Why ED sent Rs 611 cr FEMA violation show cause notice to Paytm parent company

Directors & those managing the finances of OCL & its affiliated firms, who have been served the notices, have to appear before the ED investigating officers, it is learnt.

Paytm headquarters in Noida | Wikimedia Commons

New Delhi: The Enforcement Directorate has initiated proceedings against One97 Communications Limited (OCL)—the parent firm of Paytm—its affiliated firms and their managing directors for alleged violations of the Foreign Exchange Management Act (FEMA) amounting to Rs 611 crore.

In a statement released Monday, an agency spokesperson said that OCL was found to be violating the provisions of the FEMA, 1999 on two accounts—investing in a Singapore-based subsidiary, and receiving foreign direct investment from overseas investors—without adhering to guidelines set by the Reserve Bank of India (RBI).

“Investigation conducted by ED reveals that Paytm’s flagship company OCL had made foreign investment in Singapore and did not file necessary reporting to RBI for creation of overseas step down subsidiary. Further, OCL had also received Foreign Direct Investment from overseas investors without following proper pricing guidelines stipulated by RBI,” the ED spokesperson said Monday.

OCL had Saturday informed the Bombay Stock Exchange (BSE) of receiving a show cause notice from the ED over acquisition of two subsidiaries, namely Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL).

However, the company said that the alleged period of violation was denoted as 2015 to 2019, when the two subsidiaries were not part of its business operations. 

The federal probe agency has spotted deficiencies in the operations of Paytm’s subsidiary companies, saying that both Nearbuy India and Little Internet received FDI, and while the former did not did not report the transaction to the RBI within the stipulated time frame, the latter accepted the investment without following proper pricing guidelines established by the central bank.

“We are working to resolve the notice in accordance with applicable laws and regulatory processes. The alleged FEMA contraventions relate to two subsidiaries—Little and Nearbuy—with certain transactions from before they became part of Paytm. Paytm’s services remain operational,” Paytm posted on X in the wake of ED’s statement.

Sources in the ED said that directors and people managing the finances of the firms, who have been served show cause notices, have to appear before the investigating officers.

“During the hearing, directors and relevant office bearers present their case with documentary evidence during hearings with competent authority, who issued the notice. After a course of hearings, an Adjudicating Order is passed with the authority deciding if the offence attracts monetary penalty,” an ED official said, explaining the process. “Based on the nature of the violation, a monetary fine is stipulated, with additional penalty of Rs 5,000 per day during the period of contravention, if the violation is of continuous nature.”

The concerned firm has an option of either settling the case by paying up the penalty or appealing against it before Special Director (Appeals), the officer added.

(Edited by Mannat Chugh)