Paytm parent company shares plunge 9% amid Sebi issues notice to founder

Notice to former board members involved in Paytm IPO.

MUMBAI: Shares of One 97 Communications, the parent company of Paytm, plummeted by 8.88 per cent to Rs 505.25 per share on the BSE following reports that the company’s founder, Vijay Shekhar Sharma, has been served a show cause notice by the Securities and Exchange Board of India (SEBI).

The notice has also been issued to former board members involved in Paytm’s November 2021 IPO.

According to the report, SEBI’s notice addresses alleged misrepresentation of facts and non-compliance with promoter classification norms.

Sebi investigation

This investigation was initiated based on inputs from the Reserve Bank of India (RBI), which conducted a review of Paytm Payments Bank earlier this year.

The central issue of the probe is whether Sharma should have been classified as a promoter, given his management control during the IPO, rather than as an employee. Typically, a company is considered promoter-driven unless it is classified as ‘professionally managed,’ which requires that no single shareholder holds more than a 10% stake or exercises control.

Paytm IPO

In the lead-up to the IPO, Sharma transferred 5% of his shares to VSS Holdings Trust, reducing his stake from 14.6 per cent to 9.6 per cent, just below the 10 per cent threshold.

However, despite this reduction, Sharma retained significant control through his board position and management role, raising questions about his classification as a promoter.

Further complicating the matter, in August 2023, Sharma acquired a 10.3 per cent stake in Paytm through Resilient Asset Management BV, another entity owned by him. This stake was classified under ‘Foreign Direct Investment’ rather than being aggregated with his other holdings.

Directors questioned

SEBI has also questioned the company’s directors for supporting Sharma’s classification. The regulatory body has highlighted that under SEBI regulations, promoters are prohibited from receiving employee stock options (ESOPs) after an IPO, which could impact Sharma’s eligibility for such options.

Earlier this year, in January, the Reserve Bank of India barred Paytm Payments Bank from accepting fresh deposits due to persistent non-compliance and ongoing supervisory concerns, prompting further regulatory scrutiny.