For suspected violations of the Foreign Direct Investment (FDI) regulations of INR 1,654.35 crore, the Enforcement Directorate (ED) has filed a complaint against Myntra, an Indian fashion e-commerce company, as well as its affiliated businesses and directors.
According to the probe agency’s statement, the case was filed in its Bengaluru Zonal Office based on reliable information indicating that Myntra Designs Pvt. Ltd. and its affiliated companies were violating India’s FDI policy by engaging in Multi-Brand Retail Trading (MBRT) while posing as “Wholesale Cash & Carry” businesses.
The Alleged FDI Violation Explained
According to investigations, Myntra was given FDI totalling INR 1,654.35 crore under the guise of running a wholesale company. However, it was discovered that a sizable amount of the merchandise was sold only to M/s Vector E-Commerce Pvt. Ltd., a subsidiary of the same business group, who subsequently marketed the merchandise to final customers.
According to the ED, this structure was purposefully designed to divide direct business-to-consumer (B2C) transactions into a business-to-business (B2B) agreement between Vector and Myntra and then a business-to-consumer (B2C) model between Vector and the retail customers. As per the agency, this essentially got around the FDI regulations’ limitations on multi-brand retail.
FEMA and FDI Policy Breaches Detailed
Additionally, enterprises using the wholesale model are only allowed to sell up to 25% of their goods to linked group companies under the FDI policy changes of April 1, 2010, and October 1, 2010. But according to the ED, Myntra exceeded this cap by giving Vector E-Commerce 100% of its sales.
Myntra Designs Pvt. Ltd. and others were found to have breached section 6(3)(b) of FEMA, 1999, as well as pertinent laws of the Consolidated FDI Policy, according to the inquiry agency’s findings.
ED’s Complaint and Legal Grounds
A complaint has now been filed under Section 16(3) of FEMA for additional legal action in light of these findings, according to ED. Myntra did not respond to the situation right away. The case’s registration demonstrates the increased regulatory scrutiny of FDI norm compliance in the e-commerce industry.
Myntra’s Recent Financial Activity
This year, Myntra has been raising a lot of money from its parent company in Singapore. Myntra raised an additional INR 1,062 Cr from Singapore parent company FK Myntra Holdings in May, following a new capital infusion of INR 709 Cr from Flipkart in February.
In the highly competitive fashion e-commerce sector, the fashion e-commerce company is currently seeking to increase its revenue streams. Myntra has started two costly business experiments in the last several months: Singapore became the first foreign market under Myntra Global when the business launched its e-commerce platform there in May.
Expansion Moves Amid Regulatory Heat
With 6.5 lakh Indians living in Singapore, the Flipkart-owned portal hopes to reach 12% to 15% of the population. With its new platform M-Now, the corporation has been experimenting with the delivery structure of rapid commerce. In June, Myntra brought M-Now online in Delhi and Mumbai after introducing the 10-minute delivery option in Bengaluru.
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