SEBI issues notices to Paytm founder, directors over IPO violations
The Securities and Exchange Board of India (SEBI) has served show-cause notices to Vijay Shekhar Sharma, the founder of One 97 Communications Ltd (Paytm's parent company), and several board members. These individuals were part of the board during Paytm's initial public offering (IPO) in November 2021. The notices are related to alleged misrepresentation of facts and non-compliance with promoter classification norms.
Probe initiated on RBI's inputs
The investigation by SEBI was triggered by information from the Reserve Bank of India (RBI), which had scrutinized Paytm Payments Bank earlier this year. The central issue is whether Sharma should have been identified as a promoter due to his management control, rather than an employee during the IPO process. As a result, SEBI has also issued notices to the company's directors at that time for supporting Sharma's position.
SEBI questions Sharma's eligibility for ESOPs
If Sharma had been classified as a promoter, he would not have been eligible for employee stock options (ESOPs) following the listing. This is because SEBI regulations bar promoters from receiving ESOPs post-IPO. "SEBI is taking the view that Sharma should have been classified as a promoter, and it was also the fiduciary duty of board members of the company to verify the accuracy of claims made by founder," said one person familiar with matter.
Paytm's IPO classification under scrutiny
Unless a company identifies itself as 'professionally managed,' all listed companies are typically considered to be promoter driven. To qualify as professionally managed, no shareholder should hold more than a 10% stake or exert control. However, before filing the IPO document, Sharma transferred 5% of his shareholding to VSS Holdings Trust, reducing his stake in One 97 Communication from 14.6% to just below the specified threshold at 9.6%.
SEBI's delayed action raises questions
A significant point in this case is that SEBI has initiated action three years after the listing. The regulatory body was aware of the shareholding arrangement since the offer document was filed in 2021. However, action was only taken following the Paytm Payments Bank incident. In August 2023, Sharma agreed to buy a 10.3% stake in One97 Communications from Antfin Holdings (Netherlands) via Resilient Asset Management BV, which he owns.
