Flipkart case: Indemnity clause may shield Walmart – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/services/retail/flipkart-case-indemnity-clause-may-shield-walmart/articleshow/85200598.cmsSynopsis

Since the transactions under the scanner is for the period before Walmart took charge of the homegrown etailer, the indemnity clause is expected to protect the global giant from penalty, sources familiar with the exercise said.

(This story originally appeared inon Aug 10, 2021)Flipkart founders, Sachin and Binny Bansal, along with some of the investors may have to bear the burden for alleged violation of FEMA by the e-commerce company, for which the directorate of enforcement (ED) has served a notice.

Since the transactions under the scanner is for the period before Walmart took charge of the homegrown etailer, the indemnity clause is expected to protect the global giant from penalty, sources familiar with the exercise said.

They cited the case of Ranbaxy promoters Shivinder and Malvinder Singh being asked to cough up Rs 3,500 crore, following the acquisition by Japanese major Daiichi Sankyo when it came to light that the brothers had hidden the details of pending investigations.

In this case, ED is currently in the investigation stage and has not established whether there has been a violation or not and has given a chance to 10 entities to respond to its notice.

Last month, ED served notices to 10 entities, including the Bansals, Flipkart Online Services, Flipkart IndiaWS Retail Services, Accel India Ventures II (Mauritius) and its nominee director Subrata Mitra and Tiger Global and its nominee direct Lee Jared Fixel, alleging violation of provisions of FEMA, which governs foreign direct investment.

Walmart bought a majority stake in Flipkart in 2018 in a $16-billion transaction. While a company did not comment on the indemnity clause, a spokesperson suggested that the probe related to an earlier period. “Flipkart is in compliance with Indian laws and regulations, including FDI regulations. We will cooperate with the authorities as they look at this issue pertaining to the period 2009-2015 as per their notice,” the spokesperson said.

While Sachin Bansal declined to comment, Binny Bansal did not respond to a text message. A source related to one of the earlier investors, however, said that Flipkart’s structure has remained largely unchanged.

There are multiple charges against the10 entities. Further, ED has alleged that WS Retail was a “dummy company” set up by the Bansals and made purchases of over Rs10,600 crore from Flipkart Online and Flipkart India in “contravention of the FDI policy” related to wholesale cash and carry business and is liable to pay penalty under FEMA.

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