IndiaRetailBiz

India Franchisee of Pizza Hut and Kentucky Fried Chicken quick restaurant chains, appears to have run into trouble with the government authorities dealing with foreign exchange regulations (FIPB) over breach of certain conditions it accepted while obtaining license from them to operate within India.

Yum Restaurants, the franchisee, according to a newspaper report, had agreed with the Foreign Investment Promotion Board (FIPB), which allowed to operate in India in 1993, to bring in a total foreign currency investment of $80 million in two tranches of $40 million each over a period of seven years. However, the company brought an investment of only $35 million.

The Enforcement Directorate, which investigates and initiates prosecutions against foreign exchange violations in India, as such, has served a notice seeking explanation for default on Yum! Restaurants.

“Our probe found that the firm brought in only about $35 million in all. This amounts to both a foreign exchange and an FIPB licence violation,” said an official of the Enforcement Directorate.

The violation could lead to a payment of Rs 1,920 crore (around $ 400 million) including Rs 1,252 crore ($260 million) in penalties.

Yum! has also been asked to explain evasion of service tax on services offered the brands’ restaurant outlets in the South Asian countries of Pakistan, Sri Lanka, Mauritius and Bangladesh.

Additional violations of Yum! relate to sale of franchisee establishments and payment of royalty to its parent company in the US.

“Yum! is a responsible global company that has been operating legitimately in the country for more than a decade. We comply with all applicable laws of the land and are committed to investing and building our brands in the country in an ethical manner,” said a spokesperson of Yum! Restaurants. “We are examining this before deciding on an appropriate course of action,” added the spokesperson.