Enforcement Directorate files FEMA complaint against Myntra over FDI violations

The Enforcement Directorate (ED) has filed a complaint under the Foreign Exchange Management Act (FEMA) against online fashion retailer Myntra, its affiliate companies, and directors. The federal financial crimes probe agency alleges that Myntra engaged in "multi-brand retail trading in the guise of wholesale cash and carry," a practice deemed a violation of India's foreign direct investment (FDI) policy. This action is part of a broader investigation initiated by the ED in 2014 into several e-commerce platforms for alleged breaches of FDI norms.

The ED's Bengaluru Zone stated that the complaint targets Myntra Designs Private Limited and its associated entities and directors for contraventions amounting to Rs 1654.35 crore. Myntra, in response, stated that it had not yet received a copy of the complaint or supporting documents from the authorities but affirmed its commitment to cooperate fully.

The ED's investigation into Myntra began based on credible information suggesting that the online retailer and its related companies were involved in multi-brand retail trade (MBRT). The probe revealed that Myntra declared its business as wholesale cash and carry, attracting and receiving FDI equivalent to the aforementioned amount. It was found that Myntra primarily sold its goods to Vector E-Commerce Pvt. Ltd., which then retailed these goods to the ultimate customers. The ED further asserted that Vector and Myntra are related parties, belonging to the same corporate group.

According to the agency, Vector E-Commerce was established and continuously utilised as a corporate entity to bifurcate business-to-customer (B2C) transactions—specifically, those from Myntra Designs to retail customers—into a business-to-business (B2B) transaction between Myntra Designs and Vector E-Commerce, followed by a B2C transaction from Vector E-Commerce to retail customers.

The investigation concluded that Myntra was effectively conducting multi-brand retail trading under the guise of wholesale cash and carry. Furthermore, the ED stated that Myntra failed to meet the conditions for wholesale/cash and carry trading, as it made 100% of its sales to Vector. This is in contravention of amendments from April 1, 2010, and October 1, 2010, which permitted only up to 25% of sales to companies belonging to the same group.