The Enforcement Directorate (ED) is proposing a penalty
on the German sportswear giant Adidas’ subsidiary Reebok for alleged violations of the Foreign Exchange Management Act (Fema). After its investigation, ED found the sportswear company had failed to stick to its commitment to the Foreign Investment Promotion Board by importing goods that could have been manufactured locally. The matter has been referred to the finance ministry. According to a senior ED official, the company was carrying out retail sales in India by importing goods, against its earlier commitment of manufacturing these locally. It may be recalled that Adidas has accused Reebok India of alleged Rs 870-crores fraud, which is currently being investigated by the Serious Fraud Investigation Office (SFIO) and the Economic Offences Wing (EOW) of the Gurgaon Police,
Adidas has refuted the ED charges saying, “In 2010, the Enforcement Directorate had requested Reebok India for some information, which was duly given, along with required documents. No further enquiry or action was initiated by the directorate thereafter.” The company said according to an FIPB-approved letter, Reebok India was not subject to any export obligation, except export earnings, to balance the outflow of foreign exchange on account of dividend payment for the initial period of seven years. It added reports on Fema violations were incorrect and misleading.
In a report in 2009, Adidas auditors had stated the company had committed it would export $100 million worth of products from India through the first five years of operations. Though the auditors admitted the company had not been able to meet the commitment, they concluded after discussions with FIPB, the company felt not adhering to the estimate would not affect the approval given to it to operate in the country.
Meanwhile, about 80 Delhi-based franchisees of Reebok have written to Adidas Group Global CEO Herbert Hainer, seeking his intervention to end the “high-handed” attitude of the new Reebok India management towards the franchisees. They alleged the company has neither supplied any fresh stocks in the last four months nor shared any information about the new business model the company is planning. “Please note that this behaviour is leaving us very insecure about what the company wants to do in the future,” the dealers said in the letter.
“We refuse to be victimised in this manner... our livelihood is at stake as many of us have taken loans against mortgages for the money invested in Reebok India,” the franchisee’s letter said.