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The Financial Investigation Unit of the Centre Government asked Sachin Bansal, and Binny Bansal (Flipkart co-founders), its early investors to provide an explanation why they should not get a penalty of Rs.10,600 crore for alleged violations of many rules of the Foreign Exchange Management Act.
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The legal notice from the Enforcement Directorate (ED) to e-commerce giant Flipkart and its founders for alleged rule violations of foreign exchange, can turn out as a dream shattering for co-founder Sachin Bansal to get a banking license, said sources.
The Financial Investigation Unit of the Centre Government asked Sachin Bansal, and Binny Bansal (Flipkart co-founders), its early investors to provide an explanation why they should not get a penalty of Rs.10,600 crore for alleged violations of many rules of the Foreign Exchange Management Act.
The possibility is that the Reserve Bank of India might decide to disregard the legal notice to Bansal, it accommodates the odds of his Chaitanya India Fin Credit's application for an all-inclusive universal banking license, given that the person who is holding the license needs to meet the controller's fit and proper rules.
An individual aware of the matter told a leading media house that the license holder needs to satisfy the fit and proper criteria as RBI looks for clearance from all central government agencies prior to giving a banking license. The show-cause notice is a significant turn of events, which can't be disregarded. Hence, the regulator will have to consider it prior to their last decision on the matter.
Talking about the legal notice from the ED, it is associated with an eight-year-old probe by the central agency against e-commerce giant Flipkart, which was purchased by Walmart for $16 billion in the year 2018. The aim of the ED investigation was to decide whether the online retailer abused foreign investment rules or not.
In the aftermath of the probe completion, ED distributed the show-cause notices to all the concerned entities, asking them to respond, said another person to the leading media house. Meanwhile, the ED notice to Flipkart is a result of the investigation that was initiated in 2012.
In 2007, the e-commerce giant started as online retail and during that time the Foreign Direct Investment in online retail was restricted. The Bansal established Flipkart India Pvt. Ltd as a business-to-business entity, to escape from these restrictions. This further sold products to WS Retail, a vendor on Flipkart. WS Retail, which was owned by the Bansals until September 2012, thusly, sold these items to clients on Flipkart.com
Hence, in case there is a probe going on against a person, and if he/she has also applied for a banking license, RBI will likely put the request on hold till the probe gets complete.
In a similar case, the Reserve Bank of India in 2008 put its approval on the hold for UBS Bank (opening a branch) after it came to know that the ED was conducting a probe in an alleged transaction of funds between a Saudi Arabian arms dealer and Hasan Ali, Pune-based stud farm owner via the bank.