Madras High Court Ruling on Enforcement Directorate’s Case Against Flipkart Co-Founders
The Madras High Court has declined to quash the Enforcement Directorate’s (ED) proceedings against Flipkart co-founders Sachin Bansal and Binny Bansal. The case revolves around alleged breaches of the Foreign Exchange Management Act (FEMA), with the court ruling on a review petition filed by the co-founders. This judgment reaffirms the court’s previous decision in January 2025, which did not intervene in the ED’s complaint and the show-cause notices pertaining to purported FEMA and foreign direct investment violations associated with Flipkart entities.
The proceedings originated from a batch of writ petitions by Sachin Bansal, Binny Bansal, and others, challenging both the ED’s complaint and the show-cause notices issued by the FEMA adjudicating authority. The ED alleges that Flipkart received foreign direct investment (FDI) amounting to ₹142.40 crore without prior government approval, and issued equity shares in contravention of FEMA regulations. Additionally, the agency asserts that WS Retail Services Limited was established as a dummy company by the Bansals, facilitating the conversion of business-to-consumer transactions into business-to-business transactions.
Legal Arguments and Court’s Decision
The petitioners argued that the proceedings were tainted by delay, noting that the alleged transactions occurred between 2009 and 2011, while the ED’s complaint and show-cause notice were only issued in 2021. They contended that these actions could not proceed under Section 6(3)(b) of FEMA, as this section had been omitted from the statute before the issuance of the notice.
However, the High Court dismissed these arguments, stating that the omission of Section 6(3) from FEMA did not render the show-cause notice illegal. Furthermore, the court found no evidence of bias from the adjudicating authority, rejecting the petitioners’ claim that the authority had already formed an opinion against them.
Regarding the delay, the court noted that this issue could not be resolved at the current stage, as it constitutes a factual question. The court indicated that the petitioners could raise this concern before the adjudicating authority. Additionally, it highlighted that FEMA provides a statutory appellate mechanism, allowing orders from the adjudicating authority to be challenged before the Appellate Tribunal.
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This ruling underscores the importance of procedural compliance in foreign investment transactions and highlights the judiciary’s stance on regulatory enforcement. The case continues to unfold as the parties may explore further legal avenues in accordance with the statutory provisions available under FEMA.
