One97 Communications Ltd, owner of the Paytm brand, its CEO Vijay Shekhar Sharma and his brother Ajay Shekhar Sharma on Thursday settled with markets regulator SEBI a case pertaining to the company’s Employee Stock Options (ESOPs) by paying a total amount of Rs 2.8 crore.

As a part of the settlement, Vijay Sharma will not accept any fresh ESOPs from any listed company for a period of 3 years, according to an order passed by SEBI. In addition, SEBI has directed One97 Communications (OCL) to cancel ESOPs granted to the two brothers. Accordingly, ESOPs of 2.1 crore and 2.23 lakh granted to Vijay and Ajay respectively were cancelled.

Last month, Vijay Sharma voluntarily surrendered 2.1 crore shares worth about Rs 1,800 crore, One97 Communications stated in a regulatory filing. Further, OCL and Vijay Sharma remitted Rs 1.11 crore each, while Ajay Sharma paid Rs 57.11 lakh to settle the matter.

Further, SEBI disgorged Rs 35.86 lakh from Ajay Sharma with respect to the sale of 3,720 OCL shares obtained upon exercise of the ESOPs. The order came after OCL and the two brothers approached SEBI proposing to settle the pending proceedings through a settlement order “without admitting or denying the findings of fact and conclusions of law”.

The matter relates to the eligibility of Vijay Sharma to receive Employee Stock Options of One97 Communications. The Securities and Exchange Board of India (SEBI) had conducted an examination in the matter of OCL and two brothers regarding the eligibility of Vijay Shekhar Sharma to receive ESOPs of the company.

The regulator noted that OCL had granted 2.1 crore ESOPs to Vijay Sharma in October 2021 and 2.26 lakh ESOPs to Ajay Sharma in May 2022. Following the examination, a Show Cause Notice (SCN) was issued to them in February 2024. In its show cause notice, Vijay Sharma was allegedly disclosed as the promoter of One97 Communications in the annual returns of the company filed with the Registrar of Companies prior to the FY 2020-21.

There was no material change in his rights or influence over the management of the company but Vijay Sharma declassified himself as non-promoter on July 12, 2021 just before filing of IPO documents by OCL on July 15, 2021.

Further, Vijay Sharma allegedly created such a scheme through arrangement of transfer of a portion of his equity in OCL to a family trust — created a few days prior to filing of offer documents for IPO by OCL– controlled by him so that he could continue to exercise control over more than 10 per cent equity of OCL directly and indirectly and circumvent the provisions of the SEBI (Share Based Employee Benefits and Sweat Equity) norms for getting arbitrarily huge number of ESOPs to himself to the detriment of public shareholders.

OCL allegedly allowed such actions by Vijay Sharma to circumvent norms. Also, Vijay Sharma had special rights by virtue of his position as founder of OCL and he was also the Managing Director of OCL. Hence, it is alleged that he was in a position to influence the decision-making of the Nomination and Remuneration Committee while approving grant of ESOPs to himself and his brother Ajay.

It is further alleged that ESOPs granted to Ajay Sharma were under the influence of Vijay Sharma as just 10 months ago, the ESOPs granted to Ajay were cancelled citing that the Companies Act prohibits issuance of ESOPs to promoter Group and SEBI’s definition of promoter group includes family members.

OCL and Vijay Sharma allegedly made incorrect disclosures in the offer documents by disclosing Vijay as a non-promoter public shareholder. Vijay Sharma had not provided the necessary disclosures required to be given by the promoter of a company, including promoters’ contribution and lock-in period, profile of the promoter and declarations to be submitted to the stock exchanges, details of payment or benefit to promoter, SEBI alleged. 

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