Achuthan alleged that Wal-Mart's investment of Rs 455.8 crore in Cedar Support Services Ltd, a subsidiary of Bharti Ventures, via compulsorily convertible debentures flouted FDI rules.
New Delhi: Alleging that Wal-Mart has made "illegal" investments in India's multi-brand retail segment, CPI Rajya Sabha member M P Achuthan has asked Prime Minister Manmohan Singh to permanently ban the US firm and take action against the company and its Indian partner Bharti Group.
In a letter to the Prime Minister, Achuthan, a Member of the Standing Committee on IT, alleged that Wal-Mart's investment of Rs 455.8 crore in Cedar Support Services Ltd, a subsidiary of Bharti Ventures, via compulsorily convertible debentures flouted FDI rules.
In order to receive FDI directly under automatic route from Wal-Mart, Bharti Group's investment and holding company, Bharti Retail Holding Pvt Ltd, had amended its "main objects" to enable it "to provide services in real estate consultancy design etc" and the name of the company was changed to Cedar Support Services Ltd, he alleged.
According to the letter, Bharti Retail (Holding) Pvt Ltd was the 100 percent holding company of Bharti Retail Ltd, which runs multi-brand retail operations and it "could not have received any FDI without FIPB approval under FEMA regulations as it is a pure holding company without any operations."
While noting that 100 percent FDI was allowed under automatic note in "consultancy services", Achuthan said when Cedar raised foreign capital under automatic route, it has to be deployed in the services sector.
"But what did Cedar do with this FDI of USD 100 million? The entire FDI has been diverted and illegally invested by Cedar in its 100 percent subsidiary Bharti Retail Ltd, which is carrying out multi-brand retail operations.
"The fact that the entire FDI has been diverted to multi-brand retail can be verified from the audited accounts filed by Cedar with Registrar of Companies," the letter said.
Achuthan, who is also a Member of Consultative Committee of Ministry of Information & Broadcasting, said: "In the circumstances the government should undo this illegal investment immediately; initiate penal proceedings against Wal-mart and Bharti group under FEMA.
"Ban Wal-Mart permanently from India, including its joint venture for the wholesale cash and carry operations with the Bharti Group."
When contacted, a Bharti spokesperson said: "We are in complete compliance of all regulations. All details have been shared with the relevant authorities."
Emailed queries to Wal-Mart spokesperson in India remained unanswered.
The Parliamentarian alleged that Cedar flouted rules by stating that the firm did not even have "a single employee to provide management services".
"To make it look an operating company, entries were passed booking an income of Rs 8 lakh as revenue from 'Management Fee’ that too, only from group companies... Thus, a facade was created to show Cedar as a company engaged in consultancy services," he alleged.