart by US retail giant Walmart in 2018.
Further notices were served to Flipkart by the ED for investigations into its business operations post-2016, with the most recent notice arriving in April this year.
Separately, the Competition Commission of India (CCI) is also investigating Flipkart over alleged competition law violations by some of its subsidiaries in India. In September 2024, one of Flipkart’s subsidiaries received a non-confidential version of the CCI Director General’s Investigation Report outlining these alleged breaches.