Shares of Paytm’s parent company One 97 Communications nosedived on Monday after the Securities and Exchange Board of India (SEBI) reportedly served showcause notices to founder Vijay Shekhar Sharma and its board of directors.

What Happened: The notices have been served over the alleged misrepresentation of facts during the company’s IPO in November 2021, Moneycontrol said.

The investigation was triggered based on inputs from the Reserve Bank of India (RBI), which had scrutinised Paytm Payments Bank earlier this year, the report added.

The crux of the issue is whether Sharma should have been identified as a promoter, considering his management control, instead of an employee while submitting the IPO documents. Consequently, SEBI also issued showcause notices to the company’s directors at that time, questioning them for supporting Sharma’s position.

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If Sharma had been identified as a promoter, he would have been disqualified from receiving employee stock options (ESOPs) post the listing, as SEBI rules forbid promoters from obtaining ESOPs after an IPO.

SEBI is of the opinion that Sharma should have been classified as a promoter, and it was also the fiduciary responsibility of the company’s board members to verify the truthfulness of the founder’s claims and certify the same.

This is one of the rare instances where SEBI is attempting to hold the directors accountable for a potential compliance lapse, which was also not flagged by either bankers or statutory auditors.

Price Action: Shares of Paytm were down 6.43% at ₹519.20 on Monday.

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