Bengaluru fintech firm in dock for Rs 913 cr FDI violation, ED files complaint

The Enforcement Directorate (ED) has filed a complaint against a Bengaluru-based private company One Sigma Technologies Pvt Ltd, behind the popular Buy Now, Pay Later app SIMPL, for allegedly violating India’s foreign exchange laws to the tune of Rs 913.75 crore.

The action follows an investigation into the company’s receipt of substantial Foreign Direct Investment (FDI) from the United States, reportedly in contravention of India’s existing FDI regulations.

According to the ED, the company received FDI to the tune of Rs 648.87 crore and issued convertible notes worth Rs 264.88 crore -- all under the 100% automatic route -- by declaring its business activity as “Benefits of Information Technology and other computer service activities.”

However, the probe revealed that the company’s core operations fall within the ambit of financial services, specifically through its SIMPL mobile app which offers deferred payment services to customers.

As per an RBI, any FDI in unregulated financial activities must come through the government approval route. Moreover, startups engaging in sectors that require prior government approval cannot issue convertible notes without such clearance.

The ED alleges that One Sigma Technologies failed to obtain the necessary approvals and misrepresented its business classification, thereby violating FEMA provisions.

“SIMPL received foreign investments and issued convertible notes without securing mandatory approvals from the Government of India, which is a serious breach of the foreign exchange law,” the ED stated.

With the total contravention amounting to Rs 913.75 crore, the agency has now submitted a complaint to the Adjudicating Authority under FEMA for further proceedings under Section 13 of the Act.