The Enforcement Directorate (ED) has filed a complaint against Bengaluru-based fintech One Sigma Technologies, which operates the buy-now-pay-later (BNPL) platform Simpl, for allegedly violating foreign exchange regulations to the tune of Rs 913.75 crore.
The ED’s Bengaluru zonal office filed the complaint under section 16(3) of the Foreign Exchange Management Act (FEMA), 1999, against the company and its director Nithya Nand Sharma.
Simpl has got FDI of Rs 648.87 crore from US
According to the ED investigation, Simpl received Foreign Direct Investment (FDI) worth Rs 648.87 crore from the United States and issued convertible notes worth Rs 264.88 crore under the automatic route by declaring its business as “Benefits of Information Technology and other computer service activities.”
However, the probe revealed that Simpl’s actual business model falls under financial activities, which requires prior government approval for FDI. The company’s core service allows customers to make purchases and pay later in instalments through its mobile application.
FDI in financial activities
“The business model and revenue generation model of Simpl were examined and it was revealed that the company is into business activities which fall under financial activities,” the ED said.
The enforcement agency stated that as per RBI’s circular dated October 20, 2016, FDI in financial activities not regulated by any authority must be brought under the 100% approval route. Additionally, in cases where government approval is necessary for receiving FDI, startups can issue convertible notes only with the prior approval from the Government of India, ED added.
“Simpl has received FDI under automatic route and issued convertible notes under automatic route without obtaining prior approval from the Government of India, thereby contravening the provisions of FEMA, 1999,” ED added.
