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Sachin Bansal moves Madras HC in FDI case

Sachin Bansal, co-founder of popular e-commerce company Flipkart, has approached the Madras High Court challenging the action initiated against him now by the Directorate of Enforcement (ED) for alleged violation of the Foreign Direct Investment (FDI) policy involving a staggering amount of approximately ₹23,000 crore in issuance of shares to foreign investors between 2009 and 2014.

Justice R. Mahadevan on Friday questioned the ED for the huge delay, running to several years, on the part of the Deputy Director of Enforcement in Bengaluru in lodging a complaint with the Special Director, who was the adjudicating authority under the Foreign Exchange Management Act (FEMA), in Chennai. He directed the department to file a detailed counter affidavit in three weeks.

In his affidavit, Mr. Bansal said the ED had commenced investigation into alleged violation of FDI policy in 2012 and that he actively participated in the inquiry between 2013 and 2015. Claiming that he did not obstruct the investigation in any manner, he said he had dedicated substantial efforts and time in participating in the inquiry and submitting the requisite documents.

Due to a huge lapse of time thereafter, the petitioner thought that the ED, after due study of the materials obtained during the course of the investigation, had concluded that no action was warranted in the matter. In the meantime, he had also exited the Flipkart group following its acquisition by Wal-mart International Holdings in August 2018.

However, on August 5 this year, he received a show-cause notice from the Special Director for commencing proceedings under Section 16 of FEMA. The notice was dated July 1, 2021 and had been issued pursuant to a complaint lodged by the Deputy Director on June 28, the petitioner pointed out to the court.

The charge in the complaint was that the petitioner as well as the other founder Binny Bansal were personally responsible for alleged non-compliance of the conditions under the Consolidated FDI Policy issued on April 1, 2010 and as amended from time to time in respect of shares issued by certain Flipkart group companies to foreign investors during the period between 2009 and 2014.

Challenging the complaint as well as the show-cause notice on the primary ground of unreasonable delay in initiating the proceedings, the litigant contended that the delay deprived the petitioner of the benefit of the stated legislative objective of a fast-track legal process enshrined under FEMA.

“The rekindling of stale matters pursuant to the impugned (under challenge) notice will also wrongfully and unfairly disturb settled rights and interests of the petitioner and the rights of other third parties pursuant to a bona fide transfer (of shares) by the petitioner,” he said.

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