Cigarette maker Godfrey Phillips India on Monday said it is in complete compliance with the country’s FDI norms and rejected allegations of violations regarding its arrangements for manufacturing Marlboro cigarettes.

Godfrey Phillips has an exclusive procurement and supply agreement with Philip Morris International to manufacture and distribute Marlboro in the country.

Dozens of internal company documents reviewed by Reuters showed Philip Morris has been indirectly paying costs related to Marlboro cigarette manufacturing in India in a phased manner.

Three former officials and one former head of the Enforcement Directorate had reviewed the Philip Morris documents for Reuters and said the dealings should be investigated for circumventing FDI rules. “The suggestion of alleged violation of FDI laws of India is completely misconceived and misplaced,” Godfrey Phillips India said in a regulatory filing.

On Monday, Godfrey’s stock rose as much as 10 per cent from Friday’s close.

FDI ban

The company said it had entered into a commercial arrangement with IPM Wholesale Trading (an Indian entity and affiliate of Philip Morris International Inc, USA) to manufacture Marlboro cigarettes in India in May 2009, a year before May 2010, when the restrictions on FDI in manufacture of cigarettes came into being.

“The commercial arrangement referred to above is in complete compliance with the extant regulations governing the FDI laws in India. All the business transactions entered and executed between the parties since 2009 are governed by the above referred commercial arrangement,” the company said, adding that all the business transactions in this regard are executed in Indian rupees.

Currently, FDI is prohibited in the manufacture of cigars, cigarettes and tobacco substitutes. However, it is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contracts in the tobacco sector.

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