EXCLUSIVE: India alleges that France’s Bernd violated Delhi city rules to boost market share

  • Pernod faces many legal and regulatory challenges in India
  • The company allegedly helped Delhi retailers obtain loans from HSBC
  • Retailers in return stocked more Pernod-Indian Agency merchandise
  • Pernod denies the allegations, and says she will cooperate with the authorities

NEW DELHI, January 13 (Reuters) – Pernod Ricard (PERP.PA) It breached alcohol policy in India’s capital by providing financial support to retailers who stock-stocked more of the French company’s brands and boosted its market share, the country’s financial crimes agency alleges.

India’s enforcement department said in court documents filed in November that Pernod India provided corporate guarantees worth 2 billion rupees ($25 million) in 2021 to its banker HSBC and then asked it to facilitate loans to retailers, who used the funds to bid for Liquor store licenses. in New Delhi.

The documents reviewed by Reuters said Delhi government policy prevented manufacturers from participating in retail sales directly or indirectly and Pernod was “offending” because she actively used bank guarantees to invest in retailers.

The documents are not public and details of the allegations against Pernod have not been previously released.

Pernod Ricard said India strongly denies the directorate’s allegations, adding that it will “continue to cooperate fully with the Indian authorities in this matter”.

Binoy Babu, Head of International Brands at Pernod India, was arrested in November and remains in jail over the case. He faces allegations of money laundering under Indian laws and violating Delhi’s liquor policy rules, but he has denied any wrongdoing. Babu, who has not been charged, is seeking bail and will be heard by a New Delhi court on January 19.

In his bail document, seen by Reuters, Babu says his arrest was “unlawful” and played no role in Birno’s decision to extend corporate guarantees. Babu could not be reached for comment and his lawyer did not respond.

The court documents do not allege any wrongdoing by HSBC. The bank said in a statement to Reuters that it could not comment on the matter, which is “under investigation by the authorities”.

The Enforcement Directorate and the Delhi City Government did not respond to requests for comment.

The investigation adds to Pernod’s current business and regulatory challenges in India. The maker of Chivas Regal and Absolut vodka last year challenged a nearly $250 million federal tax order over an alleged undervaluation of imports, saying it did not agree with the method used to calculate the tax owed.

Reuters reported last year that the government pressured Prime Minister Narendra Modi’s office to resolve its numerous tax disputes.

Pernod considers India as a key growth market with a share of 17%. While market share for New Delhi alone was not available, industry sources say that capital is crucial for any company as it is an urban and affluent tourism hub that acts as a supply market.

A jump in market share

In return for financial support from Pernod, the New Delhi retailers who took out the loans had to “guarantee” that 35% of the stock in their stores would be Pernod products, the investigating agency said in its documents. She said her clients questioned executives at HSBC and Pernod during the investigation.

Select retailers took out loans backed by Pernod and stocked more of its products, the agency said, and the liquor giant’s market share rose from 15% to 35%.

An agency document dated November 26 states that the arrangement “establishes a clear intent of Pernod Ricard to indulge in the brand push and (to acquire) an illegitimate market share”.

Pernod has not commented on these specific allegations.

Under Delhi’s liquor policy of 2021, hundreds of shop licenses were awarded to private players as the city government exited the retail business in a move to liberalize the trade and boost local government revenue.

Under this policy, brewers were prohibited from applying for retail licenses to avoid unionization that would result in higher fees and push the brand.

Bids worth 90 billion rupees ($1.1 billion) were received at that time. Delhi last year scrapped the policy, and liquor is now sold only through government-run shops.

The allegations against Pernod and Babu are part of a broader investigation by the Enforcement Directorate into alleged wrongdoing in policy enforcement by individual retailers, politicians and businessmen.

One of the documents of the Enforcement Directorate dated November 10 says: “Pernod Ricard’s main motive in creating the cartel was to ensure that the retail stores of the cartel’s accomplices bought a larger quantity of Pernod Ricard’s trademarks…instead of the financial assistance provided.”

Court documents show that a senior HSBC banker told federal agents during his cross-examination that the bank had received a board decision from Pernod Ricard India to issue corporate guarantees to finance loans to retailers who planned to bid for the licences.

Reuters could not independently confirm that HSBC had obtained a board decision from Pernod.

Babu told investigators that an offer related to the corporate guarantee issuance was shared internally with Pernod India’s legal and financial teams, and the company did its due diligence, according to the documents.

But the federal agency said in the documents that Pernod did not complete due diligence before granting the loans, and the company did not take any safeguards to protect its interests.

The documents did not say whether HSBC checked collateral and disbursed loans in line with Delhi’s liquor policy, or whether it checked whether Pernod had collateral for collateral. HSBC declined to comment, citing the ongoing investigation by the authorities.

The documents showed that Pernod Ricard India’s chief financial officer, Richa Singh, told the agency during cross-examination that “it would have been better to take the guarantees in view of the huge amount of the company’s guarantee given”. Singh did not respond to a request for comment.

Additional reporting by Arban Chaturvedi and Aditya Kalra in New Delhi; Editing by Raju Gopalakrishnan

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