Mumbai: The Enforcement Directorate (ED) has filed a complaint under section 16(3) of the Foreign Exchange Management Act (FEMA), 1999, against popular fashion e-commerce company Myntra Designs Private Limited, its associated entities, and directors for allegedly violating the country’s foreign direct investment (FDI) regulations to the tune of Rs 1,654.35 crore, the central agency said on Wednesday.
ED initiates action over alleged MBRT violations by Myntra and its affiliates
The ED's Bengaluru Zonal Office initiated the action following credible inputs that Myntra Designs Pvt. Ltd. (Myntra) and its group companies were allegedly engaged in Multi-Brand Retail Trade (MBRT) operations under the guise of a wholesale 'cash-and-carry' business, contravening the prevailing FDI policy framework.
100% wholesale sales routed through related entity, says ED
According to an official ED statement, Myntra had declared itself as operating in the wholesale cash-and-carry segment and secured FDI worth Rs 1,654.35 crore. However, the agency’s investigation revealed that a substantial portion of the goods was sold to Vector E-Commerce Pvt. Ltd., a related company within the same corporate group, which in turn sold the products to retail customers.
Myntra accused of bypassing FDI caps using internal corporate layering
According to the ED, Myntra and Vector E-Commerce Pvt. Ltd. are part of the same corporate group, and the business structure was allegedly designed to mask retail operations and bypass FDI restrictions applicable to Multi-Brand Retail Trading (MBRT). The agency said Vector was created and used as a corporate vehicle to artificially split direct business-to-customer (B2C) transactions into a two-step route, first as a business-to-business (B2B) sale from Myntra to Vector, and then as a B2C sale from Vector to end consumers.
The investigation further revealed that Myntra made 100% of its wholesale sales to Vector E-Commerce Pvt. Ltd., an entity within the same corporate group. This practice violated the provisions of the consolidated FDI policies which are in contravention of the amendment dated April 1, 2010 and October 1, 2010, which permitted only 25% sale to companies belonging to the same group or group companies under the wholesale model.
Violation of FEMA 1999 and 2010 FDI policy amendments cited
The ED stated that Myntra and its group entities failed to meet the prescribed criteria for wholesale trading, thereby violating Section 6(3)(b) of the FEMA 1999, as well as the Consolidated FDI Policies issued in 2010. The agency alleged that the company’s actions resulted in unauthorised utilisation of foreign direct investment amounting to over Rs 1,654 crore, in clear contravention of India’s foreign exchange and investment regulations.
The complaint has been filed before the Adjudicating Authority under FEMA, and further proceedings are expected. The case underscores regulatory scrutiny over e-commerce companies operating in sectors with stringent FDI limitations and may have broader implications for similarly structured entities in the online retail space.
