The Enforcement Directorate (ED), which tracks violations of foreign exchange regulations and charges of money-laundering, is investigating online fashion retailer Myntra for likely violation of foreign direct investment (FDI) norms in multi-brand retail.
“The investigations are still on. We suspect there is a prima facie case of violation of FDI norms by Myntra. We will take a call on issuing a show-cause notice to the company once our probe is complete,” a senior enforcement directorate official told HT on the condition of anonymity.
The official did not elaborate upon an exact figure for the alleged Foreign Exchange Maintenance Act (FEMA) violation as the “probe was still on”.
Refuting the allegations, a Myntra spokesperson said: “We are in compliance with all the government regulations pertaining to our business. We stand ready to fully and transparently cooperate with all government agencies.”
Interestingly, the ED is also examining India’s largest online retailer Flipkart for a similar violation of foreign investment rules.
Both Flipkart and Myntra are widely speculated to be in talks for a possible merger. According to industry sources, Flipkart may buy a little over 50% stake in Myntra.
India’s FDI norms prohibit foreign investment in e-commerce firms that sell their products directly to consumers. However, FDI is allowed only in those online firms that have a “market place model” wherein the online retailer acts as a platform for other third-party vendors to sell their respective products.
And this is where the bone of contention lies. Myntra and Flipkart that began as online retailers in 2007, later on switched over to the market place model.
Since its launch in 2007, Myntra has raised close to $125 million (Rs 750 crore) from global investors. In February this year, Myntra raised around $50 million (Rs 300 cr) from a group of investors led by Premji Invest — the investment arm of Wipro.