India Cracks Down on Myntra with $200M E-commerce Case

Myntra Faces Scrutiny Over Alleged Foreign Investment Violations

India's financial crime watchdog has lodged a formal complaint against Myntra, the fashion e-commerce platform supported by Walmart. The allegation centers on violations of the nation’s foreign investment regulations.

Details of the Complaint

The complaint asserts that Myntra channeled over $191 million through a scheme involving related parties. This scheme, it is claimed, misrepresented retail operations as wholesale trade activities.

The Enforcement Directorate stated that the Bengaluru-based firm breached the Foreign Exchange Management Act (FEMA). Specifically, the company allegedly engaged in multi-brand retail trading while presenting it as wholesale cash and carry.

Use of an Intermediary

Vector E-Commerce, a related entity, was reportedly utilized as an intermediary. This facilitated the routing of retail sales through a wholesale structure, according to the agency.

India’s Regulations on Wholesale Trade

Indian regulations restrict foreign entities engaged in wholesale business from directly selling to consumers. This measure is designed to safeguard the interests of local retailers.

Furthermore, sales to related group companies are capped at a maximum of 25% of total sales. Myntra is accused of failing to adhere to these stipulations for wholesale or cash-and-carry operations.

The agency’s assessment indicates that all of Myntra’s sales were exclusively directed to Vector E-Commerce.

Legal Action Taken

The complaint, filed under section 16(3) of the FEMA, 1999, names Myntra, its associated companies, and their directors as respondents.

Myntra’s Market Position and Expansion

Myntra currently commands approximately half of India’s fashion e-commerce market share.

The company is actively pursuing expansion into quick-commerce services. It is also broadening its product offerings in growing categories like home goods, living products, and beauty items.

Social commerce is another area of focus for Myntra. The platform is collaborating with celebrities and micro-influencers to compete with platforms like Instagram, YouTube, and Amazon Live.

Broader Context: Trade Talks and Investigations

This complaint arises during ongoing discussions between Indian and U.S. officials regarding a potential trade agreement.

The Modi government is reportedly facing pressure from the U.S. administration to grant Amazon and Flipkart greater access to India’s $125 billion e-commerce market.

The release of India’s e-commerce policy has been delayed, with officials exercising caution to avoid straining relations with the U.S.

Previous Investigations

Both Amazon and Flipkart have previously been subject to investigations by Indian agencies, including the Enforcement Directorate.

In November, federal agents raided the offices of several sellers associated with these companies, alleging violations of foreign investment rules.

In April, the agency requested sales data and documentation from smartphone vendors like Apple and Xiaomi as part of its investigation into Amazon and Flipkart.