this. This kind of an investment could not have happened without the government's knowledge," Achuthan said. "It is impossible." Wal-Mart's Indian partner, Bharti Enterprises, said it had followed
We are in complete compliance of all regulations. All details have been shared with the relevant authorities," a Bharti Enterprises spokesman said.
Two senior government officials said there had been an initial round of communication between the Reserve Bank of India and the Enforcement Directorate. The RBI, India's central bank, asked the law enforcement agency to conduct the investigation. "RBI believes there is a need to investigate," said a senior government official, who spoke on condition of anonymity because
of the sensitivity of the matter. He said both Wal-Mart and Bharti were being investigated because "Wal-Mart allegedly made the investment and Bharti allegedly received it". Separately, Wal-Mart said last month it was looking into
bribery allegations in several countries including India, Brazil and China. It conducted an earlier probe in Mexico.
DEBT OR EQUITY?
Prime Minister Manmohan Singh is under intense pressure to roll back the decision to permit foreign retailers. Parliament ground to a halt on Nov. 22 over opposition to the reforms until the government agreed to a vote, set for Wednesday.
A year ago, political pressure forced the government to make a U-turn after it first approved foreign investment into supermarkets, an abrupt shift that brought into question India's ability to build consensus behind long-awaited reforms.
When Wal-Mart made the investment in Cedar in 2010, Indian law permitted foreigners to own "cash-and-carry" wholesale stores, but they were barred from owning what India calls multi-brand retailers, or stores like Wal-Mart's namesake supermarkets that sell a wide array of products and brands. Whether the investment in Cedar violated India's law depends on two issues, according to the lawyers: if Cedar was in fact a retailer rather than a consultancy, and how the investment was structured.
Cedar's articles of association filed with the Registrar show it called itself a consultancy, but a few pages later it describes a "competing business" as one involved in retail and operates supermarkets, hypermarkets and discount stores.
Even if investigators determine Cedar was a retailer, lawyers said Wal-Mart's investment may still be legal if the transaction is deemed to be debt. Wal-Mart could then argue that it did not acquire a stake but instead extended a loan.
But according to RBI guidelines set in 2007, compulsorily convertible debentures are considered equity. That would mean