New Delhi: On Wednesday, the Enforcement Directorate initiated a FEMA case against Myntra, an e-commerce platform backed by Flipkart, along with its associated companies and directors, for allegedly contravening FDI regulations amounting to over Rs 1,654 crore.

Complaint filed under Section 16(3) of FEMA
The ED stated that the complaint was lodged under Section 16(3) of the Foreign Exchange Management Act after the agency received credible information indicating that Myntra Designs Private Limited, operating under the brand name Myntra, and its affiliated companies were engaging in multi-brand retail trade disguised as a “wholesale cash and carry” operation.

This is purportedly in violation of the existing Foreign Direct Investment (FDI) guidelines, according to the Enforcement Directorate (ED).

The case has been filed against Myntra, which is headquartered in Bengaluru, along with its associated companies and directors.

What is the matter?
The investigative agency reported that it had obtained information suggesting that Myntra and its related companies were conducting Multi-Brand Retail Trading (MBRT) under the pretense of a ‘wholesale cash and carry’ business, which breaches the foreign investment (FDI) policy in India.

As per the agency’s investigation, Myntra represented itself as a wholesale business, which facilitated foreign investment exceeding Rs 1,654 crore. However, in actuality, Myntra sold all its products to Vector E-Commerce Pvt. Ltd., which then retailed them to end customers.

Know all about the scam by Myntra?
Myntra and Vector E-Commerce are both part of the same corporate group. The B2B (business to business) model was illustrated by transferring goods between companies, after which another company within the same group converted it into B2C (business to customer) by selling to the general public. The intent was to legally present a wholesale operation, while in truth, a retail business was being conducted.

Where was the law breached?
According to the FDI policy, a wholesale company is permitted to sell only up to 25% of its goods to another company within its group. However, Myntra sold 100% of its goods to its own group company, Vector, which constitutes a clear violation of the law.

Consequently, Myntra and its affiliated companies have breached Section 6(3)(b) of FEMA and the FDI policies (dated 01.04.2010 and 01.10.2010). As a result, the Enforcement Directorate (ED) has lodged a complaint with the Adjudicating Authority under Section 16(3) of FEMA.

In fact, the accusation is that Myntra contravened regulations by engaging in multi-brand retail operations while securing foreign investments exceeding Rs 1654 crore under the guise of a wholesale business. The ED has now initiated legal proceedings in this matter.