ED files FEMA case against Myntra over Rs 1,654 crore FDI violation

The Enforcement Directorate has filed a formal complaint against Myntra Designs Pvt. Ltd. and its affiliated entities under Section 16(3) of the Foreign Exchange Management Act (FEMA), citing alleged violations of India’s foreign direct investment (FDI) regulations amounting to Rs 1,654.35 crore.

In a statement issued Wednesday, the agency’s Bengaluru zonal office said the action followed an investigation into allegations that Myntra, a prominent online fashion retailer owned by Walmart-backed Flipkart, circumvented FDI norms by operating multi-brand retail trading (MBRT) through a proxy, in defiance of prevailing policy.

Under India’s FDI rules, foreign investment in wholesale or “cash-and-carry” businesses is permitted, but no more than 25 percent of total sales can be made to entities of the same corporate group. These curbs are designed to prevent indirect entry into multi-brand retail, which remains tightly regulated.

According to the ED, Myntra received foreign direct investment of Rs 1,654.35 crore under the guise of a wholesale model. However, it allegedly channeled nearly all of its sales to Vector E-Commerce Pvt. Ltd., a related company within the same corporate structure, which in turn sold directly to retail customers through business-to-consumer (B2C) channels.

The structure, the agency claims, was deliberately created to make business-to-consumer transactions appear as if they were business-to-business (B2B), in violation of both provisions and India’s Consolidated FDI Policy. The transactions, in effect, bypassed the FDI ban on foreign-funded multi-brand retail by creating an intermediary to shield the true nature of operations.

Under the policy amendments introduced in 2010, wholesale entities are permitted to sell only up to 25% of their goods to related group companies, the agency said. “In this case, the limit was exceeded by a significant margin, with 100% of goods routed to a related entity.”

The ED cited Section 6(3)(b) of FEMA and related clauses in the Consolidated FDI Policy as the legal basis for the complaint. The case has now been referred to the Adjudicating Authority under FEMA for further proceedings.

The agency’s move signals intensifying regulatory scrutiny of e-commerce platforms, particularly in cases involving complex corporate structures that may obscure direct retail activities funded by foreign investment.

Myntra, in response, said it had not received a copy of the complaint or supporting documents. “At Myntra, we are deeply committed to upholding all applicable laws of the land and operating with the highest standards of compliance and integrity,” the company said.

While reiterating its role as a “homegrown marketplace” and emphasizing contributions to India’s textile and digital commerce ecosystem, the company added that it “remains fully committed to cooperating with the authorities at any point in time.”