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New Delhi: SEBI, the market regulator of India, has served show-cause notices to Paytm’s founder Vijay Shekhar Sharma and other board members who were in office during the company’s IPO in November 2021.
A Reuters article citing Moneycontrol states that the notices accuse the recipients of misrepresenting facts and violating shareholder classification norms.
Following this report, Paytm’s stock value dropped by as much as 8.9%, with neither Paytm nor SEBI responding to Reuters’ request for comments.
The controversy hinges on whether Sharma was to be considered a major shareholder rather than an employee in Paytm’s IPO documentation. SEBI has challenged the directors from that period for endorsing Sharma’s assertion of not being a major shareholder.
SEBI is contemplating rule revisions to tackle issues concerning founders and relatives in tech or app-based startups acquiring shares via the employee stock ownership plan (ESOP).
Sharma’s purported non-adherence enabled him to acquire shares through ESOPs, a practice SEBI disapproves of for founders who possess rights akin to those of significant shareholders, also known as promoters.
In the year leading up to the 2021 public offering, Sharma held a 14.7% stake, which he reduced to 9.1% by transferring 30.97 million shares to Axis Trustee Services on behalf of the Sharma family trust. This transfer qualified him for ESOP shares, as holding over a 10% stake in a publicly listed company disqualifies a shareholder from receiving stock options.
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