Sachin Bansal moves Madras HC against ED notice on FDI rule violation

Flipkart co-founder Sachin Bansal has moved the Madras High Court challenging a show cause notice (SCN) dated July 1 this year issued by the Enforcement Directorate (ED), which held that he and another individual were personally responsible for the alleged violation of FDI policy involving a staggering amount of approximately Rs 23,000 crore.

Justice R Mahadevan, before whom the writ petition from Bansal came up for hearing on Friday, pulled up the authorities for the delay of 12 years in issuing the notice and adjourned the matter by three weeks, after directing the ED and its officials to file the counters. The petition sought to quash the notice as illegal and arbitrary, insofar as he is concerned.

The interim prayer is to stay its operation.

The SCN was issued on the basis of a complaint filed by the Deputy Director of Enforcement in Bengaluru, for instituting adjudication proceedings under Section 16 of the Foreign Exchange Maintenance Act (FEMA) against the petitioner, another co-founder Binny Bansal of the e-commerce giant, Accel, Tiger Global, Subrata Mitra (nominee director of Accel) and Lee Fixel (nominee director of Tiger Global) on the alleged contravention of the various provisions of the FEMA.

The notice was issued pursuant to an alleged non-compliance with a condition prescribed vide the Consolidated Foreign Direct Investment Policy of 2010 dated April 1, 2010 in respect of issuance of shares of certain Flipkart group companies to foreign investors during 2009-14.

According to Bansal, he ceased to have any association with Flipkart and its group of companies, pursuant to his unanticipated exit following the acquisition of Flipkart by Wal-Mart International Holding, Inc. on August 17, 2018. Among other things, he contended that issuance of the SCN was arbitrary, unreasonable and patently a perverse one, as it was issued after 12 years.

The complaint followed an investigation by the Directorate of Enforcement in New Delhi, which commenced in 2012, i.e. 9 years ago. He had proactively participated and cooperated in the investigation undertaken by the ED. Given the substantial lapse of time following the inquiry, the petitioner has conducted himself under the bonafide belief that after due study of the materials obtained during the course of the probe, the ED had concluded that no action was warranted in the matter.

Additionally, he had effected bonafide transfers to third parties in the intervening period and had completely exited from the Flipkart group in August 2018.

However, to his utter shock and dismay, the ED issued the notices, he contended.

"Specifically, there is no statutory period prescribed under FEMA within which the authorities concerned were required to file the complaint for initiating the adjudication proceedings. In the absence of any period of limitation under the statute, it has been settled by the Supreme Court in various judgments that the Constitution requires every authority, including the ED, to exercise its power to file a complaint within a reasonable time, failing which the actions taken by the statutory authority will be amenable to the writ jurisdiction of constitutional courts," the petitioner said.