ED files case against Myntra over Rs 1,654-crore FDI 'violation'

New Delhi: The Enforcement Directorate on Wednesday said it has registered a case against Flipkart-backed e-commerce platform Myntra, its linked companies and directors for alleged FDI violation of over Rs 1,654 crore.

The complaint was filed by the federal probe agency's Bengaluru zonal office under a section of the Foreign Exchange Management Act (FEMA) based on "credible information" that Myntra Designs Private Limited, whose brand name is Myntra, and its related companies are doing multi-brand retail trade in the guise of "wholesale cash and carry".

This is in alleged violation of Foreign Direct Investment (FDI) guidelines and provisions of the FEMA, the agency said in a statement.

At present, the country's FDI policy does not permit FDI in the inventory-based model of e-commerce. It is allowed only in firms that are operating through a marketplace model.

A spokesperson of the Bengaluru-headquartered Myntra, a fashion and lifestyle e-commerce platform, said the company will cooperate with the authorities.

"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 spokesperson said in a statement.

The ED said Myntra Designs had declared that it was engaged in the business of "wholesale cash and carry" and it received Rs 16,54,35,08,981 FDI.

The company sold the majority of its items to a company named Vector E-Commerce, which sold the goods in retail to the ultimate customer, according to the agency.

Vector E-Commerce and Myntra Designs are "related parties" and belong to the same group or group of companies, it claimed.

According to the ED findings, Vector E-Commerce was "created and continued to be used" as a corporate entity to bifurcate the B2C (business to customer i.e. Myntra Designs to retail customers) transaction into B2B (Myntra Designs to Vector E-Commerce) and then B2C (Vector E-Commerce to retail customers).

Even otherwise, the ED said, Myntra Designs has "not satisfied" the condition laid down for 'wholesale cash and carry trading' as it has made cent per cent sales to Vector E-Commerce.

This was in "contravention" of amendments which permitted only 25 per cent sale to companies belonging to the same group or group companies, it said.

Myntra Designs and others have "contravened" the provisions according to Section 6(3)(b) of the FEMA and the FDI policy to the tune of Rs 16,54,35,08,981, it said.

The Confederation of All India Traders (CAIT) has time and again alleged that foreign online retailers violate FDI norms in e-commerce and that the government should take action against those indulging in malpractices such as deep discounting and predatory pricing.

The accused companies have denied violating Indian laws.

Founded in 2007 and now part of the Flipkart Group, owned by Walmart, Myntra is stated to have over 70 million monthly active users and a catalogue of more than 3.9 million styles from over 9,700 brands.

The Myntra spokesperson said that as a homegrown marketplace, the company was 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've strengthened the industry's digital backbone and created large-scale employment and entrepreneurship opportunities across the country," the spokesperson said.