ED files Fema case against Myntra over ₹1,654-crore FDI policy breach

The Enforcement Directorate (ED) on Wednesday said that it has filed a case under the Foreign Exchange Management Act (Fema) against Myntra Designs Private Limited, a company backed by Flipkart, along with its associated firms and directors. The case involves alleged violations related to foreign direct investment (FDI) worth over ₹1,654 crore.

According to the agency, the case was filed under Section 16(3) of Fema after it received "credible information" that Myntra and its related companies were involved in multi-brand retail trade, but disguised it as "wholesale cash and carry" business. This goes against India’s FDI policy, the ED said.

The complaint has been registered by the ED’s Bengaluru Zonal Office against Myntra, its linked companies, and directors.

The agency said that the investigation was started based on credible inputs that the company was conducting multi-brand retail trade under the false pretext of wholesale operations.

Sale of goods routed through related company

The ED probe found that Myntra Designs Pvt. Ltd had claimed to operate in wholesale cash and carry and raised FDI of ₹1,654 crore. However, most of the goods were sold to another company, Vector E-Commerce Pvt. Ltd, which then sold the products to retail customers. Both companies — Myntra and Vector — are part of the same corporate group.

The ED said, “M/s Vector E-Commerce Pvt Ltd. was created and continued to be used as corporate entity to bifurcate the B2C[business-to-customer] transaction into B2B (Myntra to Vector) and then B2C (Vector to retail customers).”

The investigation further showed that Myntra was essentially doing multi-brand retail trading while calling it wholesale. The agency also said Myntra failed to meet a key FDI condition that allows only 25 per cent of sales to group companies. Instead, it made 100 per cent of its sales to Vector, which is part of the same group.

The agency added that this is a violation of the FDI policies introduced on April 1 and October 1 of 2010, and also breaches Section 6(3)(b) of Fema, 1999. The company violated Fema rules involving ₹1,654 crore, and a formal complaint has been filed with the adjudicating authority under Section 16(3) of Fema, the ED said.