ED files complaint against Myntra for FDI contravention of over Rs 1,654 crore

A case was registered against Flipkart-backed e-commerce platform Myntra by the Enforcement Directorate on Wednesday for FDI “contravention” of over Rs 1,654 crore.

The complaint has been filed under Section 16(3) of the Foreign Exchange Management Act after the federal agency received “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”.

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The complaint said, “Myntra Designs has not satisfied the condition laid down for “Wholesale/Cash & Carry Trading” as they have 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% sales to companies belonging to the same group or group companies. Myntra Designs Pvt Ltd and others have contravened the provisions as per section 6(3)(b) of the Foreign Exchange Management Act, 1999, and Consolidated FDI Policy dated 01.04.2010 and Consolidated FDI Policy dated 01.10.2010 to the tune of Rs 1654,35,08,981.”

The agency had searched 19 premises across New Delhi, Bengaluru, Mumbai, Hyderabad, and Panchkula (Haryana) at the “main vendors of Amazon and Flipkart.”

The official release further said, “They sold the majority of their goods to Vector E-Commerce (who sold the goods in retail to the ultimate customer). That Vector and Myntra are related parties and belong to the same group or group of companies.”

“Vector e-commerce was created and continued to be used as a corporate entity to bifurcate the B2C (retail business) transaction into B2B (between companies) and then B2C (Vector to retail customers),” it detailed.

Notably, last year, the central agency had conducted searches at some vendors operating on the platforms of Amazon and Flipkart for alleged violations of foreign exchange and foreign direct investment (FDI) rules.