Myntra under the ED radar: Understanding FDI compliance within fashion e-commerce
The rise of e-commerce in India
Fashion e-commerce is thriving in India. It is setting a pace for online shopping, fast deliveries, discovering latest trends, and so on. The Indian fashion e-commerce market was valued at USD 21.60 billion in 2025 and is expected to reach USD 98.45 billion by 2032, growing at a compound annual growth rate of 24.2% (1). These platforms cater to a wide range of customers, selling everything from tiny hair clips to high-fashion garments. However, behind every sale they make, they have to comply with the regulatory framework, which might not sound so glamorous, yet it decides the operation of this market.
The allegations of FDI violations and the FEMA complaint filed by the Directorate of Enforcement (ED) against Myntra serve as a reminder for every e-commerce brand. Foreign investment can fuel growth, but it also brings unavoidable legal compliance
Who is ED and why is Myntra under its lens?
The Enforcement Directorate (ED), is a multi-disciplinary organization which works as a domestic law enforcement and economic intelligence agency under the Department of Revenue, Ministry of Finance, Government of India (2). It is tasked with enforcing foreign exchange laws and investigating violations under the Foreign Exchange Management Act (FEMA). It ensures that businesses dealing with foreign investments comply with India’s foreign exchange and FDI regulations.
Recently, the Directorate of Enforcement, Bengaluru Zonal Office has filed a complaint under section 16(3) of Foreign Exchange Act, 1999 (FEMA) against Myntra Designs Pvt. Ltd and its related companies and their directors. The company was founded in 2007 and has been acquired by Flipkart since 2017. Myntra has over 70 million monthly active users and a catalogue of more than 3.9 million styles from more than 9700 brands (3).
The ED alleges that Myntra has violated foreign exchange rules involving INR 1654 crore (4). According to the ED, Myntra and its group companies who claim to operate as a ‘Wholesale Cash & Carry’ businesses, actually run Multi-Brand Retail Trade (MBRT) activities. India’s FDI policy prohibits foreign investment in inventory-led multi-brand retail. It allows for wholesale and marketplace models only under specific conditions. The ED alleges that Myntra’s structure violated these restrictions.
What has ED alleged?
Myntra received foreign investment and routed most of its sales through Vector E-Commerce Pvt. Ltd., a related company within the same group. Vector then sold these goods directly to customers. By doing so,they turned (what should have been) wholesale (B2B) transactions into retail (B2C) sales on paper. Investigators claim that Vector E-Commerce was set up mainly to get around India’s FDI rules, letting Myntra run a retail business that would not be allowed under current laws.
Myntra's Response
Myntra commented on the matter that it hasn’t received the complaint yet but will fully cooperate with the authorities. The company also promises it is committed to following the law and supporting India’s textile and apparel industry by working with local brands, artisans, and weavers to showcase their work globally (5).
FDI Rules & FEMA Compliance in E-Commerce
Foreign Direct Investment i.e. FDI plays an important role in supporting fashion e-commerce and its growth in India. It brings in funds for technology, warehouses, logistics, expanding product ranges and so on. However, in India, it does come with strict regulations under the FDI Policy and the FEMA. All the companies must comply with the rules and regulations laid down for them.
Under Section 6(3)(b) of FEMA, 1999, the Reserve Bank of India (RBI), can regulate how foreign investments are made in India in consultation with the government. This is to ensure that they follow the country’s policies.
Further, as per the Rule 16 of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, 100% foreign investment is allowed in e-commerce platforms that act as a marketplace, simply connecting sellers and buyers. But foreign investment is not allowed if the platform owns and sells the products itself. This rule aims to protect small shops and keep competition fair. It prohibits big foreign-funded platforms from using heavy discounts to take over the market.
Under FEMA, any company that gets foreign investment must follow these rules. Suppose a company tries to work around them, such as by selling through related companies to look like a marketplace while actually running a retail business. In that case, it can be considered a violation.
Why does this concern fashion law?
The Myntra case shows that FDI compliance is not just a financial or business issue, it is a fashion law concern too. Fashion e-commerce relies heavily on foreign investment for growth, technology, and various other reasons. However, if platforms run their business in ways that are violative of the FDI rules, it can lead to potential legal action, penalties, and operational disruptions.
It is important for fashion lawyers and brands to be aware of how marketplace and inventory models work under India’s FDI policy. It is also important to understand how FEMA rules affect e-commerce platforms. If these rules are not followed, it can create problems not just for big platforms but also for small designers and brands that depend on these platforms to sell their products.
FDI rules regulate the moving of fashion products within India’s digital economy. They influence discounting practices, warehousing models, and even platform inventory. In short, they affect the entire ecosystem of fashion e-commerce.
Conclusion
The Myntra case is a reminder that foreign investments are essential for growing fashion e-commerce in India. However, they come with clear rules that cannot be sidelined. For platforms, brands, and fashion lawyers, staying informed on how FDI and FEMA rules apply is not optional, instead it’s necessary for avoiding legal disputes and ensuring business continuity. Along with experting in business strategies, it is also important for fashion e-commerce to keep in check the regulatory compliance that they need to follow.
By Sharvari S. Markandeya
(1) Monica Shevgan, India Fashion Ecommerce Market Size and Share Analysis- Growth Trends and Forecasts (2025-2032), CoherentMI, (Jul 24, 2025, 12:30 PM), https://www.coherentmi.com/industry-reports/india-fashion-ecommerce-market.
(2) Business Standard, https://www.business-standard.com/india-news/decoding-the-ed-understanding-its-history-powers-and-criticism-123112200730_1.html, (last visited Jul. 24, 2025)
(3) PTI, ED files case against Myntra over Rs. 1,654 crore FDI ‘violation’, India Retailing, (Jul.24, 2025, 02:57 PM), https://www.indiaretailing.com/2025/07/24/ed-files-case-against-myntra-over-rs-1654-crore-fdi-violation/.
(4) Money Control News, Myntra under ED scanner for alleged Rs 1,654 crore FDI violations, Money Control, (Jul. 23, 2025, 04:05 PM IST), https://www.moneycontrol.com/news/business/myntra-under-ed-scanner-for-alleged-rs-1-654-crore-fdi-violations-13313357.html.
(5) TaxTMI, https://www.taxtmi.com/news?id=50312, (Last visited Jul. 24, 2025).
