Walmart probed in India over investment Walmart, the world's largest retailer by sales, is being investigated in India over accusations that it secretly invested in supermarkets and thereby flouted a ban on foreign direct investment in the sector. The commerce ministry last week asked the Reserve Bank of India to probe allegations that the US retailer "clandestinely and illegally invested" $100m in an Indian chain of 220 convenience stores and hypermarkets as early as 2010, according to documents obtained by the Financial Times. The Easyday stores in question are ostensibly owned by Walmart's partner, Bharti Enterprises, though Walmart effectively manages them and Walmart executives have been seconded to Bharti. The official probe comes just as New Delhi has decided it will allow foreign direct investment in the retail sector, but the allegations could complicate the US group's longstanding plans to expand aggressively in India. "The government should undo this illegal investment immediately," M.P. Achuthan, a Kerala member of the upper house of parliament for the Communist Party of India, wrote to Manmohan Singh, prime minister, last month. The letter also appealed for the government to "ban Walmart permanently from India." Walmart on Thursday denied any wrongdoing. We are in complete compliance with India's FDI [foreign direct investment] laws. All procedures and processes have been duly followed and details filed with relevant Indian government authorities, including the Reserve Bank of India. Walmart - which has been investigated by US lawmakers over allegations that it paid bribes to open stores in Mexico - may not be the only foreign retailer facing headaches in India, as critics of liberalisation take a closer look at how foreign retailers have been operating in India for the last few years. Tesco has a franchise agreement with Tata group's Star Bazaar hypermarkets, providing IT systems, technical support and management advice to the chain of 14 stores. Tesco also runs a wholesale business in India exclusively for Star Bazaar, providing around 80 per cent of the retail chain's goods. Indian authorities are investigating whether Walmart directly invested in Bharti's retail operations through a holding company known as Cedar Support Services Ltd. According to Mr Achuthan and company documents, Cedar owns Bharti Retail and thus the Easyday chain. In his letter to the prime minister, the parliamentarian said Walmart used complex arrangements to invest in retail in contravention of the rules. Cedar was originally set up in 2007 as Bharti Retail (Holding) Private Ltd, but its name was changed in 2009. Its articles of association were amended to make it a real estate and design consultancy service company, in which foreign direct investment was allowed. According to the commerce ministry, Walmart Mauritius (4) Holdings invested Rs4.56bn, then equivalent to about $100m, in compulsorily convertible debentures, which would give Walmart a 49 per cent stake in the company on conversion. Walmart and Bharti Enterprises have been working together since 2007 to navigate the complex Indian policy environment for retailing. The two companies set up a 50-50 joint venture, Bharti Walmart, for a wholesaling business, an activity in which India has permitted up to 100 per cent foreign ownership since 2006. The Bharti Walmart joint venture now runs 17 Best Price Modern Wholesale stores, but also provides back-end logistical support and most of the products for the Easyday stores owned by Bharti Retail. Walmart also provides extensive technical and management support for the day-to-day running of the Easyday retail business. Additional reporting by Victor Mallet in New Delhi