India’s financial crime watchdog, the Enforcement Directorate (ED), has filed a complaint under Section 16(3) of the Foreign Exchange Management Act (FEMA), 1999, against One Sigma Technologies Pvt. Ltd., the operator of the popular Buy-Now-Pay-Later (BNPL) platform, Simpl, and its director Nithya Nand Sharma.
The Bengaluru-based firm allegedly received ₹913.75 crore in foreign investment from the United States in violation of FEMA rules. This includes ₹648.87 crore in Foreign Direct Investment (FDI) and ₹264.88 crore via convertible notes, all routed under the automatic approval route, despite operating in a sector that mandates prior government approval.
ED’s investigation found that Simpl classified its business as “Benefits of Information Technology and other computer service activities”, a category that qualifies for automatic FDI approval. However, the agency concluded that Simpl’s core revenue model—offering deferred payments for purchases—squarely falls under “financial activities”, which is governed by stricter FDI norms.
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The Fine Print: Why Simpl’s FDI Strategy Broke the Rules
According to the ED, Simpl’s misclassification of its business activity allowed it to bypass the regulatory red tape associated with India’s tightly controlled FDI regime in financial services. Under a 2016 RBI circular, any financial activity not regulated by an Indian financial authority (like RBI or SEBI) requires government approval for foreign investment.
Moreover, convertible notes—a favored investment route in the startup world—can only be issued under government approval in such sectors. By issuing these notes under the automatic route, Simpl allegedly contravened both RBI and FEMA guidelines.
The ED emphasized that Simpl’s BNPL model—enabling consumers to pay for purchases in interest-free installments via its mobile app—constitutes a financial activity, not a tech platform. This reclassification is critical because India’s FDI policy in financial services is more restrictive and scrutinized due to risks of regulatory arbitrage, consumer vulnerability, and cross-border capital misuse.
Broader Implications: Fintech’s Regulatory Reckoning Is Here
This enforcement action comes at a time when India’s fintech sector is under increasing regulatory scrutiny, especially with regard to foreign capital flows, data localization, and consumer lending practices.
The case mirrors other high-profile crackdowns on startups allegedly using regulatory gray areas to fast-track growth. With global venture funds still actively pumping money into India’s digital finance ecosystem, the Simpl case could set a precedent for how sectoral definitions and compliance interpretations are handled going forward.
While Simpl has yet to release a formal statement, the company is expected to defend its position by arguing that it operates as a tech-enabled intermediary rather than a direct lender. However, the ED’s framing of the platform’s revenue model as financial in nature may be difficult to challenge, especially as regulators are increasingly unwilling to accept functional misclassifications by startups.
The fallout from this case could also lead to tightening of FDI routes and greater enforcement of due diligence normsfor startups seeking international capital.