India’s financial intelligence agency, the Enforcement Directorate (ED), said on Wednesday that it had found the Indian unit of Walmart-owned Flipkart’s fashion e-commerce venture, Myntra Designs, had violated foreign investment rules that bar foreign wholesalers from selling directly to consumers.
The ED claimed that Myntra positioned itself as a wholesale cash-and-carry player and attracted US $ 192 million in foreign investment. But the company allegedly distributed most of its products to an associated entity, which in turn sold them to customers—technically practicing multi-brand retail masquerading as wholesale business.
This comes even as there is increased scrutiny of India’s e-commerce giants. In another antitrust investigation last year, both Amazon and Flipkart were accused by the authorities of showing preference to some sellers and engaging in predatory pricing, acts that were alleged to hurt small retailers. Both firms have insisted that they did nothing wrong.
Disputes regarding foreign investment regulations in India’s online retail sector have also made it difficult to pursue ongoing trade talks between Washington and New Delhi. Prohibitions on how firms such as Amazon, Walmart and their subsidiaries do business in India have been a sticking point in bilateral trade talks for some time.
Myntra, established in 2007 and purchased by Flipkart in 2014, said it had not received any official papers on the case yet but was ready to assist authorities. The firm reiterated that it followed Indian regulations and laws. Walmart has declined to comment on the allegations.
India’s policy bars foreign wholesale companies from making direct sales to consumers. Instead, foreign-controlled e-commerce companies such as Flipkart, Amazon and Myntra can only operate online marketplaces that bring buyers and third-party sellers together without owning inventory or direct selling.
The ED lodged a formal complaint with an adjudicating authority against Myntra but refused to reveal detailed charges. Such charges have in the past also been made against Amazon and Flipkart. An investigation by Reuters in 2021 based on internal Amazon reports indicated that the company was making use of select sellers to circumvent Indian law—a charge that Amazon has firmly refuted.
