The Government of India has said that it has referred Bharti Walmart and Flipkart Online Service’s alleged violation of Foreign Direct Investment (FDI) regulations to the Enforcement Directorate. The Hindu BusilessLine reports that Flipkart.com had allegedly circumvented FDI rules by creating complex structures.

The report states that FlipKart had formed a structure over its backend firm FlipKart Online Services (FOS), which held the FlipKart brand till it was transferred to FlipKart India, another B2B entity, in late 2011. Both entities licensed the brand to B2C firm WS Retail. According to Department of Industrial Policy and Promotion, "Ecommerce in both multi- and single-brand retail is not permissible for companies with FDI."

“Violation of FDI regulation is covered by the penal provisions of the Foreign Exchange Management Act (FEMA). The RBI has informed the matter related to Bharti Walmart/Cedar Support Services and FlipKart Online Services to Directorate of Enforcement for further investigation,” Anand Sharma, Commerce and Industry said in Lok Sabha. Retail major Walmart had pumped in Rs 455.8 crore into a subsidiary of Bharti Ventures in 2010 via its Mauritius arm.

Meanwhile, Sharma said that FDI equity inflows during financial year 2011-12 had increased significantly over the previous year. It stood at $35,120 million in 2011-12.