The Enforcement Directorate (ED) has formally initiated an investigation against Myntra Designs Pvt. Ltd., the popular Indian fashion e-commerce platform under Flipkart, for alleged foreign direct investment (FDI) violations amounting to Rs 1,654.35 crore. This development marks increased regulatory scrutiny into adherence to India’s FDI norms within the vibrant e-commerce sector.
Allegations: Misuse of Wholesale Model to Bypass FDI Rules
The ED’s Bengaluru unit alleges that Myntra misclassified its business under the wholesale “cash-and-carry” model to circumvent restrictions on foreign investment in multi-brand retail trading. While India’s FDI policies permit foreign direct investment in wholesale businesses, sales to related entities must not exceed 25%. This protects against the disguised operation of retail through wholesale structures.
Myntra is accused of channeling nearly 100% of its inventory sales through Vector E-Commerce Pvt. Ltd., a related company, which directly sells to end consumers, effectively functioning as a retail operation. This could mean the company violated Consolidated FDI Policy and FEMA rules by indirectly conducting foreign-funded multi-brand retail trading disguised as wholesale.
Legal Framework and Proceedings
The ED has filed proceedings under Section 16(3) of the Foreign Exchange Management Act (FEMA), 1999, highlighting breaches of FDI guidelines implemented since 2010. The probe focuses on Myntra exceeding the 25% sales cap to related parties through wholesale channels, allegedly routing all sales to Vector E-Commerce.
The case has been referred to the Adjudicating Authority under FEMA for further action. ED continues its deeper investigation into the complicated corporate arrangements that may hide retail activity funded by foreign investments.
Myntra’s Official Statement
Responding to the allegations, Myntra stated it has not received formal documentation from authorities yet but stressed its commitment to regulatory compliance. The company described itself as a homegrown marketplace contributing significantly to India’s fashion and digital commerce industries. Myntra pledged full cooperation with investigators and highlighted its role in supporting Indian artisans, weavers, and small brands.
Decoding India’s FDI Norms in E-Commerce
India’s FDI framework for e-commerce is designed to balance foreign investment benefits while protecting domestic retail:
Foreign investment is allowed in wholesale or “cash-and-carry” business, but wholesale sales must be limited to 25% to related firms.
Direct multi-brand retail trading by foreign entities in consumer-facing channels remains heavily regulated.
Any structuring to disguise retail sales as wholesale is strictly prohibited and legally punishable.
Implications for the Indian E-Commerce Ecosystem
The ED’s action highlights heightened government vigilance on foreign-owned e-commerce platforms and their compliance with complex FDI rules.
It sends a strong signal about the necessity for transparent and lawful business models in the dynamic digital retail space.
For Indian consumers and small businesses, it reassures efforts to maintain fair competition and regulatory oversight.
This case against Myntra is a pivotal moment emphasizing responsible governance in India’s evolving e-commerce landscape. Stakeholders across the industry await further developments as regulatory bodies clarify boundaries for foreign investment and operational conduct.