SEBI sent the show-cause notice to Paytm’s Sharma and the board members of One 97 Communications Ltd during its IPO in November last year. The insiders said these notices are on alleged fraudulent representation in the IPO documents.

The problem concerns institutional and academic research on Sharma’s non-compliance with promoter classification regulations. The investigation started following an examination conducted by the RBI of Paytm Payments Bank this year, leading to concerns over Sharma’s characterization in the IPO documents. More specifically, the query arises here is whether Sharma ought to have been subjected to the promoter category as he had management control of the company then and was not an employee.

It is important to note that while understanding the difference between the two Performance share schemes, SEBI regulations do not allow promoters to get employee stock options after going public. If Sharma had been a promoter after the IPO, he would not have been allowed to participate in ESOPs. The show-cause notices also encompass the directors of the company at the time asking them how they supported Sharma in classifying himself as an employee and not a promoter while filing for an IPO.

It clearly explains the focus on the regulatory issue arising out of Paytm’s IPO, one of the largest in corporate India. The adverse outcomes of the Sebi notices could be serious, such as being deprived of penalties or some other administrative measures against Sharma and the former directors of One 97 Communications. Nevertheless, emails sent to spokespeople for SEBI and One 97 Communications and the directors involved during the IPO have remained unanswered, thus keeping the matter in the public domain.

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