SEBI issues show-cause notice to Paytm founder

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 notice addressed Sharma's non-compliance with shareholder classification norms said the report, which cited two people aware of the matter.

Paytm and the regulator, the Securities and Exchange Board of India, did not respond to Reuters requests for comment. Paytm shares, which were flat before the report, fell as much as 8.9 per cent.

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 issue revolves around whether Sharma should have been classified as a large shareholder, rather than an employee, when Paytm filed its IPO papers, the Moneycontrol report said.

SEBI has questioned directors at the time for backing Sharma's view of not being a large shareholder, it added.

The regulator 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 (ESOP), Reuters reported in March 2023.

This alleged non-compliance allowed Sharma to receive shares through employee stock ownership plans, Reuters reported.

The regulator 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 per cent stake a year before filing to go public in 2021 but reduced his shareholding to 9.1 per cent 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 per cent stake in any publicly-listed company is not eligible to receive stock options.