Myntra Under Probe Agency ED's Scanner For Rs 1,654 Crore Alleged Violation

The Enforcement Directorate (ED) has registered a case against Indian fashion e-commerce company Myntra, its associated companies and directors for alleged violation of the Foreign Direct Investment (FDI) provisions to the tune of Rs 1,654.35 crore.

In a statement, the probe agency said the case was registered in its Bengaluru Zonal Office on the basis of credible inputs suggesting that Myntra Designs Pvt. Ltd. and its related entities were engaged in Multi-Brand Retail Trading (MBRT) while presenting themselves as operating under a 'Wholesale Cash & Carry' model, in violation of India's FDI policy.

Investigations revealed that Myntra received FDI amounting to ₹1,654.35 crore on the pretext of operating a wholesale business. It was, however, found that a significant portion of the goods were sold exclusively to M/s Vector E-Commerce Pvt. Ltd., a related company belonging to the same corporate group, which then retailed the goods to end consumers.

This structure, the ED said, was deliberately created to split direct B2C (Business-to-Consumer) transactions into a B2B (Business-to-Business) arrangement between Myntra and Vector, followed by a B2C model between Vector and the retail consumers. This, the agency said, effectively bypassed the restrictions on multi-brand retail under FDI norms.

Besides, under the FDI policy amendments of April 1, 2010 and October 1, 2010, companies operating under the wholesale model are permitted to sell only up to 25% of their goods to related group companies. Myntra, however, made 100% of its sales to Vector E-Commerce, thereby breaching this limit, the ED said.

The probe agency concluded that Myntra Designs Pvt. Ltd. and others violated section 6(3)(b) of FEMA, 1999, and relevant provisions of the Consolidated FDI Policy. 

"Based on these findings, a complaint has now been filed under Section 16(3) of FEMA for further legal action," it said.

There was no immediate reaction from Myntra on the matter.

The registration of the case highlights growing regulatory scrutiny in the e-commerce sector over compliance with FDI norms.