In one of the recent moves, the Securities and Exchange Board of India (SEBI) has recently issued show-cause notices to Vijay Shekhar Sharma, the founder of One 97 Communications Ltd, which operates Paytm, along with the board members who were involved during the companys Initial Public Offering (IPO) in November 2021. These notices, according to sources familiar with the matter, allege that there was a misrepresentation of facts during the IPO process.Alleged Misrepresentation of Promoter ClassificationAccording to MoneyControl, at the center of SEBIs inquiry is Sharmas classification as a promoter during Paytms IPO. The investigation was triggered by inputs from the Reserve Bank of India (RBI) following its examination of Paytm Payments Bank earlier this year. SEBIs primary concern is whether Sharma, who had significant management control, should have been classified as a promoter rather than an employee at the time of the IPO filing. This classification is crucial because SEBI regulations prohibit promoters from receiving Employee Stock Options (ESOPs) post-IPO.Board Members Under ScrutinySEBIs notices also extend to the directors of One 97 Communications who endorsed Sharmas classification during the IPO. The regulatory body is scrutinizing whether these directors fulfilled their fiduciary duties by verifying the accuracy of the claims made by Sharma. According to one of the sources, SEBIs action against the directors is unusual, as it is one of the rare cases where the regulator is holding directors accountable for a potential compliance lapse that was not flagged by bankers or statutory auditors.The Shareholding DisputeA key aspect of the investigation is Sharmas transfer of a 5% shareholding to a family trust, VSS Holdings Trust, prior to the IPO. Before this transfer, Sharma held a 14.6% stake in One 97 Communications, which decreased to 9.6% after the transfer, just below the 10% threshold that distinguishes a promoter from a non-promoter shareholder. SEBI is examining whether Sharmas actions, including his ongoing role on the board and his control over the company, align with the rules governing promoter classification.Delayed Regulatory ActionMeanwhile, it is important to note that the action from the SEBI has come nearly three years after the IPO, which has also raised questions. Despite being aware of the shareholding structure since the IPO filing in 2021 and subsequent warnings from proxy advisory firms, SEBI only initiated action following the Paytm Payments Bank investigation. This delay has sparked debate over the regulatory bodys approach and timing.Sharmas Recent Share PurchaseIn a recent development, Sharma agreed to purchase a 10.3% stake in Paytm from Antfin Holdings (Netherlands) through Resilient Asset Management BV, an entity owned by Sharma. Interestingly, the stake acquired through this entity has been classified under Foreign Direct Investment as per Paytms June 2024 shareholding pattern. This classification differs from how similar stakes are usually treated, raising further questions about Sharmas role as a promoter.SEBIs actions against Vijay Shekhar Sharma and Paytms board members could set a precedent in how regulatory bodies address potential compliance lapses in IPO filings. As the investigation unfolds, it remains to be seen how this will impact the governance and future of One 97 Communications Ltd.
