After Flipkart, ED probing rival Myntra too for possible FDI rule violation

Looks like Myntra is never very far behind Flipkart as far as developments in their sunrise sector is concerned, including regulatory run-ins.

The Economic Times reports that Bangalore-based Myntra is the second e-tailer in the country to come under the Enforcement Directorate’s scanner for violating Foreign Exchange Management Act (FEMA) norms related to FDI.

“We stand ready to fully and transparently cooperate with all government agencies,” Myntra told ET. Myntra operates a marketplace model (allowing other sellers to list on its site) while also selling products on its own.

Last week, there were reports that Flipkart, Myntra’s rival, would soon receive a show cause notice from the ED for a Rs 1,400 crore violation of the same norms.

Myntra and Flipkart share several overseas investors, including Tiger Global and Accel Partners.

According to today’s ET report, Indian e-commerce sites are being pulled up for receiving foreign funding in sectors that allow FDI and then transferring the money to separate entities where such backing is either not allowed or allowed under certain conditions.

India does not allow foreign direct investment in business-to-consumer (B2C) retail transactions, but does permit foreign equity in business-to-business (B2B) transactions.

A 2012 _Hindu Business Line_article , while first reporting the ED’s probe of Flipkart, had quoted theDepartment of Industrial Policy and Promotion, which said, “e-commerce in both multi- and single-brand retail is not permissible for companies with FDI."

At that time, the _Business Standard_reported that several other e-tailers like Myntra, Jabong and Snapdeal were also on the ED’s radar for similar violations.

Earlier Fistbiz’s columnist S. Muralidaran had argued thatthe B2B and marketplace models are by no means the same. The distinguishing feature of the marketplace model is the online agency role played by the ecommerce portal. In B2B, meanwhile, there is a direct interface between the retail buyer and the online portal.

Disclosure: Firstbiz is owned by Network18 that also owns Homeshop18, which competes with Flipkart and Myntra.