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Myntra Faces ED Heat Over ₹1,654 Crore FDI Violation Under FEMA

The Foreign Exchange Management Act (FEMA), 1999, governs foreign exchange dealings in India, ensuring that external trade and payments align with national financial policies. It is particularly significant for sectors attracting Foreign Direct Investment (FDI), such as e-commerce, which must comply with specific norms governing ownership, control, and operations.

How Myntra Operates

Myntra, a Bengaluru-based fashion e-commerce platform owned by Flipkart (which is backed by Walmart), primarily operates in the online retail space, connecting brands with end consumers. Under India’s FDI policy, multi-brand retail trading (MBRT) is subject to tight restrictions, especially when involving direct-to-consumer sales. Foreign-funded entities are prohibited from selling goods directly to consumers unless structured in accordance with permitted guidelines like wholesale or B2B models.

ED Alleges FDI Norm Violation Worth ₹1,654 Crore

On Wednesday, the Enforcement Directorate (ED) announced that it had registered a case under Section 16(3) of FEMA against Myntra Designs Private Limited, its linked companies, and directors. The case involves alleged contraventions exceeding ₹1,654 crore.

According to the ED’s Bengaluru Zonal Office, credible information suggested that Myntra and its affiliates were engaged in multi-brand retail trade disguised as “wholesale cash and carry” operations—a model permitted for entities receiving FDI. This alleged structuring, the agency claims, was a way to circumvent regulations that prevent foreign-funded e-commerce companies from selling directly to consumers in a B2C format.

The ED's statement adds that such practices are in violation of existing FDI rules and therefore constitute a breach of FEMA provisions. Specific directors of Myntra and its linked entities have also been named in the case, although individual liabilities and potential penalties remain under investigation.

E-commerce Firms Under Regulatory Scrutiny

This case against Myntra is not an isolated instance. Over the past few years, several foreign-funded e-commerce platforms in India have come under the radar for similar FEMA violations and for allegedly exploiting legal loopholes to operate in the B2C segment.

For example, in 2021, Amazon India and Flipkart faced investigations under FEMA for operating complex seller arrangements that allegedly allowed them to influence pricing and inventory—actions not permitted under the 100% FDI allowed for marketplace models. These platforms were accused of indirect control over sellers, undermining smaller retailers and bypassing India's retail policy.

Similarly, Cloudtail, a major seller on Amazon, was forced to shut down after scrutiny revealed a conflict with FDI norms regarding preferential treatment and ownership.

A Test Case for India’s E-commerce Regulation

The ED’s case against Myntra marks another chapter in the ongoing tension between rapid digital retail growth and India’s protective regulatory environment. As India continues to attract global capital, especially in tech and e-commerce, strict enforcement of FDI laws becomes crucial to ensuring a level playing field.

This investigation is likely to set a precedent for future compliance and may prompt e-commerce players to re-evaluate their business structures to align more transparently with Indian laws. For consumers and domestic retailers alike, this may bring greater accountability in the growing digital marketplace.