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Flipkart Sells Front End Ops To Former OnMobile COO & Others: Report

E-Commerce major Flipkart has has sold its  front end retail operations WS Retail to a group of investors led by former OnMobile COO Rajiv Kuchhal (who was with OnMobile from May 2006 to June 2008), the Times of India reports. Kuchhal hasn’t confirmed the development to the Times of India, but has asked them to check the Registrar of Companies. We’re doing that and updating. The Times of India report contends Flipkart has informed the Reserve Bank of India about this change, and that with this move,Flipkart no longer has any shareholding in WS Retail, which employs over 5000 people.

From The RoC

MediaNama has written to Flipkart for a confirmation, and comments on this development and we’ll update when we have more. Here’s what we’ve got the Registrar of Companies on WS Retail:

Update 1: WS Retail’s Annual Report (uploaded on the 5th of February 2013): WS Retail reported a total income of Rs 4842304642, a total income of of Rs 480.65 crore for the financial year ended 31st March 2012 (FY12), up from around Rs 49 crore for the year ended 31st March 2011 (FY11). The company reported a profit for the year, of Rs 80.92 lakh up from Rs 65 lakh.

The directors report states that “Your Company sources products from Flipkart India Private Limited under a valid and non-exclusive supply agreement. And resells it to the end-customer on the platform www.flipkart.com licensed to it by Flipkart India Private Limited.”

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Directors who have signed the annual report: Tapas Rudrapatna and Sujeet Kumar

Update 2: On 14th February 2011, both co-founders, Sachin Bansal and Binny Bansal, resigned from the office of directorship of the company. Bal Krishan Bansal was appointed director on the same day, but resigned on 6th September 2012. Meenu Gupta was appointed on the Board as Additional Director on 21 st March 2012.

Update 3: “The company has allotted 90,000 Equity shares and 9,05,000 Preference shares in its Board Meeting on 21st September 2012. Accordingly, the Authorised capital of the company is Rs. 1,25,00,000 (Rupees One Crore Twenty Five lakhs only) and the paid up capital of the company is Rs.1,00,50,000 (Rupees One crore Fifty Thousand only).”

(We’ll update when we have more from the RoC. Techincal issues abound)

Why Flipkart Might Be Doing This (if it is)

Flipkart appears to be moving to models wherein it complies with India’s FDI regulations on multi-brand retail, as per which, while multi brand retail outlets are allowed to set up operations in India, e-commerce operations are not. It appears to be making two separate moves towards this end:

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– Firstly, it is launching a marketplace model, wherein the front end business has suppliers other than Flipkart India Private Limited. Note that the Flipkart marketplace has a line which states “List your items or select from our existing catalogue” (hat tip Annkur P Agarwal). This suggests that Flipkart India Private Limited (possibly the wholesale B2B venture) will supply to other stores, thus making it a legitimate wholesale entity, since it will be considered a wholesale entity only if less than 25% of its revenue is from a single group entity.

A B2B company needs to comply with the FDI policy by:
a) Obtaining requisite registrations and licenses for wholesale trading
b) Ensuring that all sales are made only to “valid business customers”
c) Keeping record of all sales maintained on day to day basis
d) Ensuring that sales to group companies do not exceed 25% of the total turnover of the wholesale venture

Do read our white paper explaining the Structuring of Foreign Direct Investments In eCommerce in India.

– Secondly, it’s changing the shareholding of the front end retail business, as explained above, so that Flipkart’s front end business (WS Retail) doesn’t become a group company. Readers should bear in mind that Foreign Direct Investment in e-commerce has not been allowed in India, but marketplaces, which merely act as a space for sellers to find buyers for the products that they are supplying, and which don’t retail their own goods, can take foreign direct investment.

Recent Developments

Flipkart’s CFO resigned last week. The company is reportedly being probed for FDI norms violation, although Flipkart had denied that any raid took place. It reportedly raised $150 million from Naspers and Tiger Global in August last year.

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