Paytm Shares Drops 2% After SEBI Settlement; Vijay Shekhar Sharma Surrenders Stock Options

Vijay Shekhar Sharma, the founder of Paytm, and his brother Ajay Shekhar Sharma, in connection with One97 Communications, have concurred to settle a dispute with the Securities and Exchange Board of India (Sebi) by paying ₹2.79 crore.

This settlement comes after Sebi pointed out discrepancies in the facts presented by them and breaches concerning shareholder classification rules. Specifically, Vijay Shekhar Sharma had designated himself as a non-promoter of One97, the parent company of Paytm, during its initial public offering (IPO), which was at the heart of the regulatory scrutiny.

Settlement Mechanism and Compliance

The Sharma siblings and One97 Communications have entered into a settlement mechanism with Sebi, an arrangement allowing parties accused of regulatory infringements to resolve their issues without admitting or denying the accusations. This involves a monetary settlement or the implementation of certain remedial actions. As part of this settlement, Vijay and Ajay Shekhar Sharma have decided to relinquish their respective employee stock options (Esops) - 21 million for Vijay and 225,000 for Ajay. Moreover, Vijay has committed not to acquire any new Esops for the forthcoming three years, while Ajay is to pay Sebi ₹35 lakh.

Paytm Share Price Update

Paytm shares today are trading at Rs. 853.85 at the time of writing, slipping 1.28% intraday. Over the past five days, the stock has dropped 7.84%, extending its downward trend with a 15.17% fall in the past month. The six-month performance shows a steep 22.65% decline, and year-to-date, the stock has lost 13.53%.

Stake Ownership and Share Transfer

The core of the dispute revolved around whether Vijay Shekhar Sharma should have been classified as a promoter instead of merely an employee in the lead-up to Paytm's IPO. His status as a non-promoter initially enabled him to be granted Esops just before Paytm became a publicly traded entity in 2021, a move that contravened regulations prohibiting Esops issuance to promoters. Following this, Vijay Shekhar Sharma reduced his stake in the company from 14.7% in 2021 to below 10% by transferring 30.9 million shares to Axis Trustee Services on behalf of the Sharma Family Trust, thus qualifying for the Esops under the revised shareholding structure. Sebi also scrutinized the company’s independent directors for endorsing Vijay's stance during this period.

One97 Communications informed stock exchanges about the board meeting that took place, lasting from 5:05 pm to 5:18 pm on a Wednesday, where it was disclosed that Vijay Shekhar Sharma voluntarily surrendered all 21 million Esops awarded to him in 2019, effective immediately. Following this decision, the unvested Esops were considered cancelled and returned to the Esop pool under One 97 Employees Stock Option Scheme, 2019. This action will lead to a one-time, non-cash Esop expense acceleration of ₹492 crore in the fourth quarter of the fiscal year 2025, with a corresponding decrease in Esop expenses in the future years.

The legal representation for One97 was managed by Finsec Law Advisors, whereas the Sharma brothers were represented by Regstreet Law. Despite the allegations and the subsequent settlement, neither Sebi nor Paytm responded to queries regarding the matter.