The Ministry of Commerce has roped in the Enforcement Directorate, enforcement and foreign exchange departments of the Reserve Bank of India (RBI), Competition Commission of India (CCI) and Income Tax department to examine the allegations raised by RSS affiliate Swadeshi Jagran Manch (SJM) against the Walmart-Flipkart deal.
The instructions came within a week of receiving a formal complaint from SJM.
In a representation on May 24, SJM had asked the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce, to look into the alleged irregularities in various aspects including Foreign Direct Investment (FDI) policy norms, competition and taxation issues in the deal that saw Walmart acquiring home grown e-commerce company Flipkart.
Four days later, DIPP forwarded the copy of the representation to all the concerned departments for examination and appropriate action.
SJM has alleged that Flipkart is illegally carrying out multi brand retail trading through e-commerce by flouting FDI policy norms by creating a complex corporate structure. The letter mentions that Flipkart, while presenting itself as an entity in B2B segment, is operating in both in B2B and B2C segments. The DIPP says that FDI policy as contained in the 'Consolidated FDI Policy Circular 2017' is notified under Foreign Exchange Managcment Act (FEMA), 1999 and hence any violation of FDI regulations is covered by the penal provision of that Act. Similarly, the Reserve Bank of India administers the FEMA and the Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA. Stating that the violation of FDI policy is therefore, subject matter of the RBI/ Enforcement Directorate, it wanted the agencies to look into the matter.
SJM had said that by acquiring 77 percent of shareholding in Flipkart, Walmart was making a back door entry into multi brand retail trade in India which is not permitted under the present foreign direct investment policy.
"Walmart has already made its presence felt in B2B segment and has opened 21 stores and has plans to open 50 more such stores. Acquiring Flipkart at a very high valuation is only on account that through this it would be able to come into B2C segment", Ashwani Mahajan, National Co-convener, SJM had stated in his letter to the DIPP.
He also alleges that Flipkart promoters initially transferred the ownership of the companies operating in India to Singapore and in subsequent years made changes in ownership of the holding company at different valuations without paying any taxes in India on as happened in the Vodafone case.
"Flipkart promoters also segregated the B2C business from the B2B business by creating companies apparently owned by independent persons but actually controlled by them. Our records show that the directors of these companies are mostly employees of Flipkart group of companies. Operations of WS Retail Services Pvt. Ltd and Tech Connect Retail Private Limited can be clearly seen as camouflage for showing that B2B and B2C business are independent of each other. Flipkart India Private Limited, operating in B2B segment has confirmed before Income Tax authorities that it has been selling goods at prices lower than their cost to build brand which is actually Flipkart.com which is an e-commerce platform. The goods are sold to the so called independent companies at prices less than the cost with the conditions that they would be selling those goods only at the e-market places of the same Group. Even the prices of the products offered on e-commerce platform are determined by either the B2B company or e-commerce platform owned and operated by the same Group. This clearly establishes that transactions between B2B companies and B2C companies shown as independent companies are sham transactions and are in contravention of government policy on establishing 'market place'. Another indicator of the fact that these companies are being operated under one management is that these so called independent companies are able to carry on business to the tune of Rs 8000 crore (approx.) annually with a paltry investment of Rs 1.5 crore as share capital", the letter states.
SJM had called for an immediate enquiry into the dubious deal between Flipkart owners and Walmart which has been written outside India but for all the tangible and intangible assets placed in India and an enquiry into the nexus between Flipkart companies and the so called independent B2C companies and how they were allowed to carry on their activities without any objections from the regulators including DIPP in the past. The organisation also wanted the commerce ministry to make a strong representation before the CCI of India to not approve the takeover deal before the results of the enquiries initiated by the government are available.