ED alleges Rs 1,654 crore FDI breach at Flipkart-owned Myntra

BENGALURU: The Enforcement Directorate on Wednesday said it has filed a complaint under Foreign Exchange Management Act (FEMA) against Myntra Designs (Myntra), a unit of Flipkart, and its related companies and their directors for receiving overseas investments of over Rs 1,654 crore in violation of foreign direct investment (FDI) rules on retail.

The agency accused Myntra and its associated entities of being engaged in multi brand retail trade in the guise of wholesale cash & carry business. Govt allows 100% FDI in the wholesale cash and carry business and business-to-business e-commerce. But multi brand retail trading remains restricted with 51% FDI allowed only for agricultural products.

Elaborating on the violations, ED said Myntra sold the majority of its goods to Vector E-Commerce Pvt Ltd, which then sold the goods in retail to the ultimate customer. Both Vector and Myntra are related parties and belong to the same group or group of companies, the agency alleged.

When contacted, a Myntra spokesperson denied receiving a “copy of the complaint” and said the company remained committed to cooperating with authorities. “The company operates with the highest standards of compliance and integrity and has contributed to digitising India’s textile and apparel ecosystem by working with brands, artisans and weavers,” it added.

As per the existing FDI rules, only 25% sale is allowed to group entities in wholesale cash and carry business. But in this case, Myntra had made 100% sales to Vector E-Commerce Pvt Ltd which is in contravention of the amendment carried out on April 1, 2010 and Oct 1, 2010, the agency said.

Sources said the complaint against Myntra is for contravention from 2010 to 2015. During this period. Mukesh Bansal and Ashutosh Lawania, founder directors of Myntra Designs, were responsible for day to day operations during the period.

In June 2021, a complaint was filed against Flipkart Online Services India and its related group companies, which were managed by. Sachin and Binny Bansal, for similar contravention – which is undertaking multibrand retail in the guise of wholesale cash and carry. Show cause notices had been served in July 2021 to Flipkart Online Services and others by the Adjudicating Authority.

In the past, the department for promotion of industry and internal trade had also alleged that platforms such as Flipkart and Amazon were violating FDI regulations and had referred the issue to ED.

Last Nov, ED had searched vendors of Flipkart and Amazon for alleged violation of FDI rules by directly or indirectly influencing the sale price of goods or services and not providing a level playing field to all the vendors. The probe suggested that most of the preferred sellers were linked to the e-commerce platforms.