The Securities and Exchange Board of India (SEBI) has prohibited Paytm founder and CEO Vijay Shekhar Sharma from receiving any new Employee Stock Options (ESOPs) from listed companies for three years. This decision follows a settlement concerning violations related to ESOP allocations ahead of Paytm’s 2021 Initial Public Offering (IPO).
Background of the Violation
In October 2021, Paytm’s parent company, One97 Communications, granted 21 million ESOPs to Sharma. SEBI determined that this allocation breached regulations, as individuals with significant influence over company decisions are not permitted to receive ESOPs. To circumvent this, Sharma reduced his stake from 14.7% to 9.1% by transferring shares to Axis Trustee Services, representing the Sharma family trust. Despite this, SEBI concluded that Sharma maintained substantial control over the company, rendering the ESOP grant non-compliant.
Settlement Terms
As part of the settlement:
- Sharma agreed to forgo the 21 million ESOPs.
- Both Sharma and One97 Communications paid penalties of ₹1.11 crore each.
- Sharma’s brother, Ajay Shekhar Sharma, also settled by cancelling 222,862 ESOPs, paying a fine of ₹57.11 lakh, and disgorging ₹35.86 lakh from the sale of shares obtained through exercised options.
Financial Impact on Paytm
The cancellation of Sharma’s ESOPs led to a one-time charge of ₹4.92 billion for Paytm in the March 2025 quarter. This contributed to a wider sequential loss of ₹5.4 billion, compared to ₹2.08 billion in the previous quarter. The Economic Times
Regulatory Implications
SEBI’s action underscores the importance of adherence to corporate governance norms, especially concerning share-based employee benefits. The regulator emphasized that promoters and individuals with significant influence should not receive ESOPs, ensuring transparency and fairness in corporate practices.