Market regulator Securities and Exchange Board of India (SEBI) has barred Paytm founder and chief executive officer (CEO) Vijay Shekhar Sharma from accepting stock options from any listed company for next three years, following a high-profile settlement in a case involving alleged regulatory violations in employee stock options (ESOPs) allocations by One97 Communications Ltd (Paytm). After receiving a notice from SEBI alleged violations of share-based benefit regulations, Mr Sharma, last month, voluntarily surrendered ESOPs worth over Rs1,800 crore.
SEBI’s investigation centred on the grant of 21mn (million) or 2.1 crore ESOPs to Mr Sharma in October 2021 and over 22mn (2.2 lakh) ESOPs to his brother Ajay Shekhar Sharma in 2022, allegedly in violation of SEBI's Share-Based Employee Benefits and Sweat Equity (SBEB) Regulations.
SEBI alleged that the Paytm founder declassified himself as a non-promoter on 12 July 2021, just three days before the company filed its initial public offering (IPO) offer documents. The regulator contended that there was no substantive change in his influence or control over Paytm and that he had transferred a portion of his equity to a family trust controlled by him to retain indirect control while circumventing the SEBI regulations.
According to SEBI, this manoeuvre allowed Mr Sharma to become eligible for a disproportionately large allocation of ESOPs, in violation of Regulation 2(1)(i)(iii) of the SEBI SBEB Regulations.
The SEBI investigation further observed that Paytm misrepresented Mr Sharma’s promoter status in its offer documents and failed to provide the necessary disclosures related to promoter contributions, lock-in requirements, and other mandatory declarations. Ahead of the listing, Mr Sharma reduced his shareholding from 14.7% to 9.1% by transferring nearly 31mn or 3.1 crore shares to Axis Trustee Services, which acted on behalf of his family trust, making him eligible for the ESOP allocation.
The order also noted that Mr Sharma, as founder and managing director, held a position of influence over the nomination and remuneration committee (NRC) and was in a position to sway decisions regarding ESOP allocations, including those granted to his brother. Notably, the ESOPs granted to his brother Ajay had earlier been cancelled citing legal restrictions related to promoter groups, only to be reissued under questionable circumstances.
In response to the show-cause notice (SCN) issued by SEBI in February 2024, One97 Communications and the Sharma brothers submitted separate settlement applications without admitting or denying the findings. The settlement terms, approved by SEBI’s high-powered advisory committee (HPAC) and accepted by the applicants in March 2025, included the cancellation of all ESOPS in question.
The Paytm founder agreed to forgo 21mn ESOPs and pay a settlement amount of Rs1.11 crore, along with a three-year ban from accepting ESOPs in any listed company. Ajay Shekhar Sharma forfeited 22.2mn ESOPs, paid a settlement amount of Rs57.11 lakh, and disgorged Rs35.86 lakh earned through the sale of 3,720 shares obtained via exercised options. Paytm itself agreed to pay Rs1.11 crore and confirmed the cancellation of the relevant ESOPs.
SEBI confirmed that the applicants had complied with the monetary and non-monetary terms of the settlement, with payments received in April 2025. The regulator stated that no further action would be initiated for the violations mentioned, unless representations made during the settlement were later found to be untrue or misleading. The order has come into force with immediate effect.
Last month, in a regulatory filing Paytm says Mr Sharma has voluntarily surrendered 21mn ESOPs previously granted to him under the One 97 Employees Stock Option Scheme, 2019. The company stated, "Mr Sharma has informed us that he has decided to forgo all 21mn crore ESOPs with immediate effect."
The disclosure was made following a meeting of the NRC of the company’s board held on 16 April 2025. Some of the unvested stock options have been cancelled, while the rest have been returned to the company’s ESOP pool. Based on Paytm’s share closing price of Rs864.50, the surrendered options are valued at Rs1,815.45 crore.
This decision will result in a one-time, non-cash ESOP expense of Rs492 crore in Q4FY24-25, the company added, with corresponding cost savings in the years to come.
