Myntra under ED lens: Indian government issues Rs 1,654 crore FEMA notice for FDI violation
On Wednesday, July 23, the Enforcement Directorate stated that Flipkart-owned e-commerce platform Myntra received foreign investment worth Rs 1,654.35 crore by claiming to operate a 'wholesale cash and carry' business, but instead sold most of its goods to Vector E-Commerce Pvt Ltd, which then sold them to the consumers. According to the Enforcement Directorate, Vector E-Commerce Pvt Ltd and Myntra Designs Pvt Ltd belong to the same group of companies.
India has a policy that prevents foreign companies from participating directly in wholesale business and making direct sales to consumers, in order to protect local retailers. While foreign-owned e-commerce platforms like Myntra, Amazon and Flipkart are allowed to act as marketplaces to connect buyers and sellers, government policies prevent these giants from stocking goods or selling them directly to consumers.
In the last few years, the Walmart-backed online fashion retailer has been expanding its quick commerce market and controls almost half of India's fashion e-commerce market. It is also venturing into social commerce by partnering up with influencers and celebrities on platforms like Instagram, Amazon Live and YouTube. In a statement to Reuters, Myntra said that it is yet to receive any documents related to the case from Indian authorities and that it remains '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', a company spokesperson added. Founded in 2007, Myntra, the Bengaluru-based e-commerce platform, was acquired by Flipkart in 2014 and later bought by US-based Walmart as part of its Flipkart acquisition.
The Confederation of All India Traders (CAIT) has emphasised that foreign-backed online retailers have been violating FDI norms and has urged the Indian government to take action against malpractices like deep discounting and predatory pricing.
Myntra isn't the first e-commerce giant to face heat from India's financial crime watchdog. Last year, an Indian antitrust investigation found that foreign-backed e-commerce platforms – Amazon and Flipkart have been violating local laws by giving preference to select sellers and colluding with smartphone makers like Samsung and Xiaomi by restricting their products to their websites, which breaches the country's antitrust laws.
Similarly, food delivery platforms like Zomato and Swiggy are also facing heat for breaching competition laws by giving select restaurants preferential treatment. The Enforcement Directorate has also asked Walmart-backed Flipkart to explain why the e-commerce platform should not be slapped with a Rs 11,656,47 crore fine for violating its foreign investment laws.
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