Myntra Faces Foreign Exchange Management Act Investigation for Alleged FDI Infringement of 1,654 Crores by the Economic Division
The Enforcement Directorate (ED) has launched an investigation into Myntra Designs Pvt. Ltd., a leading Indian fashion e-commerce platform, for suspected breaches of the Foreign Exchange Management Act (FEMA) related to Foreign Direct Investment (FDI) compliance.
The ED's investigation was initiated following information about Myntra's involvement in multi-brand retail trading (MBRT), a business activity with stricter FDI regulations. The allegations centre around Myntra's claim of operating a "wholesale cash & carry" business model, which enabled it to secure FDI worth approximately ₹1,654 crore. However, the ED claims that Myntra conducted MBRT operations instead, bypassing FDI norms.
According to the ED, Myntra disguised its direct retail sales as wholesale transactions, selling the majority of its goods to Vector E-Commerce Pvt. Ltd., a related firm. Vector then sold these goods directly to retail consumers, effectively converting B2C transactions into B2B sales between Myntra and Vector, followed by B2C sales from Vector to consumers. This setup is said to have circumvented FDI rules on multi-brand retail.
The ED's investigation further reveals that Myntra's operations contravened the FDI policy amendments in 2010. The policy allows wholesale businesses to sell only up to 25% of their goods to related entities or group companies. However, Myntra allegedly sold 100% of its goods to Vector E-Commerce, violating this limit.
The ED has filed a complaint under Section 16(3) of FEMA, 1999 before the Adjudicating Authority, accusing Myntra, its group companies, and their directors of violating Section 6(3)(b) of FEMA and the Consolidated FDI Policy guidelines to the tune of Rs 1,654.35 crore.
The ED's Bengaluru Zonal Office is conducting the investigation, and the case highlights heightened regulatory scrutiny over e-commerce firms' adherence to FDI norms in India. As of now, Myntra has not responded to the allegations.
The ED's allegations suggest that Myntra, a leading fashion e-commerce platform, capitalized on the "wholesale cash & carry" business model to secure approximately ₹1,654 crore in foreign finance for its industry, but the ED claims this was a disguise for multi-brand retail trading (MBRT) operations, which flouted the FDI regulations in the retail sector.
The ED's investigation further asserts that Myntra's operations contravened the FDI policy amendments in 2010, as Myntra allegedly sold 100% of its goods to Vector E-Commerce, a related firm, thereby violating the FDI limit of selling up to 25% of goods to group companies in the wholesale business.
