ED finds no violation in Walmart’s Cedar investment

The clarity on the policy was essential to establish whether a company is a foreign or domestic entity.

Written by Express News Service | New Delhi | Published:October 18, 2013 3:49 am

The Enforcement Directorate (ED) has not found any violations of foreign exchange laws in Walmart’s 2010 investment in Cedar Support Services Ltd,the holding company through which Bharti controls its retail chain Easyday.

An official told The Indian Express,“There is no need for further probe as the RBI recently amended FEMA rules,clarifying the grey areas regarding ownership and control. The guidelines for FDI in multi-brand retail have also been issued”.

Last year,the Reserve Bank of India had asked the ED to investigate the allegations by CPI Rajya Sabha member MP Achuthan that the $100 million investment (in the form of compulsorily convertible debentures) by Walmart in Cedar Support Services was in violation of rules under the Foreign Exchange Management Act (FEMA) as it was made when FDI in retail was barred in the country.

The ED earlier this year had sought clarity from the RBI regarding the Press Notes 2 and 3 which relate to calculation of total foreign investment in Indian companies,transfer of ownership and control of Indian companies and downstream investment by them.

The clarity on the policy was essential to establish whether a company is a foreign or domestic entity.

The RBI in July clarified the issue with retrospective effect,that is February 2009,when the press notes were first approved by the department of industrial policy and promotion (DIPP) but not formally notified due to lack of clarity on words ‘owned and controlled’.

In view of the clarifications,the ED,the official added,has found no basis of violation as “as the investment in Cedar was as per existing rules,which were not very clear then”.

The official,however,added that if the RBI wants to probe the matter further,“we will go ahead with it”.

In 2007,Walmart entered into a joint venture with Bharti Enterprises to open wholesale stores,a sector which was open to foreign investors. However,last week,the two called off their partnership amid pending continued difficulties navigating regulations on foreign investment in India. In September last year,the government allowed 51 per cent FDI in the multi-brand retail sector.

However,despite keenness shown by several foreign retailers including Walmart,not a single formal application has come for the same for want of clarity in issues including sourcing.

Walmart Asia chief Scott Price is scheduled to meet commerce and industry minister Anand Sharma on November 1 to pitch for,among other things,inclusion of private labels in the mandatory local sourcing norm.

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