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The directorate of enforcement (ED) has filed a complaint under the foreign exchange management act (FEMA) against Flipkart-owned Myntra and its related entities for allegedly flouting foreign investment rules to the tune of INR 1,654.4 Cr.
In a statement, the ED alleged that Myntra and its related companies were undertaking multi-brand retail trade (MBRT) in the guise of ‘Wholesale Cash & Carry’, which it said was in violation of India’s FDI policy.
For context, wholesale cash and carry pertains to a retail model where businesses, typically smaller retailers, purchase goods directly from wholesalers and pay in cash at the time of purchase, without requiring delivery services.
The probe agency further said that Myntra declared that it was engaged in this model and received FDI from foreign investors and then sold the majority of the goods to its affiliate Vector Ecommerce Pvt Ltd.
Vector is primarily involved in business to business (B2B) transactions within the Myntra ecosystem, specifically handling the wholesale aspects of product distribution to the retail platform.
The ED said that the subsidiary was created and continued to be used as a corporate entity to bifurcate the company’s B2C transition into B2B and then subsequently back to B2C. Thus, the agency found out that Myntra was actually carrying out multi-brand retail trading in the guise of wholesale cash & carry.
“Even otherwise, Myntra have not satisfied the condition laid down for “Wholesale/Cash & Carry Trading” as they have made cent per cent sales to Vector Ecommerce, which is in contravention of amendment date 1/4/2010 and 1/10/2010, which permitted only 25% sale to companies belonging to the same group or group companies,” the ED statement read.
(The story will be updated shortly.)
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