StartupTalky

Tag: Foreign Exchange Management Act

  • ED Allows Flipkart to Settle FEMA Violation Case by Paying Penalty

    According to various media reports, the Enforcement Directorate (ED) has offered to close a FEMA violation case against the Walmart group company Flipkart, provided it acknowledges its error and pays a fine.

    Flipkart was granted the option last week by the Enforcement Directorate in accordance with the Foreign Exchange Management Act’s (FEMA) compounding provisions. Flipkart has been given the option to compound, according to a PTI report. Flipkart has been requested by ED to acknowledge its error, pay a fine, and shut down the seller network connected to it.

    ED Also Summoned Amazon

    Amazon India was also called by the ED to enquire about the company’s condition. An Amazon India representative who was contacted stated that the business does not comment on investigations that are still underway.  But according to ED sources, they haven’t offered Flipkart any offers regarding compounding.

    The compounding option provided by the ED is intended to increase India’s bargaining position in the current bilateral trade negotiations with the United States, according to an official of one of the e-commerce companies who spoke on condition of anonymity.

    Without having to deal with drawn-out enforcement processes, firms can use the compounding rules to freely admit violations of the FEMA regulation and settle the case by paying a penalty for the violations. The ED has been investigating Flipkart and Amazon India for allegedly violating FEMA regulations.

    Why E-Commerce Players are Under ED Scanner?

    Allegations have been made that these businesses are using their platform to promote deals in an effort to increase sales. In July 2021, the ED first sent a show-cause notice to Flipkart, associated companies, and individuals, asking them to explain why they shouldn’t face additional charges under India’s Foreign Direct Investment laws and regulations for alleged infractions from 2009 to 2015.

    The notification referred to the years 2009–2015, prior to the U.S. giant Walmart acquiring the majority of Flipkart. Even after Flipkart was acquired by Walmart, ED nevertheless sent notice to the company to look into its operations after 2016. The corporation received its most recent notice in April of this year. Flipkart is also under investigation by the Competition Commission of India for alleged violations of competition laws by some of its Indian subsidiaries and other parties.

    One of Flipkart’s subsidiaries obtained a non-confidential copy of the CCI DG’s Investigation Report in September 2024, which contained allegations of specific violations of competition law.

    Quick Shots

    •ED offers Flipkart the option to settle a FEMA
    violation case by paying a penalty.

    •Walmart-owned Flipkart asked to acknowledge errors
    and close related seller network.

    •Compounding option given under Foreign Exchange
    Management Act (FEMA) provisions.

    •Amazon India also summoned by ED for similar
    FEMA-related enquiries.

    •ED’s move seen as part of India’s tightening
    scrutiny of e-commerce giants.

    •FEMA case dates back to 2009–2015, before Walmart’s
    acquisition of Flipkart.

  • The Supreme Court Has Temporarily Halted the Appeals Tribunal’s Decision Over the BYJU’S-BCCI Settlement

    On Wednesday, the Supreme Court issued a stay of the NCLAT ruling that had set aside the insolvency proceedings against the ed-tech major. This effectively enabled Byju Raveendran, the owner of the company, to regain control of the business.

    The ruling of the NCLAT that approved the settlement of Byju’s dues with the BCCI amounts to INR 158.9 crore, but the highest court has placed that verdict on hold. This decision has put a strong blow on Byju’s.

    The order was issued in response to a pleading by Glas Trust Company LLC, a creditor situated in the United States, against the verdict of the NCLAT. Glas Trust Company LLC asserts that they are owed one billion dollars by Byju’s.

    Additionally, a panel that was led by Chief Justice DY Chandrachud ordered the Board of Control for Cricket in India (BCCI) to maintain a separate account for the INR 158.9 crore that it had received from Byju’s as a result of a settlement.

    Insolvency proceedings against BYJU’S were halted on August 2 after the National Company Law Appellate Tribunal (NCLAT) gave its approval to the settlement of INR 158.9 crore in dues with the BCCI.

    How This Decision Can Bring More Trouble for BYJU’S

    Following the decision of the Supreme Court, the insolvency proceedings against BYJU’S will resume. This will result in the ed-tech major, which was previously valued at USD 22 Billion, being placed under the control of an insolvency administrator chosen by the court.

    At the beginning of this month, Byju Raveendran was able to restore control of the company after the National Company Law Appellate Tribunal (NCLAT) dismissed the insolvency procedures that were being brought against the startup.

    The cricket regulating body of India filed a complaint, stating that the company had not been paid its sponsorship dues, which resulted in the company being placed in the process of going bankrupt. After some time, the two parties reached a settlement on the issue, and an appeals tribunal put a stop to the insolvency procedures.

    Why BYJU’S Is Going Through a Financial Crunch?

    The fast growth and forceful strategy of acquisitions employed by BYJU’S have put a heavy burden on its financial resources. Many are worried about the company’s long-term viability because of its substantial need for outside finance, despite the fact that it has raised billions in cash.

    Despite the initial boost to online education caused by the COVID-19 pandemic, the market became saturated, which affected Byju’s growth trajectory.

    Misleading advertising, unauthorised charges, and trouble getting your money back are just a few of the customer service issues that have plagued Byju’s. Not only have these problems damaged the company’s image, but they have also prompted lawsuits.

    Members of the Enforcement Directorate and the Ministry of Corporate Affairs (MCA) are among the regulatory agencies that are constantly monitoring the operations of the company.

    Investigations have been initiated due to allegations of financial irregularities, such as disparities in revenue recognition and possible violations of the Foreign Exchange Management Act (FEMA).

    At the heart of both the company’s success and its present problems has been Byju Raveendran, founder and CEO of Byju’s. Now that stakeholders and investors are demanding answers about the company’s performance, his leadership is under scrutiny.

    BYJU’S Faces Legal Challenges: BCCI’s Insolvency Petition Accepted by NCLT
    Explore the latest developments as the country’s education tech giant BYJU’s encounters significant financial and legal issues.
    StartupTalkyNitin Konde