Myntra Under ED Scanner: FEMA Complaint Filed Over Alleged Rs 1,600-Crore FDI Breach
The Enforcement Directorate issued notice to Myntra Designs over Rs 1,654 crore in foreign direct investment while breaching policy limits on retail sales through related group entities.
The Directorate of Enforcement has filed a complaint under the Foreign Exchange Management Act against e-commerce giant Myntra and its related companies and directors for alleged contravention involving Rs 1,654.35 crore.
The ED initiated an inquiry based on 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. This is in violation of India’s extant FDI policy, a press release said.
What Is The Alleged Myntra Violation?
The story starts with Myntra, who were operating as a 'wholesale' business, meaning the company was selling goods in bulk to other businesses and not directly to customers.
However, in India, foreign investment rules are made in such a way that it wholesale businesses find it much easier to receive foreign money than retail businesses, who sell directly to customers.
The Directorate of Enforcement has found credible evidence that Myntra was selling 'significant portion of the goods' exclusively to another company named Vector E-Commerce, which is part of same group as Myntra.
Vector E-Commerce then sold these goods to retail customers online, which is called Multi-Brand Retail Trading.
Myntra responded via its spokesperson that it had not received a copy of the subject complaint and the supporting documents from the authorities yet. The company further said that it was committed to upholding all applicable laws, and that it remains fully committed to cooperating with authorities at any point of time.
Where Does The Problem Lie?
India's foreign investments rules, however, do not allow companies to utilise foreign money to indulge in multi-brand retail trading without special permission.
"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 press release said.
ED press release added that Myntra Designs Pvt. Ltd. and others have violated Section 6(3)(b) of FEMA, 1999, and the relevant provisions of the Consolidated FDI Policy.
Based on these findings, ED has filed a formal complaint under Section 16(3) of FEMA for further legal action.
