The Enforcement Directorate (ED) has registered a case under the Foreign Exchange Management Act (FEMA) against e-commerce platform Myntra, its associated entities, and directors, for alleged contravention of foreign direct investment (FDI) rules amounting to over Rs 1,654 crore.
In a statement issued on Wednesday, the federal agency said the case was filed under Section 16(3) of FEMA following “credible information” that Myntra Designs Private Limited and related companies were engaged in multi-brand retail operations under the guise of a wholesale cash-and-carry business, an activity not permitted under current FDI regulations.
The ED has alleged that the Bengaluru-based company, which is backed by Flipkart, violated existing FDI norms governing e-commerce operations in India. The agency is examining whether Myntra’s business model circumvented rules restricting foreign investment in multi-brand retail through indirect means.
What does the ED say?
According to the ED, Myntra Designs Pvt. Ltd. had declared itself as a wholesale cash-and-carry business while raising foreign capital. However, the agency’s probe found that nearly all of its sales were routed through Vector E-Commerce Pvt. Ltd., a related-party entity that subsequently sold these goods to retail consumers. This, the ED claimed, amounted to carrying out multi-brand retail trading (MBRT) under a structure that violated both the letter and spirit of prevailing FDI policy.
“Vector E-Commerce Pvt. Ltd. and Myntra Designs Pvt. Ltd. are related parties and part of the same group,” the ED said in a statement, alleging that Vector was created and consistently used as a vehicle to split retail transactions into business-to-business (B2B) and business-to-consumer (B2C) legs in a bid to sidestep regulatory restrictions.
The agency further cited amendments to the consolidated FDI policy, dated April 1 and October 1, 2010, that permit only up to 25 per cent of wholesale sales to be made to group companies. In Myntra’s case, 100 per cent of sales were allegedly made to Vector, thereby breaching the permissible limit.
The action pertains to a potential contravention of Section 6(3)(b) of FEMA, which governs capital account transactions and conditions for foreign investment. The ED has pegged the total FDI involved in the alleged violation at Rs 1,654.35 crore.
Myntra replies to the allegation
In response to the ED action, Myntra said it had not yet received a copy of the complaint or supporting documents from the authorities but remained committed to cooperating with them. The company stated that it adheres to all applicable laws and operates with high standards of compliance and integrity.
“At Myntra, we are deeply committed to upholding all applicable laws of the land and operating with the highest standards of compliance and integrity. As a homegrown marketplace, we are committed to contributing to India’s nation-building efforts by empowering the textile and apparel ecosystem through digital commerce,” a Myntra spokesperson said.
It was further emphasised that the company has worked closely with Indian brands, sellers, artisans, and weavers to bring traditional craftsmanship to a global audience, particularly among the Indian diaspora. Myntra’s role in strengthening the digital backbone of the industry and enabling employment and entrepreneurship across the country was also underlined.