Paytm Shares Tumbles 8% On NSE After VIjay Shekhar Sharma Receives Show-Cause Notice From SEBI

The shares of One97 Communication, the parent company of digital payment giant Paytm, tumbled by more than 8 per cent after Vijay Shekhar Sharma, the founder of Paytm, has received show-cause notices from the Securities and Exchange Board of India (SEBI).

The stock opened at Rs 559.80 per share on the national stock exchange. The shares of One97 Communications tumbled down and touched a day-low of Rs 505.55 per share on the Indian exchanges.

The stock has a 52-week high price of Rs 998.30 per share on October 30, 2023. The shares also recorded an all-time high level of Rs 1,955.00 per share on the national stock exchange.

Promotor classification guidelines

The notices concern Sharma's supposed failure to follow promoter classification guidelines. The Reserve Bank of India (RBI), which had looked into Paytm Payments Bank earlier this year, provided information that led to the investigation's inception.

The central question in this case is whether Sharma, who had management control over the company at the time of filing the IPO documents, should have been considered a promoter instead of an employee.

According to report, Sebi then sent show-cause notices to the directors of the company, questioning them about their support of Sharma's position.

Promotor is not eligible for ESOPs

According to report, Sharma would not have been eligible for employee stock options (ESOPs) following the listing because promoters are not allowed to receive ESOPs after an initial public offering (IPO) per Sebi regulations.

'Professionally managed' companies

The general assumption is that all listed companies are promoter-driven, unless they explicitly declare themselves to be 'professionally managed.' No shareholder should own more than 10 per cent of the company in order for it to qualify as professionally managed, nor should any one shareholder be in a position of-control.

Prior to submitting the IPO paperwork for Paytm, Sharma gave 5 per cent of his ownership stake to the VSS Holdings Trust, a family trust.

Sharma owned 14.6 per cent of One 97 Communication prior to the transfer. Following the transfer, Sharma's shareholding decreased to 9.6 per cent, which is slightly less than the 10 per cent rule.