BENGALURU: The Directorate of Enforcement (ED), Bengaluru, has filed a complaint against fashion etailer Myntra and its related entities under the Foreign Exchange Management Act (FEMA), 1999, for allegedly violating foreign investment rules to the tune of Rs 1,654.35 crore under the guise of wholesale trading.
The complaint has been filed under Section 16(3) of the FEMA. In an official release on Wednesday, the ED stated that the inquiry in the matter was initiated on the basis of “credible information that 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 Foreign Direct Investment (FDI) policy.”
The ED investigation revealed that Myntra had "declared that they were engaged in the business of wholesale cash & carry and invited and received FDI from foreign investors equivalent to Rs 1,654.35 crore, and that they sold the majority of their goods to Vector E- Commerce Pvt Ltd (which sold the goods in retail to the ultimate customer)." The agency added, "Vector E-Commerce and Myntra are related parties and belong to the same group or group of companies."
“Vector was created and continued to be used as corporate entity to bifurcate the B2C (business to customer i.e Myntra to retail customers) transaction into B2B (Myntra to Vector) and then B2C (Vector to retail customers),” the ED said.
The agency’s investigation also revealed that Flipkart-owned Myntra has made cent per cent sales to Vector, which is in contravention of FEMA and Consolidated FDI Policy April 1, 2010 and October 1, 2010 amendments to the tune of Rs 1,654.35 crore. The aforementioned policies permit only 25 percent sale to companies belonging to the same group or group companies. “In view of the above, a complaint under Section 16 (3) of FEMA is filed before the adjudicating authority,” stated the agency.
Meanwhile, in response to the ED action, a Myntra spokesperson said they are “deeply committed to upholding all applicable laws of the land and operating with the highest standards of compliance and integrity.”
“As a homegrown marketplace, we are committed to contributing to India's nation-building efforts by empowering the textile and apparel ecosystem through digital commerce. By working closely with Indian brands and sellers, artisans, and weavers, we have helped bring traditional craftsmanship to a global audience, particularly among the Indian diaspora. In doing so, we have strengthened the industry’s digital backbone and created large-scale employment and entrepreneurship opportunities across the country," said Myntra.
"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,” added Myntra.