The enquiries are based on the information that Myntra and its related companies are doing multi-brand retail trade (MBRT) in the guise of ‘wholesale cash and carry’
The Enforcement Directorate (ED) has filed a complaint against fashion ecommerce company Myntra and its related companies and their Directors under the Foreign Exchange Management Act (Fema) for breaking India’s foreign direct investment rules.
The enquiries in the matter were initiated on the basis of information that Myntra and its related companies are doing multi-brand retail trade (MBRT) in the guise of ‘wholesale cash and carry’, allegedly in violation of the extant FDI policy.
ED, in a statement, said that the investigation under the provisions of Fema, 1999, revealed that Myntra had declared that it was engaged in the business of wholesale cash and carry and invited and received FDI from foreign investors equivalent to Rs 1,654.35 crore and that they sold majority of their goods to Vector Ecommerce, who sold the goods to the ultimate consumer in retail.
The notification read that Vector ecommerce and Myntra are related parties and belong to the same group of companies.
Vector Ecommerce was created and continued to be used as corporate entity to bifurcate the business-to-consumer (B2C, i.e. Myntra to retail customers) transaction into B2B (Myntra to Vector Ecommerce) and then B2C (Vector Ecommerce to retail customers).
ED investigation also revealed that Myntra was actually carrying out multi-brand retail trading in the guise of wholesale cash & carry. Even otherwise, Myntra has not satisfied the condition laid down for wholesale/cash and carry trading, as they have made cent per cent sales to Vector Ecommerce, which is in contravention of the amendment dated 01 April 2010 and 01 October 2010 which permitted only 25 per cent sale to companies belonging to the same group or group companies.
“Myntra Designs and others have contravened the provisions as per section 6(3)(b) of the Foreign Exchange Management Act, 1999 and Consolidated FDI Policy dated 01.04.2010 and Consolidated FDI Policy dated 01.10.2010 to the tune of Rs 1654,35,08,981,” the statement added.
