Mumbai: It’s getting knottier for Welspun India Ltd, which is set to face two class-action lawsuits in US federal courts. The company was pulled up by some of its largest clients in the US for supply of sheets made of cheap cotton being passed off as the more expensive Egyptian cotton.
The class action complaint, filed with the United States District Court for the Eastern District of Missouri, Eastern Division, accuses Welspun of violating Missouri’s consumer fraud statutes and other laws, through deception, fraud, false pretence, false promise, misrepresentation, unfair practice or concealment, suppression, breach of warranty and/or omission of material fact, among other things, said the plaintiffs who are represented by Stuart L. Cochran, R. Dean Gresham and Bruce W. Steckler of Steckler Gresham Cochran in Dallas, Texas, and Matthew H. Armstrong of Armstrong Law Firm LLC in St. Louis, Missouri, in a press release on 13 September.
The complaint also alleges that Welspun has long been aware of the fact that they have been shipping products that were mislabelled, which Welspun acknowledged during an investor press conference by their managing director Rajesh Mandawela, the release said.
On 22 August, Target Corp. had snapped business ties with the retailers following their own internal investigations that alleged the Indian textiles company of passing off cheap cotton bed sheets as those made of fine Egyptian cotton between August 2014 and July 2016. This led to investigations by other US clients like Ikea Ab, Bed Bath & Beyond Inc. and Wal-Mart Stores Inc. Subsequently, even Wal-Mart has said that it will stop the procurment the Egyptian cotton bedsheets from Welspun.
Following Target’s announcement, Welspun had said that it has appointed EY, one of the big four audit firms, to audit its supply chain and the reports of the same will be available in the next 6-8 weeks.
Sales from the US account for two-thirds of Welspun’s sales and the fact that two of the company’s large clients have done their own audits and have found fault with the company’s supply of Egyptian cotton bedsheet, the damage control for Welspun will be an uphill task.
“The main concern now is about credibility,” said Mrinalini Chetty, analyst, Centrum Wealth Management while explaining that even as the company awaits the EY report regaining the lost amount of marketshare will take double the amount time.
A Welspun representative did not respond to a request for comment on Thursday till the filing of this report.
Since 12 August, the Welspun stock is down 47% until 12.10pm on Thursday, losing over Rs.5,078.89 crore in market capitalization.