Myntra In Trouble! ED Files Complaint Against Online Fashion Retailer Over FDI Violation

Myntra In Trouble: The Enforcement Directorate has registered a complaint against Myntra over violation of foreign direct investment (FDI) norms under Foreign Exchange Management Act (FEMA). Myntra and its affiliates are facing charges and complaints for FDI violations involving Rs 1,654 crore. The company was allegedly involved in routing its goods via another entity to dodge restrictions on multi-brand retail trading.

According to the press release, the complaint is linked to companies and directors for "carrying out multi-brand retail trading in the guise of wholesale cash and carry". As per the Hindustan Times report, the act breached the foreign direct investment policy.

"ED, Bengaluru has filed a complaint u/s 16(3) of Foreign Exchange Management Act, 1999 (FEMA) before the Adjudicating Authority under FEMA against M/s. Myntra Designs Private Limited (Myntra) and its related companies and their Directors for contravention to the tune of Rs. 1654,35,08,981/-," read a social media post by ED on X.

The law enforcement agency has initiated action against Myntra and mentioned stakeholders and associated persons under Section 16 (3) of the Foreign Exchange Management Act (FEMA), 1999 FEMA.

"The enquiries in the matter were initiated on the basis of credible information that M/s. Myntra Designs Private Limited (Myntra) and its related companies are doing Multi Brand Retail Trade (MBRT) in the guise of 'Wholesale Cash & Carry', allegedly in violation of the extant FDI Policy," the ED stated.

As per the press release, Myntra Designs Private Limited (Ltd) had declared itself as operating a wholesale cash-and carry business. After the disclosure, the entity had received a foreign direct investment (FDI) worth Rs 1,654.35 crore from foreign investors.

"They sold majority of their goods to M/s. Vector E-Commerce Pvt. Ltd. (who sold the goods in retail to the ultimate customer). M/s. Vector E-Commerce Pvt. Ltd. and M/s. Myntra Designs Pvt. Ltd. are related parties and belong to same group or group of companies," CNBC TV 18 quote the ED press release.

What Did Investigation Against Myntra Reveal?

It was found that Myntra used a related entity, Vector E-Commerce Pvt Ltd, to divert most of its sales and deal directly to consumers.

As per ED press release, Myntra allegedly ensured to form a structure that helped it to circumvent the government's FDI policies. The company, reportedly, utilised its other entities to dodge the FDI restrictions on multi-brand retail trading, reported CNBC TV18. In India, multi-brand retail trading is tightly regulated compared to wholesale trading.

M/s Vector E-Commerce Pvt Limited was created and continued to be used as a corporate entity for the division of business to customer (B2C) business, ie Myntra Designs Private Limited for retail customers. The company also aimed to carry out the B2B transaction between Myntra Designs Pvt Limited and Vector E-Commerce Pvt Ltd.

As per FDI policies dated April 1, 2010 and October 1, 2010, whole sale trading is allowed only if sales to group companies do not exceed 25%. The ED investigation found that Myntra's rerouting of 100% of its goods to another entity was a direct violation of FDI norms, as per CNBC TV 18 report.