Paytm shares nosedive 9% after reports of SEBI notice to Vijay Shekhar Sharma

Paytm shares dip: Shares of Paytm nosedived on Monday, falling by 8.88 per cent to a day's low of Rs 505.55 per share on the NSE. The decline in Paytm's stock value is on the back of recent media reports that indicated the capital market regulator of India, the Securities and Exchange Board of India, had issued show-cause notices to founder Vijay Shekhar Sharma and some board members of the company. The notice to the Paytm founder was for allegedly flouting capital market rules during the process of the company's IPO in November 2021.

SEBI's notices are following alleged misrepresentations of facts while going through the IPO process. Media reports suggest the probe was on the basis of inputs from the Reserve Bank of India (RBI), which had scrutinised PPBL earlier this year.

The SEBI probe centres on whether Sharma should have been treated as a promoter at the time of the IPO. The concern has arisen because though Sharma was seen in control of the company then, which could make him ineligible to get ESOPs after the IPO under SEBI rules, the same rules were not applied while issuing ESOPs to him. The regulator has also sought an explanation from the board members who signed off on Sharma's status as a nonpromoter.

Sharma's status as a promoter has been under question from the very beginning, even more so after he recently transferred 5 per cent of his shareholding in the company to a family trust, VSS Holdings Trust, ahead of filing for the IPO documents. Under this arrangement, his stake in One 97 Communications, the company behind Paytm, will drop from 14.6 per cent to 9.6 per cent, making the gap from the 10 per cent majority control level, usually awarded to the company's promoters, quite slim. The transfer didn't, however, significantly dent Sharma's hold over the company – whether through being on the all-powerful board, or through operation control alone.

Apart from this, Sharma had last month entered into an agreement to acquire a 10.3 per cent stake in Paytm from Antfin Holdings (Netherlands) through his owned Resilient Asset Management BV. This was marked as FDI in Paytm's June 2024 shareholding pattern, which raises some questions regarding its classification and how it will treat these stakes, as per media reports.

Paytm shares are already down 18.17 per cent year-to-date and have posted a negative return of 41.20 per cent over the past one year.