ED Files Complaint Against Myntra for FEMA Violation
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The Enforcement Directorate (ED), Bengaluru Zonal Office, has filed a complaint under Section 16(3) of the Foreign Exchange Management Act (FEMA), 1999 against Myntra Designs Private Limited and its related companies and directors. The complaint alleges violations of foreign exchange rules amounting to ₹1,654.35 crore.
Basis of the Investigation
The ED began its investigation based on reliable information that Myntra Designs Pvt. Ltd. and its group companies were involved in multi-brand retail trading (MBRT), but they were falsely claiming to be engaged in ‘wholesale cash and carry’ operations. Under India’s FDI (Foreign Direct Investment) policy, multi-brand retail has restrictions, whereas wholesale trading has more relaxed rules, especially regarding foreign investment.
According to the investigation, Myntra received foreign investment of ₹1,654.35 crore by declaring that it was operating in the wholesale sector. It then sold almost all of its goods to Vector E-Commerce Pvt. Ltd., a company that belongs to the same business group. Vector, in turn, sold these products directly to customers. This structure allowed the companies to disguise business-to-customer (B2C) retail transactions as business-to-business (B2B) sales between Myntra and Vector, even though the end customers were individual buyers.
Violation of FDI Policy
As per the FDI policy issued on 01 April 2010 and amended on 01 October 2010, a wholesale company is allowed to sell only up to 25% of its goods to group companies. However, Myntra sold 100% of its goods to Vector E-Commerce, which is a clear violation of the policy. This proves that the company was engaged in retail trade under the cover of wholesale, which is not allowed when accepting foreign investment under the wholesale category.
Based on these findings, the ED concluded that Myntra Designs Pvt. Ltd. and its related companies have violated Section 6(3)(b) of FEMA, 1999 and the FDI policies applicable during that period. As a result, the ED has filed a formal complaint under Section 16(3) of FEMA, 1999 with the Adjudicating Authority to take further legal action in this case.