India’s markets regulator has issued show-cause notices to Paytm founder Vijay Shekhar Sharma and other board members who held roles during the firm’s November 2021 IPO over alleged misrepresentation of facts, Moneycontrol reported on Monday.
The issue revolves around whether Sharma should have been classified as a large shareholder who can influence company decisions, rather than an employee, when Paytm filed its IPO papers, the report said, citing two people aware of the matter.
SEBI has questioned directors at the time for backing Sharma’s view of not being a large shareholder, the report said.
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.”
“The company is in regular communication with the SEBI and making necessary representations regarding this matter,” Paytm said, adding it has already disclosed the notice in its quarterly earnings filing.
According to company disclosures, SEBI alleged that grant of 21 million employee stock options (ESOPs) to Sharma were in violation of its rules on grant of shares-based employee benefits.
As per Indian rules, large shareholders with ability to influence company decisions cannot hold ESOPs.
The SEBI did not respond to Reuters requests for comment.
Paytm shares fell as much as 8.9% after the report. They pared some losses to close down 4.4%.
SEBI was planning to change its rules to address concerns around founders and family members of tech or app-based startups owning shares under the employee stock ownership plan, Reuters reported in March 2023.
This alleged non-compliance allowed Sharma to receive Paytm shares through ESOPs, Reuters reported. SEBI is not in favour of founders owning stock options if they have rights similar to big shareholders, also called promoters.
Sharma owned a 14.7% stake in Paytm a year before filing to go public in 2021 but reduced his shareholding to 9.1% by transferring 30.97 million shares to Axis Trustee Services, acting on behalf of the Sharma family trust in 2021, making him eligible to receive shares under ESOP.
A shareholder with more than a 10% stake in any publicly listed company is not eligible to receive stock options.
Reuters
