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After Flipkart, ED is now looking into Myntra over FEMA

myntraEnforcement Directorate (ED) is looking into fashion e-retailer Myntra for possible violation of foreign direct investment (FDI) norms under Foreign Exchange Management Act (FEMA), reports The Economic Times. A Myntra spokesperson told the publication that the company complies with all government regulations and that it will cooperate with all government agencies.

The investigation comes at a time when Myntra is in acquisition talks with e-commerce website Flipkart. That deal however seems to be stalled as of now, with Myntra seeking independence even after the acquisition. As of now, it is not clear how this investigation will affect the deal between the two companies. The company had raised $50 million earlier this year from Azim Premji’s investment arm Premji Invest and others. Other investors in the company include Tiger Global and Accel Partners. Accel Partners and its investment partner, Tiger Global Management, own a combined stake of 40% in both Flipkart and Myntra.

India does not allow FDI in multi-retail e-commerce when selling to customers. Due to this policy most e-commerce ventures in India had shifted to a marketplace model in the last two years. Myntra CEO Mukesh Bansal had said last year that he was not actively looking to shift to marketplace model last year. The company however, added a marketplace last month. Third-party vendors now account for 20% of Myntra’s revenues according to the ET report, with talks of such revenues increasing to 40% by the end of the fiscal year.

The ED had recently sent a show-cause notice to Flipkart for alleged violation of Rs 1,400 crore under FEMA. The directorate reportedly has prima facie evidence that the company flouted the country’s FDI rules. Flipkart had sold its front end retail operations WS Retail to a group of investors led by former OnMobile COO Rajiv Kuchhal in February 2013 and had adopted marketplace model in April 2013.

Do read our white paper explaining the Structuring of Foreign Direct Investments In eCommerce in India.

Correction: An earlier version of the story had referred to Tiger Global Management as a hedge fund. 

 

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