French spirits behemoth Pernod Ricard has entangled itself in a web of regulatory and legal complexities in India. The maker of Absolut Vodka, which has a 17% share in the Indian market, has been facing scrutiny for colluding with retailers to boost its share in Delhi, tax troubles and a tussle to renew its licence.

Let’s take a closer look at each of these issues.

Licence woes: The most recent setback for Pernod was a legal blow dealt by the Delhi High Court. On 18 July, the court dismissed the company’s plea challenging the Delhi government’s decision to deny renewing its sales licence, according to The Indian Express.

Let’s take a step back. Earlier this year, the liquor company had approached the HC for an L-1 liquor licence, for which it had applied in September last year. An L-1 licence is required for wholesale vending of Indian liquor and is granted by the excise department. Pernod had applied for the permit for several of its whisky brands, including the popular Imperial Blue, Royal Stag, 100 Pipers, Passport and Blenders Pride.

The court, in turn, instructed the national capital’s excise department to take a call. On 13 April, the licensing authority rejected the application, prompting the company to move the HC again. However, in its latest verdict, the court has upheld the excise department’s decision.

What next? The company has been allowed to approach the excise appellate authority to appeal against this and it must do so within two weeks.

Grey area: The root of the spirits maker’s troubles seems to lie in the charges against it for illegally boosting sales. The Enforcement Directorate has had its eyes on Pernod Ricard since last year for allegedly colluding with retailers, manufacturers and politicians to illegally profit from the 2021 auction of liquor retail licences in the capital.

First, a little background. In 2021, Delhi’s Aam Aadmi Party-led government decided to implement a liquor policy where licences were granted to private retailers in an attempt to liberalize trade and boost government revenue. Under this, licences to run 849 liquor stores were awarded to companies through bidding. Instead of individual licences, bidding was done zone-wise. However, due to alleged cartelisation and corruption, the policy was revoked, and the government resumed control over liquor sales again. A separate probe into the administration’s role in the alleged corruption is also underway.

Back to Pernod Ricard and the financial probe agency. The ED has accused the company’s Indian arm of indulging in retail cartelisation, money laundering and wrongful price declarations.

In its first charge sheet against the company in November last year, the ED had disclosed financial irregularities, including false declarations of ex-distillery prices and sales to “super cartel” retail zones and corporate guarantees, according to an Economic Times report. These infractions aggregated to over Rs 560 crore, according to the charge sheet, which also said that these resulted in the company pocketing an additional Rs 163 crore in profits.

In January, the ED filed a second charge sheet alleging that the firm provided a corporate guarantee of Rs 200 crore to five retail entities through its banker HSBC “with which the conspiracy of cartelisation was hatched,” according to the ET report. The ED reportedly said the company concealed the “true nature of the transaction”, which means the corporate guarantee masked as financial support was, in fact, an investment by Pernod Ricard into these retailers in exchange for which they had to keep more stock of its liquor brands at all times. The documents are not publicly available.

With this financial support, the investigating agency reportedly said, some retailers bagged more loans and started keeping more stock of Pernod Ricard products, resulting in a substantial rise in its market share, according to Reuters.

The ED reportedly said this “establishes a clear intention of Pernod Ricard to indulge in brand pushing and gain illegitimate market share”. Meanwhile, the court documents did not implicate HSBC in any wrongdoing, according to the Reuters report.

The charge sheet also said that while seeking approval for these corporate guarantees, the Indian arm had written to Helene de Tissot, its global CFO, citing its “winning Delhi by distance” aim.

“Our success in having strategic relationship depth, with key retailers in strategically important zones, will also enable us to counter local players’ threat, our other key battle ground,” read a letter by Rajesh Mishra, Pernod Ricard India COO, to the global CFO, according to ET.

The liquor giant has denied any wrongdoing.

Internal turmoil: In November last year, the ED arrested Benoy Babu, head of international brands for Pernod’s India business. Babu was denied bail earlier this month.

The Delhi HC, while denying the bail, noted that Babu “was also in a deep conspiracy” from the beginning of Pernod Ricard’s decision to provide the Rs 200 crore in corporate guarantees for loans obtained by the cartel members from HSBC Bank.

The court also noted that while extending a corporate guarantee in itself is not a crime, it will fall under the purview of money laundering in relation to the proceeds of crime.

Meanwhile, the company’s Indian business has seen some high-profile exits. Last month, Yashika Singh, its head of corporate affairs in the country—who was handling regulatory matters related to manufacturing and government policies—reportedly tendered her resignation. In April, Paul-Robert Bouhier, former managing director for the India business, had stepped down from his position, merely months after assuming the role in January. Bouhier had been with the liquor giant since 1995.

Tax trouble: There’s more. Pernod Ricard India’s import bills from 2009-10 to 2020-21 are also under scrutiny now.

In October last year, India’s customs authority had said in a notice that the company had significantly undervalued liquor concentrates in its declarations, resulting in reduced import duty payments. The notice added that the liquor maker owed additional import duties worth nearly $250 million up to 2020.

The customs authority alleged that the India unit paid “hefty” dividends to its parent company in France to make up for the undervalued imports in its books, calling it a “habitual litigant” conspiring “to defraud the Govt. of India of its legitimate revenue”.

The government imposes a 150% import duty (on the value of goods) for importing liquor concentrates into the country. Dividends or profits distributed to shareholders, on the other hand, are subject to lower taxes.

Here’s some perspective on the scale of its impact. In FY21, Pernod’s revenue from India operations came in at $2.4 billion; a whopping 79% of it was claimed by taxes and duties. The company recorded $130 million in net profit from its India business that fiscal.

For some time now, Pernod has been insisting that ongoing tax disputes have severely hindered its business operations in India. “This ever-lasting litigation has been a big strain on our ease of doing business and has inhibited fresh investment by our group headquartered in Paris (France) for expansion of business in India,” the spirits company wrote in a letter to Prime Minister Narendra Modi in November 2021.