The troubles of Paytm and Vijay Shekhar Sharma are not ending. Such news is coming one after the other due to which the sentiments of investors are getting very weak. There are reports in the media that market regulator SEBI has issued a show cause notice to Vijay Shekhar Sharma, founder and CEO of digital payment company Paytm. Due to this news, the stock saw a decline of 9 percent during intraday. However, later it improved a bit and it closed at Rs 530 with a decline of 4.25%. Let’s understand, what is the whole matter?
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Market regulator SEBI has sent a show cause notice to Paytm founder Vijay Shekhar Sharma and the Board of Directors in 2021. According to media reports, Vijay Shekhar Sharma has been handed this notice for misrepresenting the facts about the company’s IPO. Along with Vijay Shekhar Sharma, those who were included in the board of the company at the time of IPO have also received the notice. The IPO of Paytm’s parent company One97 Communications Limited came in November 2021. People familiar with the matter said that the market regulator has sent this notice due to violation of rules related to promoters during Paytm’s IPO in November 2021.
According to the report, in the case of Paytm, founder Vijay Shekhar Sharma transferred his 5 per cent stake to VSS Holdings Trust ahead of the IPO, reducing his stake from 14.6 per cent to 9.6 per cent, slightly below the 10 per cent limit. Despite this, Sharma retained significant control through his position on the board and management role.
This notice of SEBI has been sent by Vijay Shekhar Sharma for not complying with the promoter classification rules during the IPO process. He was not listed as a promoter during the IPO, but was on the board of Paytm as a non-retiring director.
According to sources in the media report, SEBI’s notice is focused on the fact that Vijay Shekhar Sharma should have been declared the promoter of the company and it was the duty of the board members to verify the claims of Vijay Shekhar Sharma. SEBI has taken action against Paytm three years after its IPO.
A proxy consultancy firm had raised questions over Vijay Shekhar Sharma’s stake in Paytm’s parent company One97 Communications as well as the ESOPs given to him by the company before the IPO. According to stock exchange disclosures, Vijay Shekhar Sharma is the founder and CEO of One97 Communications, but is not classified as a promoter.
Earlier, in January, the Reserve Bank of India (RBI) had banned Paytm Payments Bank from accepting new deposits. RBI had said that the bank was consistently not following the rules and there were serious monitoring concerns, due to which this step had to be taken.