Shares of One 97 Communications, the parent company of Paytm, experienced a sharp decline, dropping 8.88% to Rs 505.25 per share on the Bombay Stock Exchange (BSE).

This significant drop came after reports surfaced that the Securities and Exchange Board of India (Sebi) had issued a show cause notice to Vijay Shekhar Sharma, the company’s founder.

According to a report by Moneycontrol, Sebi's notice was also extended to former board members who were involved in Paytm's initial public offering (IPO) in November 2021.

The notice concerns alleged misrepresentation of facts and non-compliance with promoter classification norms.

The allegations revolve around whether Vijay Shekhar Sharma should have been classified as a promoter during the IPO, given his management control over the company rather than being classified as an employee.

According to the report, Paytm's IPO raised concerns because of Sharma's transfer of 5% of his shares to VSS Holdings Trust, which lowered his stake to 9.6%, just under the 10% threshold required for the company to be classified as "professionally managed" rather than promoter-driven.

Despite the reduction in his stake, Sharma maintained significant control over the company through his board position and management role.

Further complicating matters, the report highlighted that in August 2023, Sharma acquired a 10.3% stake in Paytm through Resilient Asset Management BV, an entity he owns.

This stake was categorized under "Foreign Direct Investment" rather than being combined with his existing holdings.

Sebi also questioned the company's directors for backing Sharma's classification, raising concerns over potential violations of Sebi regulations, particularly around the eligibility of promoters to receive employee stock options (ESOPs) after an IPO.

This latest probe follows earlier actions by the Reserve Bank of India (RBI), which had reviewed Paytm Payments Bank earlier in the year.

In January 2024, the RBI had barred Paytm Payments Bank from accepting fresh deposits due to persistent non-compliance issues and ongoing supervisory concerns.

As of 02:26 PM, Paytm's shares were still trading lower at Rs 532 per share, down 4.06% from previous levels. Meanwhile, the broader market reflected a positive trend, with the BSE Sensex up by 0.83% at 81,760 points.

Paytm has not yet issued any official statement addressing these reports, and Business Standard has been unable to independently verify the information.