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Dear Reader,
The Company Secretary Team at UJA is pleased to share a brief insight on FDI Compliance Under Scrutiny: Legal Implications of the ED Case Against Myntra.
This article outlines the recent complaint filed by the Enforcement Directorate (ED) under FEMA, 1999 against Myntra Designs Pvt. Ltd. and its related entities, alleging FDI violations of ₹1,654 crore. It highlights how the misuse of the “wholesale cash & carry” route to facilitate Multi-Brand Retail Trading (MBRT) raises critical concerns under India’s FDI framework.
Key aspects discussed include FEMA provisions, RBI’s monitoring role and the importance of transparent documentation and governance in foreign investment compliance. The article also emphasizes the pivotal role of Company Secretaries in ensuring adherence to FDI norms, reporting structures and risk oversight, with lessons drawn from global enforcement actions.
We hope you find this update useful in strengthening awareness of regulatory compliance in foreign investment. For feedback or topic suggestions, write to us at cs@uja.in.
The Enforcement Directorate (ED) has filed a complaint under the Foreign Exchange Management Act (FEMA),
1999 against Myntra Designs Pvt Ltd, its related entities and directors, alleging Foreign Direct Investment (FDI) violations amounting to ₹1,654 crore.
The core allegation is that Myntra misused the “wholesale cash & carry” classification to engage in Multi-Brand Retail Trading (MBRT), a format subject to stricter FDI restrictions.
Under India’s Consolidated FDI Policy (April 1 and October 1, 2010 editions), FDI is permitted in wholesale
trading but not in inventory-led MBRT. The ED claims Myntra routed 100% of its sales through a related entity, Vector E-Commerce Pvt. Ltd., which sold directly to consumers, effectively structuring B2C ransactions as B2B to bypass regulatory limits.
This alleged violation falls under Section 6(3)(b) of FEMA, which governs the transfer or issue of any security by a person resident outside India. The case highlights the importance of aligning operational models with both the letter and spirit of FDI policy.
Role of Company Secretaries in FDI Compliance
Company Secretaries (CS) play a pivotal role in ensuring regulatory compliance, especially in areas involving foreign investment. Material decisions on compliance must be documented in board minutes and the Head of Compliance must report regularly to the Audit, Risk and Compliance Committee.
Governance Failures and Lessons from Global Cases
The Telefónica Venezolana enforcement action, which resulted in an $85 million penalty, underscores the consequences of weak compliance structures. Key lessons include the need for independent compliance functions, proactive risk management and robust internal controls.
RBI’s Role in FDI Monitoring
The Reserve Bank of India (RBI), under the RBI Act and FEMA, oversees the inflow and utilization of foreign capital. Entities receiving FDI must report transactions through the Foreign Investment Reporting and Management System (FIRMS) and comply with pricing guidelines, sectoral caps and downstream investment rules.
In Myntra’s case, the alleged structuring of B2C sales as B2B could violate RBI’s norms on downstream investment and group company transactions. Internal documentation must reflect compliance with RBI’s delegation of authority and reporting standards.
Anti-Money Laundering (AML) and Third-Party Oversight
Documents like AML Procedure emphasize the importance of monitoring third-party relationships and outsourcing risks. These principles are relevant to Myntra’s use of Vector E-Commerce for retail operations.
Section 230 is a powerful enabler for companies to legally reorganize in complex business environments—whether restructuring debt, consolidating group companies or settling disputes with stakeholders. However, it requires meticulous planning, transparency, regulatory compliance and stakeholder communication.
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