The Securities and Exchange Board of India (SEBI) has issued show-cause notices to Vijay Shekhar Sharma, the founder of One 97 Communications Ltd, the parent company of Paytm, along with board members who served during its initial public offering (IPO) in November 2021. The notices are in response to allegations of misrepresentation of facts and non-compliance with promoter classification norms during the IPO process.
Allegations of Misrepresentation
According to reports, SEBI’s inquiry into the matter was prompted by inputs from the Reserve Bank of India (RBI). The regulatory body is questioning why Vijay Shekhar Sharma was not classified as a promoter during the IPO. A person familiar with the situation said, “SEBI believes that Sharma should have been classified as a promoter, and it was the fiduciary duty of the company’s board members to ensure the accuracy of the claims made by the founder.”
The source also noted that while SEBI has targeted company directors in the past, these cases typically involved financial fraud. This situation is unusual because SEBI is holding directors accountable for a potential compliance lapse that neither the bankers nor statutory auditors flagged.
Delayed Action by SEBI
One of the key issues in this case is the timing of SEBI’s action. The regulatory body initiated proceedings three years after the company was listed on the stock exchange. A source noted, “SEBI was aware of the shareholding arrangement when the offer document was filed in 2021. Proxy advisory firms also highlighted the issue later. However, SEBI only took action after concerns emerged related to Paytm Payments Bank.”
The timing of SEBI’s intervention has raised questions, especially given the delay in addressing these compliance issues. This case highlights the growing scrutiny on corporate governance and the responsibilities of board members to ensure transparency and adherence to regulatory norms.
Broader Implications for Corporate Governance
The show-cause notice to Vijay Shekhar Sharma and the former board members of Paytm serves as a reminder of the importance of strict compliance with regulatory standards, especially during IPO processes. The outcome of this case could set a precedent for how SEBI handles similar issues in the future, particularly in terms of holding company directors accountable for compliance lapses.
As the investigation continues, the focus will be on how Paytm and its leadership respond to these allegations and whether any changes will be made to address the concerns raised by SEBI.
