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The Enforcement Directorate (ED) has registered a case under the Foreign Exchange Management Act (FEMA) against Myntra Designs Private Limited, a fashion e-commerce platform, its related firms, and their directors. The case concerns alleged violations of India’s Foreign Direct Investment (FDI) policy worth over Rs. 1,654 crore.
The investigators allege that Myntra raised money from abroad by introducing itself as a wholesale cash-and-carry operation. However, the ED discovered that the company routed all its goods through a related party, Vector E-Commerce Pvt Ltd, which sold directly to the customer.
This peculiar arrangement ostensibly concealed the true retail nature of the enterprise, thus circumventing the stringent foreign investment restrictions for multi-brand retail in India.
Wholesale companies operating under the current FDI guidelines are not permitted to sell more than 25 percent of their stock to related companies. However, the ED alleged that Myntra supplied 100 percent of its stock to Vector, thus exceeding the prescribed limits. The ED, under credible inputs, launched the investigation through its Bengaluru Zonal Office under Section 6(3)(b) of FEMA, 1999.
The agency alleges that Myntra utilized this structure to create a backdoor entry for foreign capital into the multi-brand retail trade, which is subject to tighter restrictions. The directors and related firms now face a detailed inquiry. If proven, the violations could result in heavy penalties and further regulatory action.
Myntra, backed by Flipkart, stated it had not received official documents related to the complaint. The company added that it remains committed to following all applicable laws and cooperating with authorities during the proceedings.
This is likely to lead to further scrutiny of FDI-linked e-commerce operations. Regulatory agencies are intensifying their scrutiny, primarily in instances where these companies appear to be using complex structures to circumvent Indian investment guidelines.
Over the past year, ED has launched similar investigations into vendors associated with major platforms, such as Amazon and Flipkart. The Myntra case further intensifies concerns about how digital commerce players handle foreign funding under FEMA.
This step is part of a growing trend where enforcement bodies target companies allegedly using loopholes to stretch the boundaries of admissible retail operations. This move by the ED is an assertion of the government's stance to protect local trade from unfair foreign competition through firmer enforcement of policies.
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