E-commerce major Myntra Designs Pvt. Ltd. finds itself in hot water after the Enforcement Directorate (ED) filed a complaint under Section 16(3) of the Foreign Exchange Management Act (FEMA), 1999, alleging serious violations of India’s foreign direct investment (FDI) policy.
Credits: OpIndia
The Core of the Allegation
According to a press release from the ED’s Bengaluru zonal office, Myntra and its related entities have been accused of violating FEMA provisions by allegedly using a wholesale license as a front for engaging in multi-brand retail trading (MBRT)—an activity heavily restricted under India’s FDI framework.
The ED claims that Myntra received foreign direct investment amounting to ₹1,654.35 crore under the guise of a wholesale “cash and carry” model. However, rather than adhering to wholesale-only sales, the company is alleged to have funneled its goods almost entirely to a related company—Vector E-Commerce Pvt. Ltd.—which then sold them directly to consumers. This maneuver allegedly allowed Myntra to operate a direct-to-consumer (B2C) business, while officially presenting itself as a B2B entity.
The 25% Rule — And Why It Matters
Foreign investment in wholesale enterprises is allowed under India’s FDI policy, but there is a critical restriction: no more than 25% of total sales may be made to companies in the same group. This regulation was put in place to stop businesses from passing off their activities as wholesale in order to get around the more stringent FDI requirements that apply to retail.
According to the ED’s inquiry, Vector E-Commerce, a member of the same corporate group, received 100% of Myntra’s sales. In addition to breaking the 25% cap, the ED claims that this also violates Section 6(3)(b) of the FEMA, 1999, as well as pertinent clauses of India’s Consolidated FDI Policy.
How Vector E-Commerce Was Used
The agency believes Vector E-Commerce was strategically positioned as a buffer to redirect Myntra’s B2B goods into the retail market. This structure, the ED claims, allowed Myntra to sidestep retail FDI restrictions by technically maintaining a B2B status, while effectively functioning as a retail business selling to end-consumers through Vector.
Such tactics, if proven, would not only defy FEMA norms but also raise broader concerns about regulatory arbitrage in India’s burgeoning e-commerce sector.
Myntra Responds: “Committed to Compliance”
Reacting to the allegations, a Myntra spokesperson said the company has not yet received a copy of the complaint or supporting documents. The statement emphasized Myntra’s commitment to legal compliance and its role in India’s digital and employment ecosystems:
“As a homegrown marketplace, we are committed to contributing to India’s nation-building efforts… empowering the textile and apparel ecosystem through digital commerce. We remain fully committed to cooperating with the authorities.”
The spokesperson also highlighted Myntra’s work in enabling artisans and small businesses to reach global audiences, underlining its contributions to the economy.
What Happens Next?
The case has now been forwarded to the Adjudicating Authority under FEMA, where it will be further evaluated. If the charges hold, Myntra could face monetary penalties and stricter regulatory scrutiny, possibly impacting its operations and future foreign investment plans.
The ED’s move is also seen as part of a larger crackdown on FDI misuse by big tech and e-commerce players. It sends a strong signal that the government is keen to plug policy loopholes and ensure that wholesale licenses are not being exploited to run disguised retail operations.
Credits: The Print
A Broader Wake-Up Call for E-Commerce?
Under India’s changing e-commerce FDI regulations, Myntra is not the first company to be examined, and it probably won’t be the last. Regulatory bodies seem more watchful than ever as worries about compliance, data localization, and foreign control grow.
Particularly in areas like retail that impact small enterprises, local trade, and consumer protection, this case may act as a litmus test for how India strikes a balance between foreign capital input and legislative safeguards.
As the inquiry goes on, everyone will be watching to see how the decision is made and what it can mean for Myntra, its parent company Flipkart, and the larger Indian e-commerce sector.
