Amazon.com Inc. and Walmart Inc.-owned Flipkart Online Services Pvt. Ltd. are facing an investigation into their alleged violation of foreign direct investment laws in India, the Press Trust of India reported March 18, citing the Enforcement Directorate's notification to the Delhi High Court.
A case against the two online retailers has reportedly been registered under provisions of the Foreign Exchange Management Act. The probe was prompted by a petition by non-government organization Telecom Watchdog.
The petition cites a provision in the act that regulates foreign direct investment in e-commerce, blocking entities like Amazon and Flipkart from owning stocks of goods and services sold on their websites, the PTI reported.
"As a consequence of this FDI norms violation, smaller sellers are unable to participate in the fast-growing e-commerce sector," Telecom Watchdog reportedly wrote in its plea.
The news is the latest roadblock for Amazon and Flipkart's operations in the country following the implementation of more stringent regulations covering e-commerce companies announced in December 2018. The new laws forced both retailers to either sell shares in local companies in which they own a stake, create new business-to-business entities or remove a number of products from their online offerings.
Amazon and Flipkart did not respond to requests for comment from S&P Global Market Intelligence at the time of writing.