Myntra sold all its goods (100%) to Vector, a related company, which breaks the FDI rule that allows only 25% sales to related firms.
ED Files FEMA Complaint Against Myntra Latest News: The Directorate of Enforcement (ED), Bengaluru Zonal Office, announced on Wednesday that it has filed a complaint under Section 16(3) of the Foreign Exchange Management Act, 1999 (FEMA) against popular online shopping company M/s. Myntra Designs Private Limited (Myntra), its related companies, and their directors for alleged contravention amounting to Rs 1,654 crore.
According to ED, the investigation was launched based on credible information that Myntra and its group companies were engaged in Multi-Brand Retail Trade (MBRT) while claiming to operate as a wholesale cash & carry business, thereby allegedly violating India’s FDI (Foreign Direct Investment) policy.
The ED press release stated that Myntra Designs Pvt. Ltd. had declared itself as a wholesale cash & carry business and received foreign direct investment to the tune of Rs 1,654,35,08,981. However, the majority of its goods were sold to M/s. Vector E-Commerce Pvt. Ltd., a related company, which in turn sold the goods in retail directly to consumers.
“M/s. Vector E-Commerce Pvt. Ltd. and M/s. Myntra Designs Pvt. Ltd. are related parties and belong to the same group of companies,” the ED said.
The agency added, “Vector E-Commerce Pvt. Ltd. was created and used as a corporate entity to convert a business-to-customer (B2C) transaction into a business-to-business (B2B) transaction, followed by a B2C transaction, in order to bypass FDI restrictions on multi-brand retail.”
Further, the ED found that Myntra was effectively conducting multi-brand retail operations under the disguise of a wholesale model, and failed to meet the conditions required for wholesale cash & carry trading. Specifically, the company made 100% of its sales to a related group company, which violates FDI policy amendments dated April 1, 2010, and October 1, 2010, which allow only 25% sales to group companies.
The ED concluded that Myntra Designs Pvt. Ltd. and others had contravened Section 6(3)(b) of FEMA, 1999, along with the provisions of the Consolidated FDI Policy dated April 1, 2010, and October 1, 2010, to the extent of Rs 1,654.35 crore.
As a result, a formal complaint has been filed before the Adjudicating Authority under FEMA.
In Short: ED vs Myntra – What’s the Issue?
The Enforcement Directorate (ED) has filed a legal complaint against Myntra for breaking foreign investment rules. Myntra said it was doing wholesale business (which allows 100% foreign investment). But in reality, it was selling to customers through another company (Vector) — which is retail, and has restrictions.
Myntra sold all its goods (100%) to Vector, a related company, which breaks the FDI rule that allows only 25% sales to related firms. Because of this, ED says Myntra wrongly used foreign money worth Rs 1,654 crore, and has filed a case under FEMA law.
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