New Delhi: 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 the guise of "wholesale cash and carry".
This is in alleged violation of extant Foreign Direct Investment (FDI) guidelines and provisions of the FEMA, the agency said in a statement. A spokesperson of the Bengaluru-headquartered Myntra, a fashion and lifestyle e-commerce platform, said in a statement that the company is "deeply committed to upholding all 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, according to the agency. "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. Myntra Designs Pvt. Ltd. and others have "contravened" the provisions according to Section 6(3)(b) of the FEMA and the consolidated FDI policy dated 01.04.2010 and consolidated FDI policy dated 01.10.2010 to the tune of Rs 16,54,35,08,981, it said. 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. Founded in 2007 and now part of the Flipkart Group, owned by Walmart, Myntra is stated to have over 70 million monthly active users and a catalogue of more than 3.9 million styles from over 9,700 brands. The Myntra spokesperson said that as a homegrown marketplace, the company was committed to contributing to India's nation-building efforts by empowering the textile and apparel ecosystem through digital commerce. "By working closely with Indian brands and sellers, artisans and weavers, we have helped bring traditional craftsmanship to a global audience, particularly among the Indian diaspora. "In doing so, we've strengthened the industry's digital backbone and created large-scale employment and entrepreneurship opportunities across the country," the spokesperson said.