Walmart, the American multi-national retail giant, is being reportedly investigated by the Commerce Ministry for allegedly “clandestinely and illegally” investing $100 million in an Indian chain of convenience stores two years ago in violation of a ban on foreign direct investment in the retail sector that existed at the time.
The move could hinder Walmart’s plans to expand in India following the government’s recent decision to allow foreign direct investment.
According to The Financial Times, it had obtained documents showing that the Commerce Ministry last week asked the Reserve Bank of India to launch an investigation into Walmart’s allegedly illegal investment in as many as 200 convenience stores and hypermarkets in 2010 when foreign direct investment was banned.
“The Easyday stores in question are ostensibly owned by Walmart’s partner, Bharti Enterprises, though Walmart effectively manages them and Walmart executives have been seconded to Bharti,” it said.
The paper said the investigation would focus on whether Walmart directly invested in Bharti’s retail operations through a holding company known as Cedar Support Services Ltd.
Walmart insisted that it was “in complete compliance” with FDI laws.
“All procedures and processes have been duly followed and details filed with relevant Indian government authorities, including the Reserve Bank of India,” it said.
The company has been previously investigated in America for allegedly paying bribes to open stores in Mexico.
The Financial Times said that, according to company documents and the Communist Party of India’s Rajya Sabha member M. P. Achuthan who has written a letter to Prime Minister Manmohan Singh demanding a ban on Walmart, “Cedar owns Bharti Retail and thus the Easyday chain”.
Mr. Achuthan alleged that Walmart used “complex arrangements” to circumvent FDI rules.
“Cedar was originally set up in 2007 as Bharti Retail (Holding) Private Ltd, but its name was changed in 2009. Its articles of association were amended to make it a real estate and design consultancy service company, in which foreign direct investment was allowed,” the newspaper said.
The report said that according to the commerce ministry, Walmart Mauritius (4) Holdings invested Rs.456 crore, equivalent to about $100 million at the time, in “compulsorily convertible debentures” giving Walmart a 49 per cent stake in the company on conversion.