Paytm Approaches RBI to Settle Alleged FEMA Violations
Paytm seeks resolution of alleged Foreign Exchange Management Act (FEMA) breaches through a compounding application with the Reserve Bank of India (RBI).
Paytm, through its parent company One97 Communications, has reportedly filed a compounding application with the Reserve Bank of India (RBI) to settle a case related to alleged violations of the Foreign Exchange Management Act (FEMA). This comes after the company received a show cause notice from the Enforcement Directorate (ED) earlier this year.
Compounding Process and Legal Proceedings
The compounding process is a voluntary approach in which an entity admits to its violations, accepts responsibility, and seeks to settle the issue by paying a monetary penalty. Paytm has requested the ED to hold off on formal legal proceedings while the RBI reviews the application. If approved, the matter may be resolved without the need for further legal actions.
- Compounding Process: Paytm seeks to settle the matter by paying a penalty under the compounding process.
- RBI’s Discretion: The RBI will have the final say in approving or rejecting the application.
Alleged FEMA Violations and Details of the Case
In March 2023, Paytm received the show cause notice from the ED, alleging violations of foreign exchange norms related to transactions totaling INR 611.17 Cr. The notice primarily relates to Paytm’s acquisitions of Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL), which occurred between 2015 and 2019.
- Transaction Breakdown: The alleged violations are broken down as follows:
- One97 Communications: INR 245.2 Cr
- LIPL: INR 344.99 Cr
- NIPL: INR 20.97 Cr
The notice was issued not only to One97 Communications but also to the two subsidiaries and several current and past directors and officers involved in these transactions.
Paytm’s Ongoing Legal Cleanup
Paytm has been actively working to resolve its pending litigations. Most recently, Vijay Shekhar Sharma, the company’s founder, settled a case with the Securities and Exchange Board of India (SEBI) regarding violations tied to employee stock options (ESOPs). As part of the settlement, Sharma was barred from accepting new ESOPs for three years and paid a penalty.
- Legal Settlements: Paytm has been involved in multiple settlements, including paying INR 45.5 Lakh to resolve a case related to a technical glitch framework and paying INR 1.8 Cr to settle a GST-related case.
Paytm’s Financial Struggles
Despite settling several legal matters, Paytm continues to face financial challenges. In the Q4 FY25, the company reported a net loss of INR 544.6 Cr, a 1% year-on-year decline. The quarterly loss grew by 118% from Q3 FY25, and its operating revenue shrank by 19% compared to the same quarter in the previous year.
- Financial Results: Net loss of INR 544.6 Cr for Q4 FY25.
- Revenue Decline: Operating revenue fell by 19%, from INR 2,267.1 Cr in Q4 FY24 to INR 1,911.5 Cr in Q4 FY25.
