ED files Rs 913-crore FEMA violation case against fintech Simpl

ED files case against Simpl for FDI violation

The Directorate of Enforcement (ED) has filed a foreign exchange violation case against fintech startup Simpl and its founder and director, Nithya Nand Sharma, for “contravention to the tune of Rs 913.75 crore”, the agency, which investigates financial crimes, said in a statement on July 24.

The company received foreign investment for technology-related products and services but used it for financial services without the approval of the government or the regulator, the ED alleged.

The case has been filed under the Foreign Exchange Management Act, 1999 (FEMA), ED said, adding the buy now, pay later firm violated the foreign direct investment (FDI) rule.

Simpl, registered as One Sigma Technologies Pvt Ltd, is accused of receiving a substantial amount of investment from the United States, potentially in violation of the FDI policy.

"Simpl received FDI amounting to Rs 649 crore and issued convertible notes worth Rs 265 crore under 100% automatic route by declaring its business activity as "Benefits of Information Technology and other computer service activities," the ED said.

Simpl's business and revenue generation model fall under financial services, the agency said. Citing the Reserve Bank of India (RBI) rules, it said that FDI in financial activities not regulated by any authority requires a 100 percent approval route.

"For activities where government approval is necessary for receiving FDI, a startup company can issue convertible notes only with the explicit approval of the government of India," the statement said.

Sharma did not respond to Moneycontrol’s messages immediately. The story will be updated when the company or Sharma responds.

Simpl, founded in 2016, has around 26,000 merchants on its platform, including Zomato, Makemytrip, Big Basket, 1MG and Crocs.

In 2021, Simpl announced a $40 million Series B fundraise led by Valar Ventures & IA Ventures, four years after its Series A round in 2017.

In 2024, Simpl initiated two rounds of layoffs, impacting over 200 employees, including mid-senior management. The startup's monthly cash burn remained elevated, while new user acquisitions slowed down, forcing the company to cut costs.