Myntra booked for Rs 1,654 crore foreign investment violation

The Enforcement Directorate (ED) has filed a formal complaint against Myntra Designs Private Limited, and its associated entities and directors, for alleged contravention of the Foreign Exchange Management Act (FEMA) involving Foreign Direct Investments (FDI) worth over Rs 1,654 crore.

According to a senior agency official, the action was taken under Section 16(3) of FEMA after an extensive investigation revealed that Myntra and its related companies were allegedly engaged in multi-brand retail trading (MBRT) under the guise of operating a wholesale cash-and-carry business, in violation of India’s FDI policies.

“The investigation, triggered by credible intelligence, found that Myntra Designs Pvt Ltd had received FDI amounting to Rs 1,654.35 crore while declaring itself as a wholesale trader,” the official said.

However, the probe revealed that nearly all of Myntra’s sales were made to Vector E-Commerce Pvt Ltd, a related party and part of the same group, which in turn sold products directly to retail customers.

The ED has termed this structure a “camouflage,” used to bifurcate what was essentially a business-to-customer (B2C) into business-to-business (B2B) transaction, and then back to B2C to circumvent FDI restrictions.

As per the FDI policy amendments dated April 1 and October 1, 2010, wholesale or cash-and-carry businesses are permitted to sell only up to 25 per cent of their goods to group companies. The ED claims that Myntra violated this rule by selling 100 per cent of its stock to Vector E-Commerce.

The complaint, filed before the Adjudicating Authority, accuses Myntra and its affiliates of breaching Section 6(3)(b) of FEMA and the aforementioned consolidated FDI policies. The total value of the alleged contravention has been pegged at Rs 1,654.35 crore.

Myntra, a major player in India’s e-commerce fashion industry, has not yet issued an official response to the ED’s complaint.