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

 

 

THE Enforcement Directorate (ED) on Wednesday said it has registered a FEMA case against Flipkart-backed e-commerce platform Myntra, its linked companies and directors for alleged FDI contravention of over Rs 1,654 crore. The federal probe agency said in a statement that the complaint was filed by its Bengaluru zonal office under Section 16(3) of the Foreign Exchange Management Act (FEMA) acting on “credible information” that Myntra Designs Private Limited, whose brand name is Myntra, and its related companies are doing multi-brand retail trade in theguise of “wholesale cash and carry”. This is in alleged violation of extant Foreign Direct Investment (FDI) guidelines and provisionsof the FEMA, the agency said ina statement.

 

A spokesperson of theBengalur u-headquar teredMyntra, a fashion and lifestyle ecommerce platform, said in astatement that the company is“deeply committed to upholdingall 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.

 

The ED said Myntra Designs Pvt Ltd had declared that it was engaged in the business of “wholesale cash and carry” and it invited and received Rs 16,54,35,08,981 FDI from foreign investors. The company sold the majority of its goods to Vector E-Commerce Pvt Ltd, which sold the goods in retail to the ultimate customer. “Vector E-Commerce Pvt Ltd and Myntra Designs Pvt Ltd are related parties and belong to the same group or group of companies,” it said. According to the ED findings, Vector E-Commerce Pvt Ltd was “created and continued to be used” as a 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). Even otherwise, the ED said, Myntra Designs Pvt Ltd 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 Pvt Ltd, which is in “contravention” of amendments dated 01.04.2010 and 01.10.2010 which permitted only 25 per cent sale to companies belonging to the same group or group companies. At present, the country’s FDI policy does not permit foreign direct investment in the inventory-based model of e-commerce. It is allowed only in firms that are operating through a marketplace model.