The Enforcement Directorate (ED) has issued a show cause notice to One97 Communications Limited, the parent company of Paytm, as well as its subsidiaries, totaling Rs 611 crore on allegations of multiple violations of the Foreign Exchange Management Act (FEMA). This notice, which was announced Monday by a special director of the ED, targets OCL and its managing director, Little Internet Pvt Ltd, and Nearbuy India Pvt Ltd before formal adjudication proceedings.
The investigation by the ED highlighted that OCL did not file mandatory reports for foreign investments with the RBI concerning a Singapore based step down subsidiary. Further, the agency states that OCL received foreign direct investment (FDI) in contravention of RBI’s pricing guidelines. Similar breaches by the subsidiaries of OCL have also been highlighted. While Little Internet Pvt Ltd has been charged with receiving FDI that did not comply with pricing norms, Nearbuy India Pvt Ltd is alleged to have failed to report its FDI within the time frame mandated by the RBI.
These violations amounting to roughly Rs 611 crore were held out by the ED in a statement as a seriously deficient instance of regulatory compliance. Paytm, in a regulatory filing on Saturday, stated the notice was in connection with investment transactions concerning Little Internet and Nearbuy. However, the company made it clear that its alleged violations happened prior to its acquisition of these subsidiaries in 2017 and denied direct accountability during that period.
The notice presents yet another regulatory challenge to Paytm, which has been under the watchful eyes of the Reserve Bank of India and other authorities in the past years. OCL has promised it will find a legal solution in resolving the matter, keeping in mind the due process of law. Paytm reassured that, despite the notice, there are no impacts on its offerings, with full operations to consumers and merchants while the fintech giant grapples with this latest obstacle.
