Context:
Vijay Shekhar Sharma, his brother Ajay Shekhar Sharma, and One97 Communications (owner of Paytm) have agreed to pay a total of ₹2.79 crore as a settlement amount to the Securities and Exchange Board of India (SEBI). The settlement comes after SEBI accused them of misrepresenting facts and violating shareholder classification norms during Paytm’s IPO.
Settlement Terms
- Vijay Sharma has forgone 21 million ESOPs granted to him in 2019.
- Ajay Sharma has forgone 225,000 stock options and will disgorge ₹35 lakh to SEBI.
- Vijay has agreed not to accept any new ESOPs for the next three years.
- This settlement is part of SEBI’s settlement mechanism, allowing individuals and entities to resolve regulatory breaches without admitting or denying guilt, through a monetary fee or corrective measures.
Specifics of the Violation
- Vijay Shekhar Sharma had initially identified himself as a non-promoter when Paytm went public, but SEBI argued that he should have been classified as a promoter.
- By classifying himself as a non-promoter, he was eligible to receive ESOPs, a practice not permitted for promoters according to SEBI regulations.
- Vijay’s ownership of 14.7% in Paytm at the time of the IPO was later reduced to below 10% by transferring 30.9 million shares to the Sharma Family Trust.
Employee Stock Ownership Plan (ESOP)
ESOP stands for Employee Stock Ownership Plan. It’s a plan where employers give their employees the option to purchase company stock, often at a discounted price or with a specific vesting period. This allows employees to become partial owners of the company and potentially benefit from its growth.
Impact of the Settlement
- One97 Communications reported that Vijay’s forfeited ESOPs have been cancelled and returned to the ESOP pool under the One97 Employees Stock Option Scheme, 2019.
- This will result in a non-cash acceleration of ESOP expense of ₹492 crore in Q4 FY25, with an equivalent reduction in future ESOP expenses.
Legal Representation
- Finsec Law Advisors represented One97 Communications before SEBI.
- The Sharma brothers were represented by Regstreet Law.
Background on the Case
- SEBI questioned whether Vijay Shekhar Sharma should have been classified as a promoter instead of an employee when Paytm filed its IPO documents.
- The case involves alleged non-compliance in the issuance of ESOPs to promoters, with independent directors also questioned for supporting Vijay’s stance.
