The Enforcement Directorate (ED) on Monday announced that it has issued a show cause notice to Paytm’s parent company, One 97 Communications Limited (OCL), its managing director, and its associated entities for alleged violations of the Foreign Exchange Management Act (FEMA). The alleged contravention amounts to approximately Rs 611 crore, according to the federal agency.
As per Paytm’s latest annual report for the financial year 2024, Vijay Shekhar Sharma, the fintech giant’s founder, serves as the chairman, managing director (MD), and chief executive officer (CEO) of the company. The notice, issued by a special director of the Enforcement Directorate, follows the conclusion of an extensive investigation and precedes the initiation of adjudication proceedings under FEMA.
A spokesperson for Paytm responded to the development, stating that the company is committed to resolving the matter in compliance with applicable laws and regulatory protocols. The spokesperson further emphasized Paytm’s dedication to ensuring adherence to all legal and regulatory standards.
According to the ED’s official statement, the show cause notice has been directed not only at OCL but also at its MD and several subsidiary companies, including Little Internet Pvt Ltd (LIPL) and Nearbuy India Pvt Ltd (NIPL). The alleged violations involve foreign investments made in Singapore by OCL, for which the company reportedly failed to submit necessary documentation to the Reserve Bank of India (RBI) regarding the establishment of an overseas step-down subsidiary.
Furthermore, the investigation found that OCL had received foreign direct investment (FDI) from overseas investors but did not adhere to the pricing guidelines set forth by the RBI, thereby violating FEMA regulations. The ED’s inquiry also revealed that Little Internet Pvt Ltd, an Indian subsidiary of OCL, received FDI from foreign investors without complying with the RBI’s pricing guidelines. Additionally, another subsidiary, Nearbuy India Pvt Ltd, allegedly failed to report the FDI received within the RBI-mandated timeframe, further compounding the company’s regulatory lapses.
In a regulatory filing made on March 1, Paytm acknowledged receiving a notice from the ED regarding alleged violations of FEMA regulations. The company clarified that the notice pertains to transactions involving its subsidiaries—Little Internet Pvt Ltd and Nearbuy India Pvt Ltd. However, Paytm also pointed out that the transactions in question occurred during a period when the two companies were not yet its subsidiaries, as Paytm had only acquired them in 2017.
Providing a breakdown of the alleged violations, the company disclosed that transactions associated with OCL amounted to over Rs 245 crore, while those linked to Little Internet Pvt Ltd were valued at approximately Rs 345 crore. Transactions involving Nearbuy India Pvt Ltd were estimated at Rs 21 crore, bringing the total alleged contravention under FEMA to around Rs 611 crore.
In its official statement, Paytm reiterated its commitment to compliance and governance, assuring stakeholders that it is actively working toward resolving the issue with the authorities. “We are working towards resolving the matter by applicable laws and regulatory processes. We remain committed to strengthening processes in adherence and upholding the highest standards of compliance and governance,” a company spokesperson stated.
Following reports of the ED’s notice, Paytm’s stock took a significant hit in the market, plunging by more than 4 percent. The development has raised concerns among investors as regulatory scrutiny continues to mount on the fintech giant. While Paytm is seeking to resolve the issue through legal and regulatory channels, the case underscores the importance of strict adherence to RBI guidelines and FEMA regulations in foreign investment transactions.
With the adjudication process yet to begin, the matter remains under close observation as both the Enforcement Directorate and Paytm navigate the legal complexities surrounding the alleged financial irregularities. The outcome of this case will likely have broader implications for regulatory compliance in India’s rapidly evolving fintech sector.