India’s markets regulator has issued a show-cause notice to Paytm founder Vijay Shekhar Sharma and other board members who served during the company’s November 2021 IPO for alleged misrepresentation, Moneycontrol reported on Monday.
The question is whether Sharma should have been classified as a major shareholder who can influence the company’s decisions, rather than an employee, when Paytm filed its IPO papers, the report said, citing two people with knowledge of the matter.
SEBI at the time questioned the directors because they supported Sharma’s view that he was not a major shareholder, the report said.
According to stock exchange data, Sharma is classified as a public shareholder, and not a major shareholder. The data also shows that Paytm has no investors who are categorized as ‘major shareholders’.
“The company is in regular communication with SEBI and making necessary submissions in this regard,” Paytm said, adding that it has already made the notification public in its quarterly earnings report.
According to company disclosures, SEBI alleged that the grant of 21 million employee stock options (ESOPs) to Sharma was in violation of the company’s rules on grant of employee share-based benefits.
Under Indian regulations, large shareholders who can influence corporate decisions are not allowed to own ESOPs.
SEBI did not respond to Reuters requests for comment.
Paytm shares fell as much as 8.9 percent after the report, paring some losses to close down 4.4 percent.
SEBI was planning to amend its rules to address concerns around founders and family members of tech or app startups holding shares under the employee shareholding scheme, Reuters reported in March 2023.
This alleged non-compliance allowed Sharma to receive Paytm shares through ESOPs, Reuters reported. SEBI does not favour founders holding stock options if they have rights similar to those of large shareholders, also known as promoters.
Sharma owned 14.7 percent stake in Paytm a year before going public in 2021, but he reduced his stake to 9.1 percent by transferring 30.97 million shares to Axis Trustee Services, which was acting on behalf of the Sharma family, in 2021, making him eligible for shares under ESOP.
Shareholders with a stake of more than 10 percent in a listed company are not eligible for stock options.
© Thomson Reuters 2024
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