CaratLane Trading, now majority owned by the Tata Group’s Titan, has challenged a show-cause notice (SCN) from the Directorate of Enforcement (ED) alleging that it had violated rules between 2011 and 2014 by receiving foreign direct investment (FDI), said people with knowledge of the matter.
This predates Titan’s investment in CaratLane. Titan said recently it’s raising its stake in CaratLane to 98.28% by acquiring 27.2% more from founder Mithun Sacheti and his family.
The ED accused CaratLane of violating the Foreign Exchange Management Act (FEMA). The notice served on March 28, 2022, stated that FDI was not allowed in single-brand retail at the time. The notice has not been made public till now.
CaratLane approached a former chief justice of India who opined that it was not in violation of FEMA since it applied to the B2B sector and not retail trade.
“Based on the legal opinion and assessment of the transactions for the years under consideration, CaratLane management believes no provisioning is required,” according to Titan’s FY23 balance sheet.
Titan did not comment.
Sources told ET that the case is before the adjudicating authority, pending orders.
“The IO (investigation officer) has submitted his complaint and has detailed… the violations,” said one of them. “Since the matter is sensitive, it is being heard by the special director. The company has contested the allegations and claims that there isn’t a FEMA case as made out by the ED.”
As per procedure, a show-cause notice is issued by an adjudicating authority (AA) — an ED officer — to the firm and its representatives after studying the complaint submitted by the investigation officer (IO). The AA then seeks a reply on the allegations levelled.
“Ordinarily, documents are sought and the legal representative of the party explains their case. In certain cases the AA might also call for an in-person hearing depending on the circumstances of the case and if he feels that there is an explanation that needs to be sought in person,” said a senior official. “Upon completion of the hearing, the AA issues its order, either upholding the ED’s case or ruling in favour of the party. Both have the option to appeal before the appellant authority (special director) of the concerned zone and subsequently before the tribunal and the high court.”
Appeal period The appeal period is generally 90-120 days, depending on the forum before which the appeal is filed, the official added.
Tiger Global invested in CaratLane in 2011 and put in more money in each of the next three years. Till 2011, India prohibited FDI in multi-brand retail trading at any ownership level and FDI was only permitted up to 51% in single-brand retail. After the FDI rules were amended effective September 20, 2012, FDI up to 51% was permitted in multi-brand retail trading, with the prior approval of the erstwhile FIPB and subject to conditions.
