ED issues show cause notices to PayTm, its subsidiaries for ₹611-cr FEMA violation

The Directorate of Enforcement (ED) has issued show cause notices (SCNs) to Paytm’s flagship company, One 97 Communication Ltd (OCL), its Managing Director, and other subsidiaries for violating provisions of the Foreign Exchange Management Act (FEMA), 1999, to the tune of around ₹611 crore.

The ED said its investigation revealed that Paytm’s flagship company OCL had made foreign investment in Singapore and did not file the necessary reporting to the Reserve Bank of India for the creation of an overseas step-down subsidiary.

Other than that, the OCL had also received Foreign Direct Investment (FDI) from overseas investors without following the proper pricing guidelines stipulated by the RBI, the ED charged.

OCL’s subsidiary company in India, Little Internet Pvt Ltd, had also received FDI from overseas investors without following the pricing guidelines stipulated by RBI, the probe agency alleged.

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Likewise, Nearbuy India Pvt Ltd, another subsidiary of OCL, allegedly did not report the FDI received by the company within the time frame prescribed by the RBI.

On February 27, the Show Cause Notice (SCN) was issued by the Special Director of Enforcement (Adjudication), New Delhi, to OCL, its Managing Director and other Paytm subsidiary companies viz. Little Internet Pvt Ltd and Nearbuy India Pvt Ltd, for contraventions of the provisions of FEMA, 1999, to the tune of around ₹611 crore.

The SCN has been issued to initiate adjudication proceedings against PayTm’s companies under the FEMA 1999.

A Paytm spokesperson said, “We are working towards resolving the matter in accordance with applicable laws and regulatory processes. We remain committed to strengthening processes in adherence and upholding the highest standards of compliance and governance.”

PayTm informed the National Stock Exchange on March 1 that it has received a SCN from the ED on alleged “contraventions for the years 2015 to 2019 of certain provisions” of the FEMA by the company during acquisition of two subsidiaries; namely Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL”) erstwhile Groupon, along with certain directors and officers.

Giving its side of the story, the company said the allegations against the company relate to compliance with FEMA regulations in relation to its investments in Little Internet Pvt Ltd and NearBuy India Pvt Ltd.

“Certain alleged contraventions attributable to two acquired companies – Little Internet Pvt Ltd and NearBuy India Pvt Ltd – pertain to a period when these were not subsidiaries of the company,” the PayTm said in its defence.

To resolve the matter in accordance with applicable laws and regulatory processes, the company is seeking necessary legal advice and evaluating appropriate remedies, the company informed.

Paytm said it upholds the principles of transparency, governance, and compliance in all its business practices.

“This matter is being addressed with a focus on resolving it in accordance with applicable laws. There is no impact of this matter on Paytm’s services to its consumers and merchants, and all services are fully operational and secure, as always,” Paytm observed.