SEBI Bars Paytm CEO Vijay Shekhar Sharma
SEBI Bars Paytm CEO Vijay Shekhar Sharma
In a significant regulatory development, the Securities and Exchange Board of India (SEBI) has barred Paytm founder and CEO Vijay Shekhar Sharma from accepting new Employee Stock Option Plans (ESOPs) from any listed company for a period of three years. The move comes after SEBI found violations of its rules in the way Paytm's parent company, One97 Communications, granted ESOPs to Sharma and other top executives.
This decision not only marks a major turning point in Paytm’s corporate journey but also sends a clear message to India’s startup and tech ecosystem—regulatory compliance is not optional, even for the most celebrated entrepreneurs.
Background: The Rise of Paytm and Sharma’s Role
Vijay Shekhar Sharma, once hailed as one of India’s most visionary entrepreneurs, founded Paytm in 2010. From a modest start as a mobile recharge platform, Paytm evolved into one of India’s leading digital payment and fintech giants. Sharma’s charisma and relentless push for innovation helped turn Paytm into a household name, especially after demonetization in 2016 gave digital payments a strong tailwind.
With such a dramatic rise, it was expected that Sharma and his top lieutenants would be rewarded through equity-based incentives such as ESOPs. However, as it turns out, some of these rewards did not adhere to the rulebook.
What Went Wrong?
SEBI’s investigation uncovered that One97 Communications had issued approximately 21 million ESOPs to Sharma in October 2020 and May 2021. This move raised red flags as it violated SEBI's rules which prohibit granting ESOPs to promoters of a listed company. At the time, Sharma was categorized as a promoter and thus was not eligible to receive these ESOPs under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations.
In addition to Sharma, Paytm’s Chief Business Officer Ajay Shekhar Sharma—also his brother—was implicated in the same probe. SEBI found that the issuance and subsequent monetization of some ESOPs were not only in breach of regulations but also lacked appropriate disclosure and governance standards.
The Settlement with SEBI
Rather than contesting the matter through a prolonged legal battle, Sharma, Ajay Shekhar Sharma, and One97 Communications chose to settle with SEBI.
As part of the settlement:
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Vijay Shekhar Sharma paid ₹1.11 crore to SEBI in settlement charges.
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Ajay Shekhar Sharma paid ₹57.11 lakh as settlement amount.
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Additionally, Ajay disgorged ₹35.8 lakh, representing profits from the sale of 3,720 shares he had received via the disputed ESOPs.
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The 21 million ESOPs issued to Vijay were also cancelled by the company.
Though the settlement allowed them to close the case without admitting or denying wrongdoing, SEBI still imposed the critical restriction that bars Vijay Shekhar Sharma from accepting new ESOPs from any listed company for the next three years.
The IPO Controversy
Perhaps the most troubling revelation from SEBI’s investigation was the allegation that Sharma transferred a portion of his equity to a family trust just days before Paytm's initial public offering (IPO). This move, according to SEBI, may have been an attempt to circumvent regulations and retain over 10% control of the company—something that is subject to additional scrutiny under listing norms.
Such actions raise uncomfortable questions about corporate governance at one of India’s most high-profile startups. Was the intent truly to optimize succession planning, as is often claimed when trusts are formed, or was it a strategic play to bend the rules and maintain control?
Implications for Indian Startups
This case holds valuable lessons for India’s burgeoning startup ecosystem. As many unicorns look to list on stock exchanges and scale globally, the pressure to adhere to regulatory frameworks is stronger than ever.
Startups, especially those transitioning into publicly listed entities, must evolve from founder-led cultures to board-driven governance structures. This includes strict adherence to SEBI guidelines, full transparency in equity distributions, and ensuring that shareholder interests are not compromised by internal decisions.
What’s Next for Paytm?
Paytm has been under investor and public scrutiny ever since its lackluster IPO in 2021, which was among the biggest in India’s history but also one of the most disappointing in terms of post-listing performance. The recent regulatory setback further challenges the company’s leadership as it navigates a competitive fintech landscape and attempts to regain investor confidence.
Vijay Shekhar Sharma remains at the helm of Paytm, but the three-year ban on accepting ESOPs is likely to impact his future compensation structure and influence within the company. Meanwhile, SEBI's actions could set a precedent for how future ESOP irregularities are handled in other listed tech companies.
Conclusion
The SEBI order against Paytm’s top leadership underscores a critical shift in India’s corporate and regulatory environment. Founders, no matter how influential, are not above the law. The message is loud and clear—transparency, accountability, and strict adherence to regulations are non-negotiable in the public market arena.
For Paytm and Vijay Shekhar Sharma, this may be a moment of reckoning, but also an opportunity to reform and rebuild trust.