#flipkart is in for bad news this time with its foreign investments violating the Foreign Exchange Management Act (FEMA). Flipkart has been under the Enforcement Directorate’s radar for violations of FEMA for quite some time now and the result seems to be the possibility of a show-cause notice along with a huge penalty.
According to ET Now, the channel quoted sources from ED as saying, “Our investigation is over and our Bangalore team has found evidence of FEMA violation against Flipkart.” Flipkart since its setup in 2007 has received many major investments from players like Accel Partners, Naspers, and Tiger Global among others. (See: Flipkart funding timeline) FDI in India states that foreign investments in ecommerce are not permitted by law unless the host website acts as a marketplace for buyers and sellers to deal independently. Flipkart had since changed their existing business model and incorporated the ‘marketplace’ model. But this hardly seems to help, since the investigations had begun at an earlier point of time. In recent news, Flipkart had announced the much discussed $1Bn round of funding in June this year. With all the legal developments happening, if sources are to be believed, Flipkart’s penalty could be anywhere near 1,000 Crore INR. There are also speculations that after Flipkart, Myntra is now under ED’s observation. Flipkart’s fundings and finances sure seem to have a tough time.