Shares of One 97 Communications fell 8.88 percent to Rs 505.25 on the BSE following rumours that the chief market regulator has given show cause notice to the company’s founder, Vijay Shekhar Sharma.
The founder of One97 Communications, the parent firm of Paytm, Vijay Shekhar Sharma, has received show-cause notifications from the Securities and Exchange Board of India (Sebi), according to a Moneycontrol report.
“The former board members who participated in its November 2021 IPO have also received notification. The notices pertain to purported factual misrepresentations and non-adherence to promoter classification guidelines,” those with knowledge of the situation were cited in the Moneycontrol report.
The report could not be independently verified by Business Standard. One97 Communications has not provided any clarification as of yet.
The Reserve Bank of India (RBI), which examined Paytm Payments Bank earlier this year, provided input for this investigation.
According to media reports, the primary concern is whether Sharma’s management authority during the IPO should have qualified him as a promoter rather than an employee.
A company is usually seen as promoter-driven unless it is categorised as “professionally managed.” No shareholder should own more than 10% of the company, and no one should have control, for the business to be considered competently managed.
In the case of Paytm, founder Vijay Shekhar Sharma moved 5% of his shares to VSS Holdings Trust prior to the IPO, lowering his ownership from 14.6% to 9.6%, which is slightly less than the 10% barrier. The audit also stated that in spite of this, Sharma continued to have a great deal of control due to his management and board positions.
Moreover, Sharma purchased a 10.3% share in Paytm in August 2023 through Resilient Asset Management BV, another company he owns. Rather than being combined with Sharma’s other assets, this investment was categorised as “Foreign Direct Investment,” according to the report.
The directors of the company have also come under fire from Sebi for endorsing Sharma’s position. Notably, Sharma’s eligibility for employee stock options (ESOPs) may have been influenced by Sebi laws that forbid promoters from earning ESOPs following an IPO.
The Reserve Bank of India has prohibited Paytm Payments Bank from accepting new deposits earlier in January of this year. According to the RBI, the move was prompted by the bank’s ongoing material supervisory concerns and chronic non-compliances, which called for additional supervisory action.
The company’s shares were trading 4.06 percent lower at Rs 532 per share on the BSE at 02:26 PM. In contrast, the BSE Sensex increased by 0.83 percent to 81,760 points.