The Enforcement Directorate, which is probing alleged violations of forex laws by Walmart in its investment in an Indian firm, has asked the Reserve Bank for fresh clarifications regarding recently notified FDI rules by the central bank. According to a top Revenue Department source, the agency has approached the Reserve Bank of India (RBI) to seek "clarity" on Foreign Direct Investment (FDI) rules before and during 2010 in the multi-brand retail sector, before it takes a final decision to impose or defer penal action against the retail giant and its Indian partner.
Earlier this month, the RBI had notified FDI guidelines defining control of a company. The notification of press note 2 and 3 of the Department of Industrial Policy and Promotion (DIPP), which had been pending for the last four years, provides definition of 'owned or controlled, a term which is essential to determine whether a company is a foreign firm or a domestic entity. The source said that the step was necessitated after ED felt that more details were required to be "understood" after the DIPP replied to a query of the probing agency on this subject.
The US retailer Walmart had invested USD 100 million in Cedar Support Services, an arm of Bharti Ventures in 2010. CPI Rajya Sabha member MP Achuthan had complained that this violated Indian rules as this investment took place when FDI in retail was barred in this country. According to sources in the DIPP, the RBI's notification of press note 2 and 3 would have a bearing on this investigation. "The DIPP and RBI would have to look into the notification with regard to this probe," a source said. DIPP, which deals with FDI related matter, issues provisions in the form of press notes or consolidated circulars.
The agency had begun a probe in this case on the instructions and references made by the RBI. The ED is investigating an alleged "contravention" of forex rules in this case under provisions of Foreign Exchange Management Act (FEMA). The ED has already studied replies sent by the American retail giant and its Indian partners to it. The ED, a central investigative agency, was mandated to probe violations under the FEMA and Prevention of Money Laundering Act (PMLA). The probe would also go into the receipt of FDI as to whether the same was in conformity with the provisions of Section 6(3)(6) of FEMA read with the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000.