It's not often that a regulatory case opens a 10+ year window into past compliance decisions. But that's what the Enforcement Directorate's INR 1,654 crore FEMA case against Myntra is doing.
The alleged violations (from 2010–2015) involve multi-brand retail structuring using affiliate sellers. The ED claims that Vector E-Commerce, an entity related to Myntra, was used to present the company as compliant with the FDI ban on direct-to-consumer e-commerce.
What's crucial is not just the nature of the case but how it's being handled.
When Enforcement Has a Memory Longer Than the Market
India's startup and e-commerce ecosystem is built on speed. But regulatory enforcement often plays a long game. We've seen this across:
- FEMA: where retrospective review is now being used to question legacy structures
- PMLA and Income tax: where procedural delay doesn't affect evidence standards
- Companies Act proceedings: where non-filing, non-disclosure or related-party opacity can trigger years-later consequences
Founders and management often assume that if no issue arose during funding rounds, audits, or IPO due diligence, then they're safe. This is a dangerous assumption.
The Illusion of Closure
In long-lag enforcement scenarios, you are being judged today for yesterday's decisions by tomorrow's legal interpretation. This means:
- A structure considered compliant under a 2012 FDI FAQ may now be challenged under 2025's enforcement stance
- An entity layered for operational convenience might today be seen as a circumvention device
- Founders who left the company years ago may still be named as responsible officers
Procedural Clarity is Your First Defense
We advise clients facing retrospective review to immediately focus on:
Chain of Authority: Who signed what, when, and under whose instruction?
Contemporary Justifications: Were there legal memos, board notes, or filings made at the time that explain the structuring?
Time-Indexed Compliance Stack: What were the prevailing RBI/FDI rules in force during the time of alleged violation?
In many cases, regulatory defense collapses not because there is no justification—but because the company cannot locate its past records or communicate consistently.
Communication Protocols for ED and Beyond
Engaging with the ED requires:
- A clear chain of correspondence, with no ambiguity on facts
- Pre-cleared communication roles—who responds, who signs, and who appears
- A playbook for media interaction: saying “we have not received notice” is not a viable strategy when the ED has gone public
Delays, confusion, or inconsistency in response often increase scrutiny. The department reads not just your facts, but your approach.
Director Risk: Even When They're Gone
A common myth is that past directors are automatically protected if they have no current ownership or control. This is not so.
Under FEMA and PMLA, director liability attaches to period of control. If you were the “officer in default” or if your name appears on documentation related to the transaction, you may be called upon.
That's why we advise exiting founders and directors to retain:
- A compliance handover file: which documents their period-specific roles and duties
- Written board records clarifying transfer of compliance responsibility
- Exit counsel who can support with post-exit representation, should regulatory inquiry arise
Legal Strategy is Also Perception Strategy
We've seen enforcement environments where:
- A company with better media engagement and legal narrative secured earlier resolution
- Founders who actively responded were protected from prolonged association
- Procedural errors (like misstatements in submissions or inconsistent language) were cited against credibility
In India's current enforcement ecosystem, perception influences timelines. Silence can be read as guilt. Delay is often interpreted as evasion. This is particularly true when the investigation is already in the public domain.
Creating a Procedural Readiness Kit
For any company that has:
- Engaged in complex structuring
- Received foreign investment pre-2018
- Used affiliates for core operations
you should consider building a readiness kit for scrutiny. This includes:
- Structuring timelines
- Role-wise director map
- Legal memos and filings at the time
- Communications playbook for regulators and press
- External counsel pre-briefed on strategy
The Myntra Case: Not About One Brand
While Myntra is the headline, the lesson applies across industries. Anywhere where founders, investors, or advisors took aggressive positions on regulatory compliance – especially where clarity didn't exist – the risk of retrospective scrutiny remains alive.
We've seen similar themes in:
- NBFCs with layered ownership
- Logistics companies with asset-light tax models
- Healthcare platforms navigating intermediary vs service provider definitions
Scrutiny is a System, Not a Surprise
You can't predict enforcement. But you can design for it.
It is advisable for Corporates/Promoters/Founders to prepare their compliance approach as if a retrospective audit or ED inquiry could occur. This isn't about fear. It's about responsibility.
The responsible perception of securing and sophisticating more than your balance sheet – even your mindset from a decade ago. To join the league of companies that survive scrutiny not because they did everything right. They're often those who can explain everything clearly.
The Myntra enforcement action demonstrates that regulatory memory extends far beyond market cycles, requiring companies to maintain defensive readiness for investigations that may examine decisions made years before current management assumed control.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
