Myntra's FDI Troubles, Swiggy’s Refresh, and Noise Eyes Overseas

When the Enforcement Directorate (ED) goes after one of India’s top fashion platforms for foreign investment violations worth ₹1,654 crore, it’s not just a regulatory skirmish, it’s a wake-up call. The agency’s recent complaint against Myntra Designs Pvt Ltd and its directors under Section 16(3) of FEMA accuses the company of using a proxy structure to bypass India’s strict foreign direct investment (FDI) rules. At the center of this case lies a debate that’s been simmering for years: how far can companies stretch policy loopholes before it breaks into a violation?

Let’s break down the core allegation. The ED claims that instead of operating as a legitimate wholesale business, Myntra routinely sold the majority of its goods to a group company, Vector E-Commerce Pvt Ltd. This entity, in turn, sold directly to consumers via online platforms. Under the FDI rules for wholesale (or “cash and carry”) businesses, only up to 25% of total sales can be made to group companies. Myntra, the ED argues, consistently exceeded this limit and used this structure to disguise business-to-customer (B2C) retail as business-to-business (B2B) wholesale. This, according to the complaint, violated both FEMA provisions and the FDI policy in effect since 2010.

This isn’t an isolated playbook. India’s e-commerce giants have long walked the tightrope between scale and regulation. Flipkart, Myntra’s parent company, has repeatedly restructured its operations over the past decade to stay within the gray zones of evolving policy. Amazon has done the same, relying on seller entities like Cloudtail and Appario - many of which had indirect links to Amazon - to navigate inventory ownership restrictions under India’s marketplace rules. Both companies have been under ED investigations in the past for similar reasons.

Globally, these companies have had their share of run-ins with regulators. Amazon has faced antitrust scrutiny in the US and EU for allegedly favoring its own products and sellers. Walmart, which owns Flipkart, was embroiled in a major bribery investigation in Mexico in 2012 and has had to clean up governance across multiple markets. The Myntra case fits into this broader pattern: when companies grow fast and operate across jurisdictions, they often test how far rules can be bent - especially in markets with regulatory opacity.

India, with its massive and growing consumer base, has been particularly vulnerable to such tactics. FDI rules have always tried to strike a delicate balance: attract foreign capital, but not at the cost of harming domestic retailers. That’s why foreign investment in multi-brand retail is heavily restricted. By contrast, wholesale trading was allowed with fewer hurdles. The ED’s case essentially argues that Myntra used this easier route to enter a space where it wasn’t legally permitted.

There’s more at stake here than just one company’s compliance record. First, the ED hasn’t just gone after the entity - it’s named directors personally. That’s a sharp shift in tone from earlier cases, where companies could settle matters quietly behind closed doors. Second, the complaint covers past activities, implying that even legacy structures aren’t immune to fresh scrutiny. This creates uncertainty for many digital-first businesses that relied on aggressive legal interpretation during their scaling years.

Startups that raised funds between 2014 and 2019 often did so on promises of growth, not always profit or regulatory compliance. Investors backed models that could scale, sometimes without fully vetting the legality of operational shortcuts. But with enforcement catching up and India positioning itself as a rule-based, investor-friendly economy, that old playbook is under threat. Regulators are saying: scale is no longer an excuse.

Ironically, while India has created globally admired digital public goods - UPI, ONDC, DigiLocker - it still struggles with enforcement clarity. The Myntra case will likely reignite debates about the gap between written laws and business practices. But the bigger concern is whether such cases will lead to knee-jerk reactions, where investor sentiment takes a hit, or if it will push for cleaner, transparent structuring from the start.

Let’s go through what else is happening in Indian startup world - Grab your simmering cup of StartupChai.in and unwind with our hand-brewed memes.

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