ED Files FEMA Case Against Simpl Over INR 913 Cr FDI Violation

SUMMARY

ED booked cofounder Sharma and the startup for contravention to the tune of INR 913.75 Cr under sections of the Foreign Exchange Management Act (FEMA), 1999

The agency alleged that the fintech startup raised foreign investment and issued convertible notes by misdeclaring its business activity and without prior approval

Earlier in the day, the agency also filed a FEMA complaint against fashion ecommerce giant Myntra for allegedly flouting FDI rules to the tune of INR 1,654.4 Cr

The Enforcement Directorate (ED) has filed a complaint against BNPL platform Simpl and its cofounder and director Nitya Sharma for allegedly violating foreign direct investment (FDI) norms.

In a statement, the ED said it filed the complaint against Sharma and the startup for contravention to the tune of INR 913.75 Cr under sections of the Foreign Exchange Management Act (FEMA), 1999.

The agency said its probe, which was initiated on the basis of a “credible information” of Simpl receiving a substantial amount of FDI from the US in violation of FDI norms, found that the startup’s parent, One Sigma Technologies Pvt Ltd, received FDI to the tune of INR 648.87 Cr and also issued convertible notes amounting to INR 264.88 Cr.

The ED alleged that the fintech startup undertook both these transactions by declaring its business activity as “benefits of information technology and other computer service activities”, which allows automatic approval.

However, the ED said that its investigation found that Simpl’s actual business involves financial activities and the foreign investment was received without proper government approval.

As per the RBI’s rules, financial services not regulated by a financial authority need special government approval to receive FDI or issue convertible notes.

Since Simpl did not seek government approval before raising the funds or issuing notes, the ED believes the company broke FEMA rules. The agency has now filed a case under section 16(3) of FEMA before the adjudicating authority.

“M/s One Sigma Technologies Pvt Ltd (SIMPL) has received FDI under automatic route and issued convertible notes under automatic route without obtaining prior approval from the Government of India and thereby contravened the provisions of FEMA, 1999 collectively to the tune of INR 913,75,88,062/- and rendered itself liable to be proceeded under section 13 of FEMA, 1999. In view of the above, a complaint u/s 16 (3) of FEMA, 1999 is filed before the adjudicating authority under FEMA,” the statement read.

Inc42 has reached out to Sharma for a comment on the development. The story will be updated on receiving a response.

Founded in 2015 by Sharma, Simpl allows users to make purchases from partner merchants and pay later, usually every 15 days. Unlike many other BNPL firms, Simpl does not give loans directly but acts more like a digital intermediary for payments.

It makes money by charging merchants a fee. The company claims to have over 7 Mn users. It has raised a total funding of over $83 Mn to date and counts the likes of Green Visor Capital, IA Ventures and Valar Ventures among its investors.

This is the second major action by ED today. Earlier in the day, the agency also filed a FEMA complaint against fashion ecommerce giant Myntra, its related entities and directors for allegedly flouting FDI rules to the tune of INR 1,654.4 Cr.