Winning Bizness Desk

Mumbai. The Securities and Exchange Board of India (SEBI) has issued a show cause notice to Vijay Shekhar Sharma, the founder of Paytm, along with members of the board involved during the company’s Initial Public Offering (IPO) in November 2021. The notice alleges that Sharma and the board members provided misleading information during the IPO process. SEBI initiated this investigation based on findings from the Reserve Bank of India (RBI), which had earlier conducted a probe into Paytm Payments Bank. The regulator is examining whether there was any misrepresentation of facts during the IPO process, particularly concerning Sharma's role and the company's governance structure at the time. The notice also extends to the directors who were in office during the IPO, accusing them of not fulfilling their duties adequately.

Paytm’s Stock Performance Impacted

Following the news of the SEBI notice, the stock of Paytm's parent company, One97 Communications Limited, experienced a sharp decline. The stock dropped by nearly 5% and has shown a negative return of 8.59% over the past five days. Over the past year, the stock has declined by 40.06%, though it has seen a recovery of 23.60% in the last six months.

Misrepresentation and Governance Issues

The core issue highlighted by SEBI revolves around the classification of Vijay Shekhar Sharma's role during the IPO. At the time, Sharma had management control over the company but was not officially listed as an employee, making him ineligible for Employee Stock Options (ESOP) post-IPO according to SEBI rules. This discrepancy, which the board and the merchant bankers failed to address, has now led to the current investigation. SEBI’s actions against the directors are particularly significant, as they are being held accountable for not adequately overseeing the company’s governance during the IPO. The regulator argues that they, along with auditors and merchant bankers, failed to draw attention to the potential conflict of interest and the governance issues stemming from Sharma's role and stake in the company.

Paytm’s Response

In response to the notice, Paytm has downplayed the situation, stating in a stock exchange filing that the matter is not new and has already been disclosed in its financial results for the quarter and year ending March 31, 2024, as well as the quarter ending June 30, 2024. The company emphasized that it is in regular communication with SEBI regarding these issues. As SEBI’s investigation continues, the outcome could have significant implications for Paytm’s governance and the broader regulatory landscape for IPOs in India.