India’s Enforcement Directorate (ED) has filed a complaint against Buy Now Pay Later (BNPL) startup Simpl, alleging violations of Foreign Direct Investment (FDI) rules. The case has now been sent to the adjudicating authority for further action.
What Did Simpl Do Wrong?
According to the ED’s investigation, Simpl raised ₹913.76 Cr from foreign investors — ₹648.87 Cr via direct FDI and ₹264.88 Cr through convertible notes. The issue arose because Simpl had declared itself an IT services company, which allowed easier FDI clearance. However, the ED found that Simpl was engaged in financial services activities, such as facilitating credit, which fall under sectors that require prior government approval for foreign investment.
Convertible Notes Without Approval
The ED also alleged that Simpl issued convertible notes to foreign investors without necessary regulatory approvals. Convertible notes—debt instruments that convert into equity—are subject to specific RBI and FEMA guidelines, especially when the company operates in financial services, where compliance requirements are stricter.
What Happens Next?
The case has been referred to the adjudicating authority under FEMA, which will now decide whether Simpl will face penalties or further legal action. If proven guilty, Simpl may have to pay a substantial fine.
Fintech Sector Under the Scanner
This isn’t an isolated case. Just a day before the action against Simpl, the ED reportedly sent a similar notice to Myntra. Moreover, several fintech and BNPL players such as ZestMoney, LazyPay, and Slice are believed to be under increased scrutiny.
Impact on the Ecosystem
Startups like Paytm Postpaid, ZestMoney, and LazyPay are watching Simpl’s case closely. Many BNPL startups rely heavily on foreign capital. Stricter enforcement could slow fundraising and growth in this space. Legal experts say this might lead to a wave of compliance checks across the fintech ecosystem.
A Wake-Up Call for Founders
The Simpl case serves as a critical reminder for Indian startups—particularly those in regulated sectors—to ensure full compliance with FDI norms. Failing to get the required approvals can result in major setbacks, legal risks, and reputational damage.
