ED files Fema complaint against Myntra over ₹1,654 crore FDI violation

The Directorate of Enforcement (ED) said on Wednesday it has filed a complaint against fashion business Myntra Designs, its related companies and their directors for alleged violations of foreign investment rules amounting to more than Rs 1,654 crore.

 

The investigative agency acted under Section 16(3) of Foreign Exchange Management Act, 1999. ED said that an investigation was done on the basis of credible information that Myntra, which is backed by Flipkart, and its related companies are doing multi-brand retail trade in the guise of “wholesale cash and carry”, which is allegedly in violation of India’s foreign direct investment (FDI) policy.

 

 

Myntra has not commented on ED’s allegations yet.

 

ED’s investigation allegedly found that Myntra received FDI equivalent of Rs 1654.35 crore and that it sold the majority of its goods to Vector E-Commerce (which sold the goods in retail to the ultimate customer). Vector E-Commerce and Myntra are related parties and belong to the same group.  “Vector E-Commerce Pvt. Ltd. was created and continued to be used as a corporate entity to bifurcate the B2C [(business to customer i.e. Myntra Designs Pvt. Ltd. to retail customers)] transaction into B2B (Myntra Designs Pvt. Ltd. to Vector E-Commerce Pvt. Ltd.) and then B2C (Vector E-Commerce Pvt. Ltd. to retail customers),” said ED in a statement.

 

ED added that its investigation also revealed that Myntra was carrying out multi-brand retail trading in the guise of “wholesale cash and carry”.

 

ED said Myntra has not satisfied the condition laid down for wholesale cash and carry trade as it made sales to Vector E-Commerce. The practice was in contravention of amendments to FDI rules in 2010 and permitted only 25 per cent sale to companies belonging to the same group or group companies.