According to India's financial crimes agency, Pernod Ricard had violated the liquor policy of the country's capital city by financially supporting retailers in exchange for stocking more of the French company's brands and increasing its market share.
In court documents filed in November, India's Enforcement Directorate stated that Pernod India provided corporate guarantees worth 2 billion rupees ($25 million) to its banker HSBC in 2021 and then asked it to facilitate loans to retailers, who used the funds to bid for liquor store licenses in New Delhi.
According to the documents reviewed by Reuters, the Delhi government's policy prohibited manufacturers from directly or indirectly participating in retail sales, and Pernod was "in violation" because it effectively used bank guarantees to invest in retailers.
The documents are not public, and the allegations against Pernod have not previously been made public.
Pernod Ricard India has strongly denied the directorate's allegations and has stated that it "will continue to fully cooperate with the Indian authorities in this matter."
Benoy Babu, Pernod India's head of international brands, was arrested in November and is still in jail. He is accused of money laundering and violating Delhi's liquor policy rules under Indian law, but he denies any wrongdoing. Babu, who has not been charged, is seeking bail, which will be heard in a New Delhi court on January 19.
According to his bail document, which Reuters obtained, Babu's arrest was "illegal," and he had no role in Pernod's decision to extend corporate guarantees. Babu could not be reached for comment, and neither did his lawyer.
HSBC is not accused of any wrongdoing in the court documents. In a statement to Reuters, the bank stated that it could not comment on the matter because it is "under investigation by the authorities."
Requests for comment were not returned by the Enforcement Directorate or the Delhi Municipal Corporation.
The investigation adds to Pernod's existing business and regulatory challenges in India. Last year, the maker of Chivas Regal and Absolut vodka challenged a nearly $250 million federal tax demand for allegedly undervaluing imports, claiming that the method used to calculate the tax due was flawed.
According to Reuters, it has lobbied Prime Minister Narendra Modi's office for resolution of its numerous tax disputes.
Pernod counts India as a key growth market, with a 17% market share. While the market share for New Delhi alone was not available, industry sources say the capital is critical for any company because it is a wealthy and urban tourist hub that serves as a showcase market.
According to the investigating agency's documents, in exchange for financial assistance from Pernod, New Delhi retailers who received the loans "had to ensure" that 35% of the stocks in their stores were Pernod products. During the investigation, its agents questioned executives from HSBC and Pernod Ricard.
According to the agency, the liquor giant's market share increased from 15% to 35% as select retailers received loans with Pernod's assistance and stocked more of its products.
The agreement "establishes Pernod Ricard's clear intention to engage in brand pushing and (to) gain illegitimate market share," according to one of the agency's documents dated Nov. 26.
There was no comment on the issues from Pernod.
Hundreds of store licenses were awarded to private players under the 2021 Delhi liquor policy, as the city government exited the retail business in an effort to liberalize trade and increase local government revenue.
Liquor manufacturers were barred from applying for retail licenses under the policy in order to avoid the formation of syndicates that could lead to overcharging and brand pushing.
At the time, bids totalling 90 billion rupees ($1.1 billion) were received. Last year, Delhi reversed the policy, and liquor is now only sold in government-run stores.
The allegations against Pernod and Babu are part of a larger Enforcement Directorate investigation into alleged irregularities in policy implementation by retailers, politicians, and individual businesspeople.
According to a Nov. 10 Enforcement Directorate document, "the main motive of Pernod Ricard in cartel creation was to ensure that the retail shops of the cartel partners purchased a greater quantity of Pernod Ricard brands... in lieu of the financial assistance provided."
According to court documents, during questioning, a senior HSBC banker told federal agents that the bank had received a board resolution from Pernod Ricard India authorizing the issuance of corporate guarantees to finance loans for retailers planning to bid for the licenses.
Reuters could not independently confirm that Pernod gave HSBC a board resolution.
According to the documents, Babu told investigators that a proposal for the issuance of corporate guarantees was shared internally with Pernod India's legal and finance teams, and the company performed the necessary due diligence.
However, the federal agency stated in the documents that Pernod did not conduct due diligence before making the loans, and no collateral was taken by the company to protect its interests.
The documents did not state whether HSBC verified that the guarantees and loan disbursements were in accordance with Delhi's liquor policy, or whether it verified that Pernod had collateral for the guarantees. HSBC declined to comment, citing the ongoing investigation.
Richa Singh, Pernod Ricard India's chief financial officer, told the agency during questioning that "ideally collateral should have been taken given the huge amount of corporate guarantee given," according to the documents. Singh did not respond to an interview request.
(Source:www.reuters.com)
In court documents filed in November, India's Enforcement Directorate stated that Pernod India provided corporate guarantees worth 2 billion rupees ($25 million) to its banker HSBC in 2021 and then asked it to facilitate loans to retailers, who used the funds to bid for liquor store licenses in New Delhi.
According to the documents reviewed by Reuters, the Delhi government's policy prohibited manufacturers from directly or indirectly participating in retail sales, and Pernod was "in violation" because it effectively used bank guarantees to invest in retailers.
The documents are not public, and the allegations against Pernod have not previously been made public.
Pernod Ricard India has strongly denied the directorate's allegations and has stated that it "will continue to fully cooperate with the Indian authorities in this matter."
Benoy Babu, Pernod India's head of international brands, was arrested in November and is still in jail. He is accused of money laundering and violating Delhi's liquor policy rules under Indian law, but he denies any wrongdoing. Babu, who has not been charged, is seeking bail, which will be heard in a New Delhi court on January 19.
According to his bail document, which Reuters obtained, Babu's arrest was "illegal," and he had no role in Pernod's decision to extend corporate guarantees. Babu could not be reached for comment, and neither did his lawyer.
HSBC is not accused of any wrongdoing in the court documents. In a statement to Reuters, the bank stated that it could not comment on the matter because it is "under investigation by the authorities."
Requests for comment were not returned by the Enforcement Directorate or the Delhi Municipal Corporation.
The investigation adds to Pernod's existing business and regulatory challenges in India. Last year, the maker of Chivas Regal and Absolut vodka challenged a nearly $250 million federal tax demand for allegedly undervaluing imports, claiming that the method used to calculate the tax due was flawed.
According to Reuters, it has lobbied Prime Minister Narendra Modi's office for resolution of its numerous tax disputes.
Pernod counts India as a key growth market, with a 17% market share. While the market share for New Delhi alone was not available, industry sources say the capital is critical for any company because it is a wealthy and urban tourist hub that serves as a showcase market.
According to the investigating agency's documents, in exchange for financial assistance from Pernod, New Delhi retailers who received the loans "had to ensure" that 35% of the stocks in their stores were Pernod products. During the investigation, its agents questioned executives from HSBC and Pernod Ricard.
According to the agency, the liquor giant's market share increased from 15% to 35% as select retailers received loans with Pernod's assistance and stocked more of its products.
The agreement "establishes Pernod Ricard's clear intention to engage in brand pushing and (to) gain illegitimate market share," according to one of the agency's documents dated Nov. 26.
There was no comment on the issues from Pernod.
Hundreds of store licenses were awarded to private players under the 2021 Delhi liquor policy, as the city government exited the retail business in an effort to liberalize trade and increase local government revenue.
Liquor manufacturers were barred from applying for retail licenses under the policy in order to avoid the formation of syndicates that could lead to overcharging and brand pushing.
At the time, bids totalling 90 billion rupees ($1.1 billion) were received. Last year, Delhi reversed the policy, and liquor is now only sold in government-run stores.
The allegations against Pernod and Babu are part of a larger Enforcement Directorate investigation into alleged irregularities in policy implementation by retailers, politicians, and individual businesspeople.
According to a Nov. 10 Enforcement Directorate document, "the main motive of Pernod Ricard in cartel creation was to ensure that the retail shops of the cartel partners purchased a greater quantity of Pernod Ricard brands... in lieu of the financial assistance provided."
According to court documents, during questioning, a senior HSBC banker told federal agents that the bank had received a board resolution from Pernod Ricard India authorizing the issuance of corporate guarantees to finance loans for retailers planning to bid for the licenses.
Reuters could not independently confirm that Pernod gave HSBC a board resolution.
According to the documents, Babu told investigators that a proposal for the issuance of corporate guarantees was shared internally with Pernod India's legal and finance teams, and the company performed the necessary due diligence.
However, the federal agency stated in the documents that Pernod did not conduct due diligence before making the loans, and no collateral was taken by the company to protect its interests.
The documents did not state whether HSBC verified that the guarantees and loan disbursements were in accordance with Delhi's liquor policy, or whether it verified that Pernod had collateral for the guarantees. HSBC declined to comment, citing the ongoing investigation.
Richa Singh, Pernod Ricard India's chief financial officer, told the agency during questioning that "ideally collateral should have been taken given the huge amount of corporate guarantee given," according to the documents. Singh did not respond to an interview request.
(Source:www.reuters.com)
