New Delhi: The Enforcement Directorate (ED) has booked fashion e-commerce platform Myntra on charges of Foreign Exchange Management Act (FEMA) violations to the tune of around Rs 1,654 crore, an agency spokesperson said Wednesday.
The agency booked Myntra Designs Private Limited and its director after an inquiry revealed that it allegedly received funding amounting to Rs 1,654 crore through Foreign Direct Investment (FDI) in the Wholesale Cash & Carry category, but was carrying out business in the Multi Brand Retail Trade (MBRT) category.
The business in the retail segment was carried out by selling a majority of its goods to its sister concern, Vector E-Commerce Pvt. Ltd, the agency has allegedly discovered during its investigation.
The Government of India had, in 2010, brought an amendment to the FDI rules, clearly notifying ‘cash and carry wholesale trading’ under which 100 percent FDI was allowed through the automatic route, meaning an overseas firm can own the entire stake in an Indian firm without needing prior government approval. On the other hand, there is a cap of 51 percent ownership in FDI investment in multi-brand retail businesses.
“ED investigation under the provisions of FEMA, 1999, revealed that M/s. Myntra Designs Pvt. Ltd. had declared that they were engaged in the business of wholesale cash & carry and invited and received FDI from foreign investors equivalent to Rs 1654,35,08,981/- and that they sold the majority of their goods to M/s. Vector E-Commerce Pvt. Ltd. (which sold the goods in retail to the ultimate customer). That M/s. Vector E-Commerce Pvt. Ltd. and Mis. Myntra Designs Pvt. Ltd are related parties and belong to the same group or group of companies,” an ED official said.
Additionally, the agency, it is learnt, has found a violation of FDI terms and conditions through the wholesale trading category, stating that Myntra sold all of its products through its group company, Vector E-Commerce, which ultimately sold the products to customers, when the government has imposed a cap of 25 percent on such transactions.
ED officers said Vector E-Commerce was created and used to bifurcate the overall business of Myntra into B2C transactions (business to customer transactions done between Vector E-commerce and retail customers) and B2B transactions (business to business transaction between Myntra and Vector E-Commerce).
The agency has filed a complaint against Myntra under Section 16 (3) of FEMA before the adjudicating authority, which will hear the matter and may decide to issue a show cause notice to the company’s directors and those managing its finances.
“An agency of the rank of special director will adjudicate the matter based on the findings submitted,” an ED officer said.
When contacted, a Myntra spokesperson told ThePrint: While we have not received a copy of the subject complaint and the supporting documents from the authorities, we remain fully committed to cooperating with them at any point of time.”
“At Myntra, we are deeply committed to upholding all applicable laws of the land and operating with the highest standards of compliance and integrity.”
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