CaratLane Challenges ED’s Show-Cause Notice Alleging FEMA Violations: Report

The notice, dated March 28, 2022, alleges CaratLane received foreign direct investment during 2011 and 2014, which was not allowed in single-brand retail at that time.

CaratLane Trading challenged the Directorate of Enforcement (ED) notice regarding FEMA violations recently, a report claims. The report by Economic Times states that CaratLane challenge the show-cause notice from the ED which alleged the company of violating the Foreign Exchange Management Act (FEMA) between 2011 and 2014.

Recently acquired by Tata Group’s Titan, CaratLane has been accused of receiving foreign direct investment (FDI) during the said period, which the notice states was not allowed in single-brand retail at that time. The report stated that the notice, dated March 28, 2022, has not been made public yet. 

Titan acquired the remaining 27.18 per cent stake in the jewellery company CaratLane and acquired the company for Rs 4,621 crore in cash from founder Mithun Sacheti and his family last week. 

The report noted that CaratLane is an unlisted private company and the alleged FEMA violations occurred much before Titan’s investment in the company. The company reportedly sought legal opinion from a former chief justice of India who stated that it didn’t violate FEMA as the rules applied to the B2B sector and didn’t include retail trade. 

Further, Titan’s balance sheet for the fiscal year 2022-23 stated, “Based on the legal opinion and assessment of the transactions for the years under consideration, CaratLane management believes no provisioning is required,” reported Business Today. 

The acquisition of CaratLane is expected to be completed by October 31 this year. The deal is subject to regulatory approvals and closing conditions. 

Founded in 2008 by Mithun Sacheti and Srinivasa Gopalan, CaratLane was initially an online retailer. It became a subsidiary of Titan Jewellery in July 2016, working in partnership with Tanishq. Initially, Titan acquired a 62 per cent stake in the company for Rs 357.24 crore. The company reported a 32.4 per cent growth in it’s revenues to Rs 640 crore in the June quarter in the current financial year, on a year-on-year basis. Currently, it’s store count stands at 233 stores across 93 cities in India, with 11 stores added in the June quarter.