India’s ED moves against Walmart fashion arm Myntra over FDI violation

The Enforcement Directorate (ED), India’s financial crime agency, has filed a formal complaint against fashion e-commerce platform Myntra Designs Pvt. Ltd and related entities for allegedly violating foreign direct investment (FDI) rules to the tune of ₹1,654 crore (about $190 million), according to a press release issued on Tuesday.

The ED said its Bengaluru zonal office filed the complaint under Section 16(3) of the Foreign Exchange Management Act (FEMA), 1999, after an investigation into the company’s business structure and operations showed alleged contraventions of the law.

The probe was launched following information that Myntra and its affiliated companies were engaged in multi-brand retail trade (MBRT) while presenting themselves as wholesale cash-and-carry businesses, in breach of India’s FDI policy, the ED said.

According to the ED, Myntra received foreign direct investment amounting to ₹1,654 crore by declaring itself as a wholesale business, but in practice sold most of its goods to Vector E-Commerce Pvt. Ltd, a related party that retailed the products to consumers.

Both companies are part of the same corporate group, the agency said.

The ED alleged that this structure was used to artificially split business-to-consumer (B2C) transactions into business-to-business (B2B) and B2C layers, in order to circumvent restrictions on foreign investment in retail operations.

The agency also said Myntra failed to comply with conditions for wholesale trading under India’s FDI policy, which stipulates that sales to group companies must not exceed 25% of total sales.

The transactions, which took place in violation of amendments to India’s FDI rules in April and October 2010, amounted to full sales to a group entity, the ED said. The agency has filed a complaint before the adjudicating authority under FEMA.

The company is “deeply committed to upholding all applicable laws of the land and operating with the highest standards of compliance and integrity,” a spokesperson of the Bengaluru-headquartered firm told the Press Trust of India in a statement.