Paytm Founder Vijay Shekhar Sharma Faces SEBI Show-Cause Notice Over IPO Breaches

• ByStartupStory     |    August 26, 2024

Vijay Shekhar Sharma, the founder of One 97 Communications Ltd, the parent company of Paytm, has been issued show-cause notices by the Securities and Exchange Board of India (SEBI) regarding alleged breaches during the company’s initial public offering (IPO) in November 2021. The notices also extend to the board members who served during the IPO period, with the primary focus being on the alleged misrepresentation of facts related to promoter classification norms.

The investigation into the matter reportedly received inputs from the Reserve Bank of India (RBI). According to sources familiar with the development, SEBI is scrutinizing whether Vijay Shekhar Sharma should have been classified as a promoter in the IPO documents.

One person in the know commented, “Sebi is taking the view that Sharma should have been classified as a promoter, and it was also the fiduciary duty of board members of the company to verify the accuracy of the claims made by the founder and attest the same.”

The case has raised eyebrows within the regulatory and corporate circles due to its unusual nature. SEBI has historically pursued directors of companies in cases involving financial fraud, but this is one of the rare instances where the regulator is attempting to hold directors accountable for a potential compliance lapse related to promoter classification—a lapse that was not flagged by bankers or statutory auditors.

“Although Sebi has gone after directors of a company in the past, they have been mostly cases of financial fraud. This is one of the rare cases where Sebi is trying to hold the directors responsible for a potential compliance lapse, which was also not pointed out either by bankers or statutory auditors,” added the source.

Another person with knowledge of the case highlighted the timing of SEBI’s actions, noting that the regulator initiated the action nearly three years after the company’s listing. The individual pointed out, “A key issue in the case is that Sebi has initiated action three years after the listing. Sebi had known about the shareholding arrangement ever since the offer document was filed in 2021. In fact, subsequently, proxy advisory firms have also red-flagged the issue. However, Sebi initiated action only after the Paytm Payments Bank saga.”

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