Paytm shares drop 9% following report of Sebi’s show-cause notice to Vijay Shekhar Sharma

The notices also target former board members from the period of its initial public offering (IPO) in November 2021, related to allegations of misrepresentation of facts during the IPO.

The core issue revolves around Sharma’s classification as a promoter, despite holding management control rather than merely being an employee when filing the IPO documents.

Sharma is classified as a public shareholder, not a large shareholder, according to exchange data, which also says Paytm has no investors categorised as “large shareholders.”

This classification is crucial because Sebi regulations prohibit promoters from receiving employee stock options (ESOPs) post-IPO. The probe was reportedly triggered by inputs from the Reserve Bank of India (RBI), which had earlier examined Paytm Payments Bank.In addition to Sharma, SEBI also issued notices to the company’s former directors, questioning their endorsement of Sharma’s classification as a non-promoter. The investigation seeks to determine whether Paytm’s leadership
accurately represented Sharma’s role and stake in the company during the IPO.

According to Reuters, this alleged non-compliance allowed Sharma to receive shares through employee stock ownership plans.

The issue is further complicated by the transfer of 5% of Sharma’s shareholding to a family trust named VSS Holdings Trust before the IPO, reducing his stake to 9.6%, just below the 10% threshold that would typically classify him as a promoter.

However, as per reports, Sebi is scrutinising whether this transfer was sufficient to exempt Sharma from being classified as a promoter, especially since he continued to exert significant control over the company.

Additionally, in August 2023, Sharma acquired a 10.3% stake in Paytm from Antfin Holdings (Netherlands) through Resilient Asset Management BV, a company he owns. While this stake was classified under ‘Foreign Direct Investment’ in the company’s June 2024 shareholding pattern, SEBI’s investigation may challenge this categorization.

The regulator is not in favour of founders owning stock options if they have rights similar to big shareholders, also called promoters.

(With inputs from Reuters)

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