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This Time it's Forex Violation with Flipkart

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If facing tougher restrictions including a dash of antitrust investigations in India wasn’t enough, e-commerce giant Flipkart is now slammed with Rs.10,600 crore for violation of foreign exchange law.

This amount happens to be the highest Foreign Exchange Management Act (FEMA) show-cause notice issued by the Enforcement Directorate (ED). The e-commerce giant’s founders Sachin Bansal and Binny Bansal, as well nine other individuals and entities are also accountable to it for deliberately disobeying foreign exchange rules.

Prior to slamming the amount, ED took to sniffing into every nook and cranny of the matter and filed a notice in sync with various sections under the FEMA. No sooner that got covered, ED sent the notice to the associated bunch.

Adding more to the e-commerce giant’s woe, the charges include violation of Foreign Direct Investment (FDI) including those that regulate multi brand retail.

But regardless of how big a name it's carved into the India e-commerce landscape, it faces immense restrictions and accusations in the nation and most are associated with illegal actions done over foreign trade or investments.

What Really Happened?
Flipkart has gotten itself in quite a sticky situation, as these violations are pertinent to its other holding firms, including one in Singapore for having investments from foreign firms between 2009 and 2015. Since the e-commerce giant was caught red handed for not only attracting foreign investments and a related party, WS Retail, but even selling goods to consumers on the latter’s shopping website. As a result, the e-commerce giant was found to be illegally crossing the boundary of the law.

It’s commonly believed that proceedings under the FEMA are civil by nature, but considering the final penalty coupled with post adjudication, it could be quite a hassle as they are three times the amount ordered under the law. Since the notice was filed under various sections under FEMA, the firm is tied with various allegations of the same, while an instance of transfer and issue of security to an individual or entity exists outside the nation.

Then there’s also an allegation about going past or causing disruptions in the competitive space, slating exclusive launches of mobile phones, promotion of select sellers and deep discounting practices. Amazon is also involved in such allegations, although it denied giving any preferential treatment to any sellers. This investigation under the Competition Commission of India has been on for almost a year and yet US firms Amazon and Flipkart received denial to their appeals from the High Court in southern Karnataka state. The two firms are now ordered to appeal to the decision at the nation’s Supreme Court.

Other restrictions and Antitrust Investigations
However, the e-commerce giant has expressed to cooperate with ED as the investigations take place. Since the former says that it's already in compliance with the Indian laws and regulations, and this includes FDI regulations as well. Speaking of FDI rules violation, the firm has been under the eyes of ED since 2012.

Flipkart added, "We would cooperate with the authorities as they investigate this matter pertaining to the period 2009-2015 as per their notice."

Flipkart stated that it would analyze the court's decision and that it would continue to follow Indian laws.

The court's ruling further reinforces that the CCI probe should continue expeditiously, according to Abir Roy of Sarvada Legal, which launched the antitrust action against Amazon and Flipkart on behalf of a trader organization.

The court, according to Flipkart, has failed to address the key issue, which is that the CCI did not follow its own threshold standards before launching an investigation.

The CCI inquiry is the latest setback for Amazon and Flipkart, who are already dealing with the threat of tighter e-commerce laws as well as complaints from brick-and-mortar retailers that the businesses are skirting Indian law by forming complex company structures.

In the dispute, both companies are accused of exclusive mobile phone launches, marketing of chosen merchants on their websites, and heavy discounting techniques that drive out competitors.

Highly displeased with both companies’ responses so far, the Indian government has branded the US firms arrogant and accused them of stalling the inquiry through legal means.

The Walmart company stated in its last comments to a court in Karnataka, that CCI and the court confuse the facts between the cases of Amazon and Flipkart, overlooking the fact that they were fierce competitors.

It backed up its claims by claiming that a business agreement considered by the CCI prior to ordering its investigation was exclusively between Amazon and its vendors, and that no such evidence existed against the Walmart operation.

The claims and evidence against the Appellant before the CCI were qualitatively different from those against Amazon. Flipkart argued that the CCI should have looked at the issue against each of the two sites separately.

Flipkart Files Petition at SC to Cease Antitrust Investigations
Flipkart has filed an appeal with the Supreme Court, appealing a recent judgement by a Karnataka high court to allow the Competition Commission of India (CCI) to continue its probe into the e-commerce company and its competitor Amazon India for potential competition law violations.

The court, according to Flipkart, has failed to address the key issue, which is that the CCI did not follow its own threshold standards before launching an investigation.

Flipkart further stated that the CCI has not identified any arrangement that violates competition law or demonstrated the existence of a prima facie finding of a breach of the Competition Act.

There is also no agreement between the petitioner (the Delhi Vyapar Mahasangh, or DVM) and Flipkart that has been recorded by the CCI, which led to the probe in the first place.

Nevertheless, Flipkart is one of India’s leading e-commerce marketplaces that has more than 30 million products related to different categories at its forte. Stationed in Singapore, the e-commerce major’s technology enables eight million shipments each month, 10 million page visits and 14 state of the art warehouses, it’s no brainer that it's ranked among top go to websites in India, according to Alexa ranking. It not only happens to be India’s first billion dollar ecommerce company, but it's billionaire founders Bansals are also the first e-commerce promoters to place into Forbes India’s richie rich list.

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