Paytm Stock Dips as SEBI Issues Show-Cause Notice to Chairman Vijay Shekhar Sharma
Shares of One97 Communications, the parent company of Paytm, fell sharply on Monday following reports that the Securities and Exchange Board of India (SEBI) issued show-cause notices to its chairman Vijay Shekhar Sharma and former board members. The notices are related to alleged misrepresentations during the company’s initial public offering (IPO) in November 2021.
On the Bombay Stock Exchange (BSE), Paytm’s stock was trading at ₹530.05 per share, down ₹24.45 from the previous close, marking a decline of 4.41%. At one point during the trading session, the stock dropped as much as 8.88% to ₹505.25. The sharp decline reflects growing investor concerns about the regulatory issues facing the company.
Concerns Over Promoter Classification Compliance
The primary issue under scrutiny is related to non-compliance with SEBI’s promoter classification norms. According to SEBI’s Share Based Employee Benefits (SBEB) Regulations, employees eligible for stock options include directors of a company, including non-executive directors, who are not classified as promoters or members of the promoter group. This regulation implies that Sharma, as a promoter, should not have been eligible for employee stock options (Esops) after Paytm’s public listing. SEBI regulations specifically prohibit promoters from receiving Esops post-listing.
The investigation by SEBI is believed to have been initiated based on inputs from the Reserve Bank of India (RBI), which conducted a review of Paytm Payments Bank earlier this year. This indicates that the regulatory scrutiny could be broader than just SEBI’s immediate concerns.
Paytm’s Response to the SEBI Inquiry
In its consolidated financial results for the quarter ending June 30, 2024, Paytm disclosed that it had granted 2.1 crore Esops to its Managing Director and CEO, Vijay Shekhar Sharma, during the financial year ending March 31, 2022. The grant was subject to the achievement of certain specified milestones.
In response to a show-cause notice from SEBI, Paytm has submitted a preliminary response and is seeking further clarification from the regulatory body. The company maintains that it has complied with SEBI regulations, citing an independent legal opinion to support its stance. Paytm stated in its financial report: “The company had received a show cause notice from SEBI related to the above options regarding compliance with SEBI SBEB Regulations. The company had submitted its preliminary response and is in the process of seeking further information from SEBI in this regard.”
Company’s Communication with SEBI
Paytm emphasized that the SEBI inquiry is not a new development and has been disclosed in its quarterly financial results for the first quarter of the current fiscal year and the fourth quarter of the previous fiscal year, 2023-24. Paytm has been in regular communication with SEBI to provide necessary representations and clarify the matter.
In a statement filed with the stock exchange on Monday, Paytm reiterated its compliance with SEBI regulations and stated, “The company is in regular communication with SEBI and making necessary representations regarding this matter.” Despite these reassurances, investor sentiment remained cautious, leading to a continued decline in the stock price.
Impact on Paytm Shares
Paytm’s shares were down 4.47% to ₹530 on the National Stock Exchange (NSE) as well. The stock experienced an intra-day low of ₹505.55, marking an 8.88% decline, mirroring the downward trend observed on the BSE.
The timing of the regulatory scrutiny comes as Paytm prepares for its Annual General Meeting (AGM) next month. Ahead of this meeting, the company has proposed a reduced remuneration framework for its board members, subject to shareholder approval. This proposal, reported by PTI, suggests that Paytm is taking proactive steps to address governance and regulatory concerns, possibly to appease shareholders and restore investor confidence.
Conclusion
The recent decline in Paytm’s stock price reflects the uncertainty and apprehension among investors following SEBI’s show-cause notice to the company’s chairman and former board members. The scrutiny over compliance with promoter classification norms and eligibility for employee stock options has raised concerns about corporate governance and regulatory adherence. As Paytm navigates this regulatory challenge, its communications with SEBI and proactive steps toward transparency will be closely watched by investors and market participants.
