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E-companies to cut stake in foreign JV

New Delhi, June 7 (): E-commerce companies which operate on cash-and-carry or wholesale supply chains which also includes Bharti Walmart Pvt. Ltd will have to restructure their boards after the industry department clarified on the term, group companies.

If a company is able to control 26% by direct or indirect voting right in another company or be in a position to appoint half the board in other companies, then these companies are a group of companies.

In view of this, Bharti will have to reduce its stake in Bharti Walmart. As per government conditions, any group of companies cannot source more than 25% for retail stores engaged in e-commerce.

Bharti Enterprises Ltd and Wal-Mart Stores Inc are in a 50:50 joint venture started in 2007 and engaged in wholesale cash-and-carry trade.

Bharti Enterprises will have to reduce its stake to below 26% in Bharti Walmart if it wants to source for Easy Day stores more than 25% of the products from the joint venture. Many of the existing e-commerce companies in similar joint venture will have to change the stakeholders and the composition of the board.

India allows 100% FDI in back-end companies but not in front-end retail sales. Many companies that have foreign investments routed through back-end firms will have to restructure. The policy is to safeguard the offline retail sales from online sales.

FDI in supermarkets is allowed up to 51% selling multi brands. The definition is said to be very strong than the competition act which allows investment by a company in another company up to 50%. Bharti is facing probe on accepting investments in the Easy Day stores from Walmart even before 51% FDI policy came into force.

The latest State to agree to FDI in supermarkets is Himachal Pradesh which elected a Congress ministry in December. Many Congress-run States and the Opposition controlled regions have rejected FDI in retail. Karnataka which voted Congress to power is yet to decide on FDI.