ED Files FEMA Case Against Myntra for Rs 1,654 Crore FDI Violation

ED Files FEMA Case Against Myntra for Rs 1,654 Crore FDI Violation. The Enforcement Directorate (ED), which is India’s central agency for investigating violations related to foreign exchange and money laundering laws, has filed a case against Myntra and some of its associated companies. The action has been taken under the Foreign Exchange Management Act (FEMA), 1999.
The ED has alleged that Myntra, which is a popular fashion e-commerce platform owned by Flipkart (which is, in turn, owned by Walmart), received foreign investments worth Rs.1,654.4 crore in violation of India’s rules regarding foreign investment. According to the ED, Myntra claimed to be running a wholesale business, but in reality, it was carrying out multi-brand retail trading (MBRT), which has different and stricter rules under Indian law.
This development is significant because it highlights how some e-commerce companies may be using group structures and corporate loopholes to sidestep India's strict foreign investment regulations in the retail sector.
Misuse of Wholesale Model
A Wholesale Cash & Carry business means selling goods in bulk only to other businesses, not directly to retail customers. For example, a wholesale trader might sell a large number of T-shirts to a local shop, who will then sell them to the final consumers.
Under Indian FDI policy 100% foreign direct investment (FDI) is allowed in this model. No prior government approval is required (called the automatic route), But such a company can sell only up to 25% of its total sales to companies that belong to the same corporate group (to prevent misuse). Myntra claimed to be following this wholesale model to receive FDI easily.
Multi-Brand Retail Trading (MBRT) in India
Multi-Brand Retail Trading (MBRT) refers to a retail business model where a company sells products of multiple unrelated brands directly to retail consumers under one platform or outlet. This model is common in large-format retail stores like supermarkets (e.g., Big Bazaar, Reliance Smart), department stores (e.g., Shoppers Stop), and e-commerce platforms (e.g., Amazon, Flipkart, Myntra). For example, Myntra operates as a multi-brand retailer by offering fashion products from diverse global and domestic brands such as Nike, Adidas, Puma, Roadster, H&M, and many others directly to customers through its app and website.
FDI Policy for MBRT in India
The Foreign Direct Investment (FDI) policy in India is quite restrictive when it comes to MBRT due to its potential impact on the unorganized retail sector and small domestic retailers. The government allows FDI up to 51% in MBRT, but only through the government approval route, which means companies must seek prior permission from the Department for Promotion of Industry and Internal Trade (DPIIT) and other relevant authorities before receiving foreign investment in this sector. This limitation is placed to ensure tight regulatory oversight and to prevent large multinational corporations from overwhelming local businesses through unfair competition.
Why Is MBRT Regulated Strictly?
The Indian retail landscape consists largely of small kirana stores, local retailers, and family-run shops. These small businesses play a vital role in employment and economic activity in rural and semi-urban India. Allowing unrestricted foreign investment in multi-brand retail could threaten their survival. Therefore, the government has placed strict conditions to balance foreign participation with the protection of local trade ecosystems. These conditions ensure that MBRT with foreign investment contributes to infrastructure, job creation, and local sourcing, rather than simply taking over existing markets.
Key Conditions for MBRT with FDI
When foreign investment is permitted in MBRT, the investing company must comply with several key conditions set by the Indian government, such as:

Sourcing Requirement: At least 30% of the value of goods must be procured from Indian micro, small, and medium enterprises (MSMEs), village industries, and cottage industries.

Investment in Infrastructure: A minimum of 50% of total FDI received must be invested in backend infrastructure, such as logistics, warehousing, cold chains, and supply chains.

Location Restrictions: Retail outlets can only be set up in cities with a population of over 10 lakh (1 million) as per the last census, and in states that have agreed to allow FDI in MBRT.

Single Entity Sales Limitations: Companies must not make more than 25% of their total sales to entities from the same group (a rule often misused or violated, as seen in the Myntra case).

Product Restrictions: Certain categories like arms, ammunition, atomic energy, lottery, and tobacco are prohibited from being traded under MBRT with FDI.

Government Route: Approval Is Mandatory
Unlike sectors that are covered under the automatic route, MBRT comes under the government route. This means the foreign investor must file an application with the DPIIT. The proposal is examined by an inter-ministerial body. The government considers the impact on local businesses, employment, sourcing norms, and infrastructure before granting approval.
Without this approval, receiving FDI in MBRT is prohibited. Any violation of this process may result in regulatory action under FEMA, making FEMA advisory mandatory  and related laws, including seizure of funds, penalties, or disqualification from operating in India. 
What Did Myntra Do According to ED?
According to ED, Myntra received foreign funds claiming to be in the wholesale business. However, in practice, it sold almost 100% of its products to a company called Vector Ecommerce Pvt. Ltd., which is part of the same group. Vector, in turn, handled the sale of these goods to retail customers, acting like an internal seller within the Myntra ecosystem.
This means that Myntra was not really functioning as a wholesaler. It was using Vector to convert its B2B sales into B2C retail. This setup violated the rule that allows only 25% sales to group companies. The ED believes this was a deliberate attempt to bypass the MBRT restrictions, and the company was effectively engaged in retail trading under the garb of wholesale trading.
To know more about Business setup advisory read – link
Legal Framework Involved
FEMA (Foreign Exchange Management Act), 1999
FEMA is a law that regulates foreign exchange transactions and foreign investments in India. The ED enforces FEMA and acts if any company receives foreign funds without proper approval, misuses those funds Or violates any conditions related to how FDI should be used.
In this case, ED claims Myntra violated FEMA by wrongly claiming wholesale activity to get 100% FDI, when it was actually involved in retail trading. This falls in the category of FEMA Due Diligence.
FDI Policy Notifications
The amendments dated 1st April 2010 and 1st October 2010 under India’s FDI policy are key here. These changes allowed 100% FDI in wholesale businesses through the automatic route,but restricted sales to group companies to no more than 25% of total turnover.
Myntra’s structure, with nearly all sales going to Vector (a group company), clearly violates this condition, according to ED.
Why Is This Significant?
The Enforcement Directorate’s (ED) action against Myntra for alleged violations of FDI norms under FEMA carries far-reaching implications not just for Myntra, but for its parent company, Flipkart, and the broader Indian e-commerce. This is not just a regulatory concern but a development that may affect investor sentiment, capital markets, and future compliance for foreign-invested digital platforms operating in India.
Impact on Flipkart’s IPO Plans
Flipkart, the parent company of Myntra and one of India’s largest e-commerce platforms, is currently preparing for its much-anticipated Initial Public Offering (IPO). An IPO is a significant event where a private company offers its shares to the public for the first time, aiming to raise substantial capital from the market. Flipkart’s IPO is expected to be one of the largest in India’s tech and e-commerce sector, and its success heavily depends on investor confidence, legal compliance, and a clean regulatory track record.
Domicile Shift to India
As part of its IPO preparations, Flipkart is also reportedly shifting its corporate base back to India from overseas jurisdictions like Singapore and the Cayman Islands. This strategic move is aimed at aligning itself with Indian laws, tax frameworks, and listing regulations, which would make the IPO process smoother and more acceptable to Indian regulators and retail investors.
Why the ED Case Matters
The ED’s complaint, which alleges that Myntra disguised retail activity as wholesale business to unlawfully attract 100% FDI, could cast a shadow over Flipkart’s IPO. Any ongoing legal dispute or compliance breach raises serious red flags for potential investors. It can damage Flipkart’s reputation in the eyes of regulators and institutional investors, create uncertainty about the legality of past investments and transactions, delay or complicate the IPO process, since regulatory authorities like SEBI and RBI may now demand detailed clarifications or impose preconditions before allowing the company to go public.
Thus, a case against Myntra indirectly puts Flipkart’s financial future at stake by threatening the smooth launch of one of India’s most high-profile IPOs.
Fresh Capital Infusions Under the Scanner
In the last two financial quarters, Myntra has raised substantial capital from its parent entities in February 2025, Rs.709 crore was infused by Flipkart directly, in May 2025, Myntra received another Rs.1,062 crore from FK Myntra Holdings, a Singapore-based affiliate and investment arm. These capital infusions are part of Myntra’s strategy to expand its market share, invest in new delivery formats like M-Now, and fund its international ventures such as the launch of Myntra Global in Singapore.
FEMA Scrutiny of Fund Usage
Now that the ED has accused Myntra of misrepresenting its business model to access foreign investment through the automatic route, these recent capital infusions will fall under intense regulatory scrutiny. The ED is likely to examine whether the funds were received in compliance with FDI norms, if the money was routed through lawful channels and correctly declared, whether the funds were used for purposes aligned with the permitted business activity (i.e., wholesale, not retail).
If discrepancies are found, Myntra and Flipkart could be liable for penalties, or even face a freeze on future capital inflows. This puts future fundraising efforts at risk, and could also disrupt business operations, especially those that are capital-intensive or dependent on foreign investment.
Business Moves by Myntra
Entry into International Market
Myntra has recently entered the international market by launching its e-commerce services in Singapore under the brand Myntra Global. This is the company’s first major international expansion, and it aims to reach around 12%–15% of the 6.5 lakh Indians living in Singapore.
The idea is to target the NRI (Non-Resident Indian) population who are familiar with Myntra and prefer Indian fashion brands.
Quick Commerce Experiment
Myntra is also testing a 10-minute delivery model known as M-Now, which is part of the quick commerce (Q-commerce) trend. It first launched in Bengaluru, then expanded to Mumbai and Delhi in June 2025.Quick commerce is highly logistics-intensive and costly, but it is being tested to gain competitive advantage over rivals like Meesho, Amazon Fashion, and Ajio. These bold business experiments are capital-heavy, and the ED’s scrutiny of foreign funds may affect these plans as well.
What You Should Know to Understand This Case Better
What is FDI (Foreign Direct Investment)?
Foreign Direct Investment (FDI) is when a person, company, or institution from outside India invests money directly into an Indian business it is monitored by FDI reporting. This investment can come in the form of capital infusion, acquisition of shares, or setting up of wholly owned subsidiaries. FDI plays a crucial role in India’s economic development as it brings in foreign capital, technology, management skills, and international exposure. However, because of its potential influence on domestic businesses and market structure, the Indian government has created sector-specific rules and limits for FDI. For example, sectors like single-brand retail, defence, and telecom are subject to caps and conditions, while others like manufacturing and wholesale trading enjoy greater freedom. In the retail sector, FDI is tightly regulated to protect the interests of small and local businesses. Companies violating these limits can face serious legal action under laws like FEMA.
Automatic Route vs. Government Route
When it comes to accepting foreign investment, Indian laws define two broad approval mechanisms Automatic Route and Government Route. Under the Automatic Route, foreign investors can invest in a company without seeking any prior approval from the Indian government. This is applicable in sectors where the government believes there is no need for oversight, such as manufacturing or wholesale trade. However, under the Government Route, prior permission from various ministries or regulators is required before the investment can be made. Sectors like multi-brand retail trading, print media, defence, and satellites require such approval. In this case, Myntra claimed to be operating under the Automatic Route by identifying itself as a wholesale business, but the ED alleges that in reality, it was functioning as a multi-brand retail company thus needing approval it never obtained.
Difference Between B2B and B2C Models
The difference between Business-to-Business (B2B) and Business-to-Consumer (B2C) models is essential in evaluating FDI compliance. A B2B model is where one business sells goods or services to another business, often in bulk, for the purpose of resale or further processing. This model is used in wholesale trade and is eligible for 100% FDI under the automatic route. In contrast, a B2C model involves a business selling directly to the end consumer, such as a typical online retail platform like Myntra or Amazon. Since direct consumer sales can impact local retailers and market dynamics, B2C multi-brand retail is subject to restrictions only 51% FDI is allowed, and that too with prior government approval. According to ED, Myntra was effectively operating as a B2C platform but had structured its transactions to appear as B2B, thereby availing 100% FDI illegally.
FEMA Enforcement
The Foreign Exchange Management Act (FEMA), 1999 is a central law that governs the flow of foreign exchange into and out of India. The goal of FEMA is to facilitate smooth and lawful foreign trade and payments, while also maintaining the integrity of India’s external financial position. The Enforcement Directorate (ED) is responsible for investigating and prosecuting violations under FEMA. If any person or company is found to have received or used foreign exchange in a manner not permitted by law, the ED has the authority to launch legal proceedings, seize properties, impose hefty penalties (up to three times the involved sum), and freeze assets. In the present case, the ED believes that Myntra and its affiliates received and routed foreign investment in violation of FEMA’s provisions, using a corporate structure that masked their true business model.
To know more about FEMA compliance checklist click – link
Use of Group Companies for Regulatory Arbitrage
Regulatory arbitrage refers to the practice where businesses design complex structures to exploit legal or regulatory loopholes in order to achieve outcomes that are not directly allowed. In the e-commerce sector, companies often create multiple subsidiaries or “group companies” to divide roles between wholesale and retail, logistics, and marketing. While this strategy is legal if done transparently and in accordance with policy, it becomes problematic when it is used to disguise the actual nature of business activities. In Myntra’s case, ED alleges that the company used Vector Ecommerce Pvt. Ltd., a group entity, to route wholesale sales internally and then convert them into retail sales. This gave the illusion of B2B operations, while in truth, the result was a B2C sale to customers. Such structuring, if proven to be intentional, constitutes misrepresentation under FDI policy, and attracts penalties and prosecution under FEMA and allied laws.
The case filed by the Enforcement Directorate (ED) against Myntra highlights the complex intersection between India’s foreign direct investment (FDI) policy, e-commerce regulations, and corporate structuring strategies. While India remains a lucrative destination for foreign capital, especially in the digital and retail sectors, the government has set clear boundaries to prevent market manipulation and protect local businesses. Myntra’s alleged circumvention of these rules by structuring retail operations under the guise of wholesale trading has raised serious legal and regulatory concerns. The timing of the ED’s action is particularly sensitive, given Flipkart’s preparations for an Initial Public Offering (IPO) and Myntra’s recent capital infusions. This development not only threatens to disrupt their growth plans but also sends a strong signal to other players in the market: compliance with India’s FDI framework is non-negotiable. Moving forward, transparency, lawful structuring, and strict adherence to FEMA and retail policy norms will be critical for maintaining investor trust and business continuity in the highly regulated Indian digital economy.
Frequently Asked Questions (FAQ)
Q1. What is the ED case against Myntra about?
Ans. The Enforcement Directorate has filed a case against Myntra under the Foreign Exchange Management Act (FEMA). The agency alleges that Myntra violated FDI regulations by falsely presenting itself as a wholesale business while actually engaging in multi-brand retail trading (MBRT) which has stricter rules and requires government approval.
Q2. What is the difference between wholesale (cash & carry) and multi-brand retail trading (MBRT)?
Ans. Wholesale (Cash & Carry): Involves selling goods in bulk only to businesses, not directly to end consumers. It allows 100% FDI through the automatic route.
MBRT: Involves selling products of various brands directly to consumers. FDI is limited to 51% and only allowed with prior government approval and under strict conditions.
Q3. Why is the ED alleging a violation by Myntra?
Ans. The ED alleges that Myntra received FDI under the wholesale model, then sold nearly 100% of its goods to Vector Ecommerce Pvt. Ltd., a group company, vector handled retail sales, effectively converting B2B transactions into B2C sales.
 This violates the rule that no more than 25% of wholesale sales can be made to group companies.
Q4. What laws are applicable in this case?
Ans. The main law involved is the Foreign Exchange Management Act (FEMA), 1999, which governs foreign investments and exchange in India. In addition, the case touches upon compliance with India’s Consolidated FDI Policy, especially the conditions related to retail and e-commerce.
Q5. How could this case affect Flipkart’s IPO?
Ans. Since Flipkart is Myntra’s parent company and is preparing for its IPO, any legal or regulatory case can damage investor confidence, delay the IPO process, lead to closer scrutiny by regulators like SEBI. This makes it a significant concern for Flipkart’s financial and corporate future.
Q6. What are the implications for Myntra’s recent fund inflows?
Ans. Myntra recently received over Rs.1,700 crore in foreign investments in 2025. These transactions may now be examined for:

Compliance with FEMA,

Correct business declarations,

Proper end-use of foreign capital.

Any violations found could lead to fines, seizure of assets, or restrictions on future investments.
Q7. What does this case mean for other e-commerce players in India?
Ans. The case serves as a warning for other e-commerce platforms that attempt to bypass FDI rules using complex group structures. The Indian government is increasing its regulatory scrutiny, and non-compliance could attract penal consequences. Businesses must ensure full alignment with the spirit and letter of FDI policy, especially in the retail space.

The Enforcement Directorate (ED), which is India’s central agency for investigating violations related to foreign exchange and money laundering laws, has filed a case against Myntra and some of its associated companies. The action has been taken under the Foreign Exchange Management Act (FEMA), 1999.

The ED has alleged that Myntra, which is a popular fashion e-commerce platform owned by Flipkart (which is, in turn, owned by Walmart), received foreign investments worth Rs.1,654.4 crore in violation of India’s rules regarding foreign investment. According to the ED, Myntra claimed to be running a wholesale business, but in reality, it was carrying out multi-brand retail trading (MBRT), which has different and stricter rules under Indian law.

This development is significant because it highlights how some e-commerce companies may be using group structures and corporate loopholes to sidestep India's strict foreign investment regulations in the retail sector.

Misuse of Wholesale Model

A Wholesale Cash & Carry business means selling goods in bulk only to other businesses, not directly to retail customers. For example, a wholesale trader might sell a large number of T-shirts to a local shop, who will then sell them to the final consumers.

Under Indian FDI policy 100% foreign direct investment (FDI) is allowed in this model. No prior government approval is required (called the automatic route), But such a company can sell only up to 25% of its total sales to companies that belong to the same corporate group (to prevent misuse). Myntra claimed to be following this wholesale model to receive FDI easily.

Multi-Brand Retail Trading (MBRT) in India

Multi-Brand Retail Trading (MBRT) refers to a retail business model where a company sells products of multiple unrelated brands directly to retail consumers under one platform or outlet. This model is common in large-format retail stores like supermarkets (e.g., Big Bazaar, Reliance Smart), department stores (e.g., Shoppers Stop), and e-commerce platforms (e.g., Amazon, Flipkart, Myntra). For example, Myntra operates as a multi-brand retailer by offering fashion products from diverse global and domestic brands such as Nike, Adidas, Puma, Roadster, H&M, and many others directly to customers through its app and website.

FDI Policy for MBRT in India

The Foreign Direct Investment (FDI) policy in India is quite restrictive when it comes to MBRT due to its potential impact on the unorganized retail sector and small domestic retailers. The government allows FDI up to 51% in MBRT, but only through the government approval route, which means companies must seek prior permission from the Department for Promotion of Industry and Internal Trade (DPIIT) and other relevant authorities before receiving foreign investment in this sector. This limitation is placed to ensure tight regulatory oversight and to prevent large multinational corporations from overwhelming local businesses through unfair competition.

Why Is MBRT Regulated Strictly?

The Indian retail landscape consists largely of small kirana stores, local retailers, and family-run shops. These small businesses play a vital role in employment and economic activity in rural and semi-urban India. Allowing unrestricted foreign investment in multi-brand retail could threaten their survival. Therefore, the government has placed strict conditions to balance foreign participation with the protection of local trade ecosystems. These conditions ensure that MBRT with foreign investment contributes to infrastructure, job creation, and local sourcing, rather than simply taking over existing markets.

Key Conditions for MBRT with FDI

When foreign investment is permitted in MBRT, the investing company must comply with several key conditions set by the Indian government, such as:

Sourcing Requirement: At least 30% of the value of goods must be procured from Indian micro, small, and medium enterprises (MSMEs), village industries, and cottage industries.
Investment in Infrastructure: A minimum of 50% of total FDI received must be invested in backend infrastructure, such as logistics, warehousing, cold chains, and supply chains.
Location Restrictions: Retail outlets can only be set up in cities with a population of over 10 lakh (1 million) as per the last census, and in states that have agreed to allow FDI in MBRT.
Single Entity Sales Limitations: Companies must not make more than 25% of their total sales to entities from the same group (a rule often misused or violated, as seen in the Myntra case).
Product Restrictions: Certain categories like arms, ammunition, atomic energy, lottery, and tobacco are prohibited from being traded under MBRT with FDI.

Government Route: Approval Is Mandatory

Unlike sectors that are covered under the automatic route, MBRT comes under the government route. This means the foreign investor must file an application with the DPIIT. The proposal is examined by an inter-ministerial body. The government considers the impact on local businesses, employment, sourcing norms, and infrastructure before granting approval.

Without this approval, receiving FDI in MBRT is prohibited. Any violation of this process may result in regulatory action under FEMA, making FEMA advisory mandatory and related laws, including seizure of funds, penalties, or disqualification from operating in India.

What Did Myntra Do According to ED?

According to ED, Myntra received foreign funds claiming to be in the wholesale business. However, in practice, it sold almost 100% of its products to a company called Vector Ecommerce Pvt. Ltd., which is part of the same group. Vector, in turn, handled the sale of these goods to retail customers, acting like an internal seller within the Myntra ecosystem.

This means that Myntra was not really functioning as a wholesaler. It was using Vector to convert its B2B sales into B2C retail. This setup violated the rule that allows only 25% sales to group companies. The ED believes this was a deliberate attempt to bypass the MBRT restrictions, and the company was effectively engaged in retail trading under the garb of wholesale trading.

To know more about Business setup advisory read – link

Legal Framework Involved

FEMA (Foreign Exchange Management Act), 1999

FEMA is a law that regulates foreign exchange transactions and foreign investments in India. The ED enforces FEMA and acts if any company receives foreign funds without proper approval, misuses those funds Or violates any conditions related to how FDI should be used.

In this case, ED claims Myntra violated FEMA by wrongly claiming wholesale activity to get 100% FDI, when it was actually involved in retail trading. This falls in the category of FEMA Due Diligence.

FDI Policy Notifications

The amendments dated 1st April 2010 and 1st October 2010 under India’s FDI policy are key here. These changes allowed 100% FDI in wholesale businesses through the automatic route,but restricted sales to group companies to no more than 25% of total turnover.

Myntra’s structure, with nearly all sales going to Vector (a group company), clearly violates this condition, according to ED.

Why Is This Significant?

The Enforcement Directorate’s (ED) action against Myntra for alleged violations of FDI norms under FEMA carries far-reaching implications not just for Myntra, but for its parent company, Flipkart, and the broader Indian e-commerce. This is not just a regulatory concern but a development that may affect investor sentiment, capital markets, and future compliance for foreign-invested digital platforms operating in India.

Impact on Flipkart’s IPO Plans

Flipkart, the parent company of Myntra and one of India’s largest e-commerce platforms, is currently preparing for its much-anticipated Initial Public Offering (IPO). An IPO is a significant event where a private company offers its shares to the public for the first time, aiming to raise substantial capital from the market. Flipkart’s IPO is expected to be one of the largest in India’s tech and e-commerce sector, and its success heavily depends on investor confidence, legal compliance, and a clean regulatory track record.

Domicile Shift to India

As part of its IPO preparations, Flipkart is also reportedly shifting its corporate base back to India from overseas jurisdictions like Singapore and the Cayman Islands. This strategic move is aimed at aligning itself with Indian laws, tax frameworks, and listing regulations, which would make the IPO process smoother and more acceptable to Indian regulators and retail investors.

Why the ED Case Matters

The ED’s complaint, which alleges that Myntra disguised retail activity as wholesale business to unlawfully attract 100% FDI, could cast a shadow over Flipkart’s IPO. Any ongoing legal dispute or compliance breach raises serious red flags for potential investors. It can damage Flipkart’s reputation in the eyes of regulators and institutional investors, create uncertainty about the legality of past investments and transactions, delay or complicate the IPO process, since regulatory authorities like SEBI and RBI may now demand detailed clarifications or impose preconditions before allowing the company to go public.

Thus, a case against Myntra indirectly puts Flipkart’s financial future at stake by threatening the smooth launch of one of India’s most high-profile IPOs.

Fresh Capital Infusions Under the Scanner

In the last two financial quarters, Myntra has raised substantial capital from its parent entities in February 2025, Rs.709 crore was infused by Flipkart directly, in May 2025, Myntra received another Rs.1,062 crore from FK Myntra Holdings, a Singapore-based affiliate and investment arm. These capital infusions are part of Myntra’s strategy to expand its market share, invest in new delivery formats like M-Now, and fund its international ventures such as the launch of Myntra Global in Singapore.

FEMA Scrutiny of Fund Usage

Now that the ED has accused Myntra of misrepresenting its business model to access foreign investment through the automatic route, these recent capital infusions will fall under intense regulatory scrutiny. The ED is likely to examine whether the funds were received in compliance with FDI norms, if the money was routed through lawful channels and correctly declared, whether the funds were used for purposes aligned with the permitted business activity (i.e., wholesale, not retail).

If discrepancies are found, Myntra and Flipkart could be liable for penalties, or even face a freeze on future capital inflows. This puts future fundraising efforts at risk, and could also disrupt business operations, especially those that are capital-intensive or dependent on foreign investment.

Business Moves by Myntra

Entry into International Market

Myntra has recently entered the international market by launching its e-commerce services in Singapore under the brand Myntra Global. This is the company’s first major international expansion, and it aims to reach around 12%–15% of the 6.5 lakh Indians living in Singapore.

The idea is to target the NRI (Non-Resident Indian) population who are familiar with Myntra and prefer Indian fashion brands.

Quick Commerce Experiment

Myntra is also testing a 10-minute delivery model known as M-Now, which is part of the quick commerce (Q-commerce) trend. It first launched in Bengaluru, then expanded to Mumbai and Delhi in June 2025.Quick commerce is highly logistics-intensive and costly, but it is being tested to gain competitive advantage over rivals like Meesho, Amazon Fashion, and Ajio. These bold business experiments are capital-heavy, and the ED’s scrutiny of foreign funds may affect these plans as well.

What You Should Know to Understand This Case Better

What is FDI (Foreign Direct Investment)?

Foreign Direct Investment (FDI) is when a person, company, or institution from outside India invests money directly into an Indian business it is monitored by FDI reporting. This investment can come in the form of capital infusion, acquisition of shares, or setting up of wholly owned subsidiaries. FDI plays a crucial role in India’s economic development as it brings in foreign capital, technology, management skills, and international exposure. However, because of its potential influence on domestic businesses and market structure, the Indian government has created sector-specific rules and limits for FDI. For example, sectors like single-brand retail, defence, and telecom are subject to caps and conditions, while others like manufacturing and wholesale trading enjoy greater freedom. In the retail sector, FDI is tightly regulated to protect the interests of small and local businesses. Companies violating these limits can face serious legal action under laws like FEMA.

Automatic Route vs. Government Route

When it comes to accepting foreign investment, Indian laws define two broad approval mechanisms Automatic Route and Government Route. Under the Automatic Route, foreign investors can invest in a company without seeking any prior approval from the Indian government. This is applicable in sectors where the government believes there is no need for oversight, such as manufacturing or wholesale trade. However, under the Government Route, prior permission from various ministries or regulators is required before the investment can be made. Sectors like multi-brand retail trading, print media, defence, and satellites require such approval. In this case, Myntra claimed to be operating under the Automatic Route by identifying itself as a wholesale business, but the ED alleges that in reality, it was functioning as a multi-brand retail company thus needing approval it never obtained.

Difference Between B2B and B2C Models

The difference between Business-to-Business (B2B) and Business-to-Consumer (B2C) models is essential in evaluating FDI compliance. A B2B model is where one business sells goods or services to another business, often in bulk, for the purpose of resale or further processing. This model is used in wholesale trade and is eligible for 100% FDI under the automatic route. In contrast, a B2C model involves a business selling directly to the end consumer, such as a typical online retail platform like Myntra or Amazon. Since direct consumer sales can impact local retailers and market dynamics, B2C multi-brand retail is subject to restrictions only 51% FDI is allowed, and that too with prior government approval. According to ED, Myntra was effectively operating as a B2C platform but had structured its transactions to appear as B2B, thereby availing 100% FDI illegally.

FEMA Enforcement

The Foreign Exchange Management Act (FEMA), 1999 is a central law that governs the flow of foreign exchange into and out of India. The goal of FEMA is to facilitate smooth and lawful foreign trade and payments, while also maintaining the integrity of India’s external financial position. The Enforcement Directorate (ED) is responsible for investigating and prosecuting violations under FEMA. If any person or company is found to have received or used foreign exchange in a manner not permitted by law, the ED has the authority to launch legal proceedings, seize properties, impose hefty penalties (up to three times the involved sum), and freeze assets. In the present case, the ED believes that Myntra and its affiliates received and routed foreign investment in violation of FEMA’s provisions, using a corporate structure that masked their true business model.

To know more about FEMA compliance checklist click – link

Use of Group Companies for Regulatory Arbitrage

Regulatory arbitrage refers to the practice where businesses design complex structures to exploit legal or regulatory loopholes in order to achieve outcomes that are not directly allowed. In the e-commerce sector, companies often create multiple subsidiaries or “group companies” to divide roles between wholesale and retail, logistics, and marketing. While this strategy is legal if done transparently and in accordance with policy, it becomes problematic when it is used to disguise the actual nature of business activities. In Myntra’s case, ED alleges that the company used Vector Ecommerce Pvt. Ltd., a group entity, to route wholesale sales internally and then convert them into retail sales. This gave the illusion of B2B operations, while in truth, the result was a B2C sale to customers. Such structuring, if proven to be intentional, constitutes misrepresentation under FDI policy, and attracts penalties and prosecution under FEMA and allied laws.

The case filed by the Enforcement Directorate (ED) against Myntra highlights the complex intersection between India’s foreign direct investment (FDI) policy, e-commerce regulations, and corporate structuring strategies. While India remains a lucrative destination for foreign capital, especially in the digital and retail sectors, the government has set clear boundaries to prevent market manipulation and protect local businesses. Myntra’s alleged circumvention of these rules by structuring retail operations under the guise of wholesale trading has raised serious legal and regulatory concerns. The timing of the ED’s action is particularly sensitive, given Flipkart’s preparations for an Initial Public Offering (IPO) and Myntra’s recent capital infusions. This development not only threatens to disrupt their growth plans but also sends a strong signal to other players in the market: compliance with India’s FDI framework is non-negotiable. Moving forward, transparency, lawful structuring, and strict adherence to FEMA and retail policy norms will be critical for maintaining investor trust and business continuity in the highly regulated Indian digital economy.

Frequently Asked Questions (FAQ)

Q1. What is the ED case against Myntra about?

Ans. The Enforcement Directorate has filed a case against Myntra under the Foreign Exchange Management Act (FEMA). The agency alleges that Myntra violated FDI regulations by falsely presenting itself as a wholesale business while actually engaging in multi-brand retail trading (MBRT) which has stricter rules and requires government approval.

Q2. What is the difference between wholesale (cash & carry) and multi-brand retail trading (MBRT)?

Ans. Wholesale (Cash & Carry): Involves selling goods in bulk only to businesses, not directly to end consumers. It allows 100% FDI through the automatic route.

MBRT: Involves selling products of various brands directly to consumers. FDI is limited to 51% and only allowed with prior government approval and under strict conditions.

Q3. Why is the ED alleging a violation by Myntra?

Ans. The ED alleges that Myntra received FDI under the wholesale model, then sold nearly 100% of its goods to Vector Ecommerce Pvt. Ltd., a group company, vector handled retail sales, effectively converting B2B transactions into B2C sales.

This violates the rule that no more than 25% of wholesale sales can be made to group companies.

Q4. What laws are applicable in this case?

Ans. The main law involved is the Foreign Exchange Management Act (FEMA), 1999, which governs foreign investments and exchange in India. In addition, the case touches upon compliance with India’s Consolidated FDI Policy, especially the conditions related to retail and e-commerce.

Q5. How could this case affect Flipkart’s IPO?

Ans. Since Flipkart is Myntra’s parent company and is preparing for its IPO, any legal or regulatory case can damage investor confidence, delay the IPO process, lead to closer scrutiny by regulators like SEBI. This makes it a significant concern for Flipkart’s financial and corporate future.

Q6. What are the implications for Myntra’s recent fund inflows?

Ans. Myntra recently received over Rs.1,700 crore in foreign investments in 2025. These transactions may now be examined for:

Compliance with FEMA,
Correct business declarations,
Proper end-use of foreign capital.

Any violations found could lead to fines, seizure of assets, or restrictions on future investments.

Q7. What does this case mean for other e-commerce players in India?

Ans. The case serves as a warning for other e-commerce platforms that attempt to bypass FDI rules using complex group structures. The Indian government is increasing its regulatory scrutiny, and non-compliance could attract penal consequences. Businesses must ensure full alignment with the spirit and letter of FDI policy, especially in the retail space.