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An old SEBI show-cause notice comes back to haunt Paytm

Paytm clarified that the show-cause notice regarding Vijay Shekhar Sharma's promoter classification is not new and had been previously disclosed in its financial statements.

An old SEBI show-cause notice comes back to haunt Paytm

Monday August 26, 2024 , 3 min Read

Paytm notified the Indian bourses on Monday that the show-cause notice to its promoter Vijay Shekhar Sharma from the Securities and Exchange Board of India (SEBI) was not new. The notice alleged misrepresentation of facts during its November 2021 IPO, which was cited in recent reports.

MoneyControl had reported that SEBI had sent Paytm a notice over Vijay Shekhar Sharma's classification as a promoter, which SEBI argues should have been declared due to his management control over the company. This classification would have made Sharma ineligible for employee stock options (ESOPs) following the IPO.

At the core of the issue is Sharma’s transfer of a 5% stake to VSS Holdings Trust before the IPO, reducing his shareholding to 9.6%, the report said. SEBI contends that this was a strategic move to avoid promoter classification, it added. The show-cause notices also extend to board members who endorsed Sharma’s position, marking a rare instance of SEBI holding directors accountable for a potential compliance lapse.

However, Paytm said that the show-cause notice was not new and the company had disclosed the details in its financial statements published with stock exchanges.

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"The Company during year ended March 31, 2022 granted 21,000,000 Employee Stock Options to Managing Director and CEO of the Company which is subject to achievement of specified milestones. During the previous quarter, the Company had received a Show Cause Notice ("SCN") from SEBI related to the above options regarding compliance with SEBI SBEB Regulations. The Company had submitted its preliminary response and is in the process of seeking further information from SEBI in this regard," the company said in a filing.

"Based on an independent legal opinion obtained by the management, it believes that the Company is compliant with the relevant regulations. Accordingly, there is no impact on the financial results for the current and previous quarter ended June 30, 2024 and March 31, 2024, respectively," the filing added.

After MoneyControl reported the story, Paytm parent One97 Communications' shares fell from Rs 555.55 to Rs 530 apiece at closing time on Monday.

Earlier this month, One97 Communications was ordered by the Office of Collector of Stamps, New Delhi, to pay a penalty of Rs 47.12 lakh for failing to pay stamp duty on the allotment of equity shares in previous years.

The penalty pertains to the non-payment of stamp duty totalling Rs 1.43 crore on the allotment of 10,26,386 equity shares. The company cited delays in the submission of some applications and stated that steps have been taken to prevent such issues in the future.

Prior to that, the Financial Intelligence Unit-India (FIU-IND) imposed a Rs 5.49 crore penalty on Paytm Payments Bank Ltd for violating the Prevention of Money Laundering Act, 2002.


Edited by Jyoti Narayan