Ahead of IPO, Zepto discloses ED summons to co-founders in updated DRHP

Ahead of its proposed IPO, Zepto has highlighted persistent operating losses, Enforcement Directorate (ED) summons to its founders, and heightened consumer protection oversight among the key risks facing the business. In its IPO filing, Zepto identified continued losses, regulatory scrutiny, and recent ED inquiries involving its promoters as major risk factors that could impact its business and operations ahead of its planned stock market debut. 

In its updated Draft Red Herring Prospectus (DRHP) filed on Monday, the Bengaluru-based company disclosed that it has reported losses in every financial year since its incorporation in July 2021 and cautioned that it may continue to incur losses and negative operating cash flows as it scales its business. "We may continue to incur losses and negative cash flows from operating activities as we invest in expanding our user base and technology infrastructure, adding new product categories to our platform, expanding our private labels, expanding our supply chain operations, increasing the count of dark stores, and developing and improving the brand and visibility of our platform, among others. There is no assurance that such investments will enable us to increase our revenue in the future," the company said in the filing. 

Zepto also warned that its revenue growth could slow due to weaker demand, a limited product portfolio that may not adequately meet customer needs, slower growth in platform participants amid intensifying competition, and rising regulatory and compliance costs. 

Among the legal risks highlighted in the filing are summons issued by the ED on April 8, 2026, to co-founders Aadit Palicha and Kaivalya Vohra, seeking documents and information related to foreign investments, shareholding structures, and the company's business model. 

While the company said it had responded to the ED's queries and had not received any further communication as of the date of the updated DRHP, it acknowledged the possibility of future regulatory action. "While, as on the date of this Updated Draft Red Herring Prospectus-I, we have not received any further communication from the ED since submitting our response, we cannot assure you there will not be future inquiries or that these could escalate to investigations, legal proceedings or any possible penalties," Zepto said. 

The company also disclosed ongoing regulatory challenges involving the Central Consumer Protection Authority over the alleged use of "dark patterns" on its platform, including basket sneaking, misleading advertisements and drip pricing practices. 

The CCPA had imposed a penalty of ₹7 lakh on the company for non-compliance with guidelines related to dark patterns. Zepto has challenged the order before the National Consumer Disputes Redressal Commission, which has granted an interim stay. However, the company cautioned that any adverse ruling or changes in the interpretation of applicable laws and regulations could impact its operations, financial performance and future business prospects. 

Operationally, Zepto said its business model remains heavily dependent on the location, density and scale of its dark store network, which forms the backbone of its rapid delivery operations. "Our failure to manage and expand our dark store network cost-effectively could have an adverse impact on our business, financial condition, cash flows and results of operations," the company said.