India’s financial crime agency has filed a complaint against Myntra Designs Pvt Ltd and its affiliated firms for alleged violations of foreign exchange rules involving ₹1,654.35 crore, according to a statement on Tuesday.
The Directorate of Enforcement (ED) said it initiated action under Section 16(3) of the Foreign Exchange Management Act, 1999 (FEMA), alleging the Flipkart-owned fashion retailer received foreign direct investment (FDI) under the guise of wholesale trading while engaging in multi-brand retail trade, which is restricted under Indian law.
“The enquiries in the matter were initiated on the basis of credible information that M/s. Myntra Designs Private Limited (Myntra) and its related companies are doing Multi Brand Retail Trade (MBRT) in the guise of ‘Wholesale Cash & Carry’, allegedly in violation of the extant FDI Policy,” the ED stated.
The investigation revealed that Myntra Designs Pvt. Ltd. had declared itself as operating a wholesale cash-and-carry business and received foreign direct investment (FDI) amounting to ₹1,654.35 crore from overseas investors.
In response to the matter, a Myntra spokesperson said, “At Myntra, we are deeply committed to upholding all applicable laws of the land and operating with the highest standards of compliance and integrity. While we have not received a copy of the subject complaint and the supporting documents from the authorities, we remain fully committed to cooperating with them at any point of time.”
The ED said, “They sold majority of their goods to M/s. Vector E-Commerce Pvt. Ltd. (who sold the goods in retail to the ultimate customer). M/s. Vector E-Commerce Pvt. Ltd. and M/s. Myntra Designs Pvt. Ltd. are related parties and belong to same group or group of companies.”
Investigations revealed that Myntra routed most of its sales through a related entity, Vector E-Commerce Pvt Ltd, which sold goods directly to consumers.
“M/s. Vector E-Commerce Pvt. Ltd. was created and continued to be used as corporate entity to bifurcate the B2C [(business to customer i.e. Myntra Designs Pvt. Ltd. to retail customers)] transaction into B2B (Myntra Designs Pvt. Ltd. to Vector E-Commerce Pvt. Ltd.) and then B2C (Vector E-Commerce Pvt. Ltd. to retail customers),” the agency said.
The ED has asserted that this structuring allowed Myntra to circumvent India’s FDI restrictions on multi-brand retail trading, which is more tightly regulated than wholesale trading.
Under the FDI policies dated April 1, 2010 and October 1, 2010, wholesale trading was permitted only if sales to group companies did not exceed 25%. The ED concluded that Myntra’s practice of routing 100% of its goods to Vector was a direct violation of these norms.
“Myntra Designs Pvt. Ltd. and others have contravened the provisions as per section 6(3)(b) of the Foreign Exchange Management Act, 1999 and Consolidated FDI Policy dated 01.04.2010 and Consolidated FDI Policy dated 01.10.2010 to the tune of ₹1,654,35,08,981.”
In view of these findings, the Enforcement Directorate has filed a complaint before the Adjudicating Authority under FEMA.
This case underscores the regulatory scrutiny on foreign-funded e-commerce and retail entities operating in India, especially those using complex corporate structures that may blur the lines between wholesale and retail operations.
Source: CNBC TV18
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