E-commerce brand Myntra, backed by Flipkart, is under the scanner of the Enforcement Directorate (ED) after it was slapped with a FEMA case for FDI “contravention” of more than ₹1,654 crore. The ED alleged that it acted on “credible” information of Myntra and entities allegedly carrying out multi-brand retail trade under the guise of “wholesale cash and carry”.

The central agency under the Ministry of Finance said that the complaint was filed under Section 16(3) of the Foreign Exchange Management Act, which empowers the ED to kick off a formal inquiry after a complaint is filed by an authorised government official.

According to the ED, the Bengaluru-headquartered Myntra, its linked companies, and its directors are in alleged violation of extant Foreign Direct Investment (FDI) guidelines.

“ED, Bengaluru has filed a complaint u/s 16(3) of the Foreign Exchange Management Act, 1999 (FEMA) before the Adjudicating Authority under FEMA against M/s. Myntra Designs Private Limited (Myntra) and its companies and their Directors for contravention to the tune of ₹1654,35,08,981,” the central agency posted on X.

According to the ED, “[Myntra] had declared that they were engaged in the business of wholesale cash and carry, and invited and received FDI from foreign investors equivalent to ₹1654,35,08,981, and that they sold the majority of their goods to Vector E-Commerce Pvt. Ltd., who sold the goods in retail to the ultimate customer.”

The investigating body alleged that both Vector E-Commerce and Myntra Designs belonged to the “same group or group of companies” and they were created to “bifurcate the B2C transaction into B2B and B2C”. Essentially, the ED called out Myntra for setting up two companies to make it look like Myntra Designs was a sole Business-to-Business (B2B) company, but in totality, together they acted as a Business-to-Customer (B2C) firm.

The investigation also revealed that “Myntra Designs Pvt. Ltd. was actually carrying out multi-brand retail trading in the guise of wholesale cash and carry,” the ED alleged, stating that the company did “cent per cent” sales to Vector E-Commerce. Under FEMA, a wholesale firm can only do 25 per cent or lower sales to entities in the same group or group of companies.