ED files complaint against fashion retailer Myntra under FEMA for violating FDI policy

Hyderabad: The Enforcement Directorate, Bengaluru, said that it has registered a FEMA case against Myntra, its related companies and their directors over FDI policy ‘contravention’ of over Rs 1,654 crore.

The ED probe stated that Myntra and its related companies are engaging in Multi Brand Retail Trade (MBRT) business in the guise of ‘Wholesale Cash & Carry’, allegedly in violation of the FDI policy.

What is the FDI policy violation?

The case has been filed under section 16(3) of Foreign Exchange Management Act, 1999, with the official complaint pegging the illegal earnings to a whopping Rs 1,654,35,08,981.

The probe revealed that Myntra had declared they were engaged in wholesale cash and carry. Using this declaration, the company invited and received FDI from foreign investors equivalent to Rs 1,654,35,08,981.

They sold the majority of their goods to Vector E-Commerce (who sold the goods in retail to the ultimate customer). However, ED said Vector E-Commerce and Myntra are related parties and belong to the same group or group of companies, which goes against their financial declaration.

‘Company flouted rules between B2C and B2B operations’

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

This meant that Myntra was actually carrying out multi-brand retail trading in the guise of wholesale cash and carry.

‘Made 100% sales to Vector when only 25% allowed’

Even otherwise, a public release from the ED said, Myntra has not satisfied the condition laid down for ‘Wholesale Cash & Carry Trading’ as they have made cent per cent sales to Vector E-Commerce which is in contravention of amendment dated April 1, 2010 and October 1, 2010, which permitted only 25 per cent sale to companies belonging to the same group or group companies.

Myntra and others have violated the provisions as per Section 6(3)(b) of the Foreign Exchange Management Act, 1999 and Consolidated FDI Policy dated April 1, 2010, and Consolidated FDI Policy dated October 1, 2010, ED said in its complaint.