Govt refers Bharti Wal-Mart, Flipkart cases to ED

The government has referred Bharti Wal-Mart and Flipkart

Online Service’s alleged violation of FDI regulations to the Enforcement Directorate (ED). “Violation of FDI regulation is covered by the penal provisions of the Foreign Exchange Management Act (FEMA). The RBI has informed the matter related to Bharti Wal-Mart/Cedar Support Services and FlipKart Online Services to Directorate of Enforcement for further investigation,” Anand Sharma, Commerce and Industry has said. Retail major Wal-Mart had pumped in Rs 455.8 crores into a subsidiary of Bharti Ventures in 2010 via its Mauritius arm.

Reports say Flipkart.com had allegedly circumvented FDI rules by creating complex structures. It had formed a structure over its backend firm Flipkart Online Services (FOS), which held the Flipkart brand till it was transferred to Flipkart India, another B2B entity, in late 2011. Both entities licensed the brand to B2C firm WS Retail. According to Department of Industrial Policy and Promotion, “e-commerce in both multi- and single-brand retail is not permissible for companies with FDI”.

DIPP’s FDI circular also says wholesale trade would be permitted among companies of the same group. But such wholesale trade to group companies should not exceed 25 per cent of the total turnover of the wholesale venture. Meanwhile, Sharma said that FDI equity inflows during financial year 2011-12 had increased significantly over the previous year. It stood at $35,120 million (Rs 1, 95, 442 crores) in 2011-12.