Madras High Court refuses to quash ED proceedings against Flipkart co-founders in FEMA case

The Madras High Court on Tuesday refused to quash Enforcement Directorate (ED) proceedings against Flipkart co-founders Sachin Bansal and Binny Bansal in a case concerning alleged violations of the Foreign Exchange Management Act (FEMA). [Sachin Bansal v. Enforcement Directorate].Justice S Sounthar dismissed review petitions filed against his January 2025 judgment, which had declined to interfere with the ED complaint and show-cause notices issued in connection with alleged FEMA and foreign direct investment violations linked to Flipkart entities.A copy of the order is awaited..The original judgment was passed in a batch of writ petitions filed by Sachin Bansal, Binny Bansal and others challenging the complaint filed by the ED and the consequential show-cause notice issued by the FEMA adjudicating authority.They had challenged the ED complaint and the show-cause notice issued by the FEMA adjudicating authority..The ED’s case was that Flipkart had received foreign direct investment and issued equity shares without prior approval from the competent authority.The agency alleged that Flipkart received FDI worth ₹142.40 crore from foreign investors. It claimed that equity shares were issued without prior approval of the Government of India. It also alleged that WS Retail Services Limited was a dummy company created by Sachin Bansal and Binny Bansal. According to the ED, Flipkart sold goods exclusively to WS Retail, which then sold those goods to retail customers.The agency alleged that WS Retail was used to split direct retail transactions. It claimed that business-to-consumer transactions were converted into business-to-business transactions between Flipkart and WS Retail, followed by retail sales from WS Retail to customers..The petitioners had argued that the proceedings were hit by delay. They said that the alleged transactions took place between 2009 and 2011. However, the ED complaint and show-cause notice were issued only in 2021.They also argued that the proceedings could not continue on the basis of Section 6(3)(b) of FEMA. Their case was that Section 6(3) had been omitted from the statute book before the show-cause notice was issued.The High Court rejected this argument. It held that the omission of Section 6(3) FEMA did not make the show-cause notice illegal..The petitioners had also alleged bias. They claimed that the adjudicating authority had already made up its mind against them.The Court rejected this argument too. It said that the counter-affidavit relied on by the petitioners was not enough to show that the authority had prejudged the case.On delay, the Court said that the issue could not be decided at this stage. It held that whether the notice was issued within a reasonable time was a factual question. It said that the petitioners could raise this issue before the adjudicating authority..It also noted that FEMA provides a statutory appellate mechanism. An order of the adjudicating authority can be challenged before the Appellate Tribunal.