Paytm’s parent company, One97 Communications Limited received a show-cause notice from India’s Enforcement Directorate (ED) on Saturday (March 1). The notice alleges violations of the Foreign Exchange Management Act (FEMA), 1999 related to the acquisition of two subsidiaries – Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL).
The ED’s notice concerns investment transactions involving One97 Communications, LIPL, and NIPL during 2015-2019. The ED identified non-compliance involving approximately ₹245 cr in One97 Communications Limited, ₹345 cr in LIPL, and ₹20.9 cr in NIPL – totaling around ₹611 cr. However, Paytm stated that some alleged violations are attributable to periods before LIPL and NIPL became its subsidiaries.
Speaking of the fintech giant’s response in the matter, the Noida-headquartered company has clarified that it is seeking legal advice to address the same in accordance with applicable laws and regulatory processes. Importantly, Paytm emphasized that this notice does not impact its services to consumers and merchants, which remain fully operational and secure.
At the same time, the company stated that some of the current and former directors and executives of One97 Communications (Paytm) have received official notices. But, as per the company, these notices do not mention any specific financial demand or penalty.
Looking at the matter in detail, in December 2017, Paytm facilitated the merger of Nearbuy India Private Limited (Nearbuy) and Little Internet Private Limited (Little). As part of this acquisition, Paytm invested around $25 million to acquire a majority 51% stake in the merged entity.
Post-merger, Ankur Warikoo remained the CEO of the combined entity until he stepped down in 2019. This acquisition aligned with Paytm’s broader strategy to strengthen its presence in offline commerce. However, in the following years, Paytm shifted its focus towards core financial services. Last year, Vijay Shekhar Sharma-led company sold its Entertainment Ticketing Business to Zomato for Rs 2,048 cr.
Coming back to the recent legal trouble, Paytm’s parent is expected to respond to the ED’s notice by providing necessary explanations or documentation regarding the alleged violations. The outcome will depend on the ED’s assessment of this response and any subsequent legal proceedings.
This is not the first time Paytm has been in hot water. In fact, on January 31, 2024, the company faced a major setback when the RBI ordered Paytm Payments Bank to stop most of its operations due to persistent non-compliance and material supervisory concerns.
