"The Enforcement Directorate (ED) has found no contravention of foreign exchange laws as the government has recently amended the Foreign Exchange Management Act (FEMA) and the guidelines regulating FDI in multi-brand retail sector.
"There is no concrete basis for the agency to take forward the probe, unless otherwise there are some new directions from the RBI," sources privy to the probe said today.
The ED probe was ordered after CPI Rajya Sabha member M P Achuthan wrote to Prime Minister Manmohan Singh alleging that a unit of Walmart in 2010 bought Rs USD 100 million worth of compulsorily convertible debentures in Cedar Support Services Ltd, the holding company through which Bharti controls 'Easyday,' a multi-brand retail chain.
Following this, the Reserve Bank of India (RBI) in November last year asked the ED, a central investigative agency, to probe the allegations. "The ED has investigated the matter and intimated its findings to the RBI. As far as the FDI component is concerned, investment by Cedar in Bharti Retail is as per provisions of the circular and notification issued recently by the RBI," the sources said.
The sources, however, said the RBI may initiate the process of slapping a fine or issuing a warning to Walmart as well as Bharti Enterprises for not converting the USD 100 million worth of debentures into 49 per cent equity in time.
Achuthan claimed the investment was illegal as the amount was used by Bharti to fund investments in its supermarkets. Until changes made by government in September 2012, foreign retailers were barred from investing in multi-brand retail sector.
In July 2013, the RBI issued a few notifications, which have given legal sanctity to the definition of words 'owned or controlled', terms which are essential to determine whether a company is a foreign firm or a domestic entity.
The implication of RBI's formal notification of Press Note 2, 3 and 4 of the DIPP was that if a foreign investment was invested downstream through an Indian-owned and controlled company, the investment would not be treated as an indirect FDI.
This rule was made retroactive from February 2009 when the policy was first approved, but not formally notified for want of clarity on words 'owned and controlled'.
In 2007, Walmart entered into a joint venture with Bharti Enterprises to open wholesale stores, a sector which was open to foreign investors. Last week, the two retail conglomerates announced end of their partnership amid continued difficulties navigating regulations on foreign investment in India.
In September last year, the government permitted FDI up to 51 per cent in local supermarket ventures.