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The Enforcement Directorate (ED) has filed a complaint under Section 16(3) of the Foreign Exchange Management Act (FEMA), 1999 against Myntra Designs Pvt. Ltd and its related entities, alleging violations of India’s FDI policy amounting to over Rs 1,654 crore.
According to a press release issued by the agency’s Bengaluru zonal office, the complaint was filed based on “credible information” that Myntra and its affiliates were conducting multi-brand retail trading (MBRT) under the guise of wholesale “cash & carry” operations, an activity restricted under prevailing FDI norms.
The ED’s investigation revealed that Myntra had received foreign direct investment to the tune of Rs 1,654.35 crore while claiming to operate as a wholesale entity. However, the agency alleges that a substantial portion of the goods was sold to Vector E-Commerce Pvt. Ltd., which in turn sold them to end customers via retail. Both companies were found to be related parties and part of the same corporate group.
Vector E-Commerce was allegedly used to shift Myntra’s wholesale (B2B) business into direct retail (B2C) sales, making it look like a wholesale operation while actually running a retail one.
The ED further stated that Myntra breached FDI norms introduced via amendments in 2010, which capped wholesale sales to group companies at 25%. The agency claims Myntra and its affiliates exceeded this threshold, thereby contravening Section 6(3)(b) of FEMA, 1999, and related clauses in the Consolidated FDI Policy.
Why this case: India’s FDI rules allow foreign investment in wholesale businesses, but with a key condition: only 25% of total sales can be made to related group companies. This rule helps stop companies from using wholesale licenses to run retail businesses, which have stricter FDI rules.
In Myntra’s case, the ED found that 100% of Myntra’s sales went to a related company, Vector E-Commerce, which then sold directly to customers. This breaks the 25% rule and goes against FEMA law, leading to the current case against Myntra.
The case has now been sent to the Adjudicating Authority under FEMA, as the ED continues to closely examine whether big e-commerce and retail companies are following the rules.
Entrackr has reached out to Myntra for comment.
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