A leading Indian fintech pioneer, known for revolutionising digital payments and financial services, faces a critical regulatory challenge. This article details the company’s appeal to the central bank for relief concerning a significant penalty of approximately Rs. 611 crore, exploring the dispute’s context and potential implications for its operations.
One 97 Communications Limited’s stock, with a market capitalisation of Rs. 55,728 crores, fell to Rs. 868.20, hitting a low of up to 2.6 percent from its previous closing price of Rs. 891.50. However, the stock over the past year has given a return of 113 percent.
What happened?
Paytm is seeking relief from the Reserve Bank of India (RBI) in a Rs. 611 crore case involving alleged violations of the Foreign Exchange Management Act (FEMA). The case stems from a show-cause notice issued by the Enforcement Directorate (ED) on February 27, 2025, accusing OCL and its subsidiaries, Little Internet Pvt Ltd and Nearbuy India Pvt Ltd, of multiple FEMA contraventions between 2015 and 2019. The key issues include:
- Unreported Foreign Investment: OCL made investments in a Singapore-based subsidiary but failed to report the creation of an overseas step-down subsidiary to the RBI.
- Non-Compliance with FDI Guidelines: OCL and Little Internet received Foreign Direct Investment (FDI) without adhering to RBI’s pricing norms.
- Delayed Reporting: Nearbuy India failed to report FDI transactions within the RBI’s prescribed timeframe.
OCL has filed a compounding application with the RBI to settle the case by voluntarily admitting the violations and paying a monetary penalty, aiming to avoid formal adjudication by the ED. Paytm clarified that some violations occurred before it acquired Little Internet and Nearbuy in 2017.
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What happens if RBI does not accept Paytm’s compounding application
If the Reserve Bank of India (RBI) does not approve Paytm’s compounding application in the ₹611 crore FEMA case, One97 Communications Ltd (OCL) and its subsidiaries could face several serious consequences. The matter would be escalated to the Enforcement Directorate (ED) for formal adjudication. This means the ED would launch an in-depth investigation into alleged violations, such as unreported foreign investments, non-compliance with FDI pricing norms, and delays in reporting. Such proceedings could be lengthy and legally complex.
If OCL is found guilty, it may face heavy penalties under Section 13 of FEMA. This includes fines up to three times the amount involved in the violation potentially reaching ₹1,833 crore. In cases where the violation amount isn’t quantifiable, a fine of up to ₹2 lakh could be levied. Although imprisonment is a possible penalty under FEMA, it is unlikely to be applied in the case of a corporate entity. Still, the risk remains a significant concern.
Apart from legal and financial risks, the situation could hurt Paytm’s reputation and investor confidence, especially given its previous run-ins with regulators, such as the RBI’s restrictions on Paytm Payments Bank. These developments could cause further dips in share price and complicate business operations, including delaying regulatory approvals like the pending payment aggregator licence. Paytm is currently seeking legal guidance and has asked the ED to pause adjudication until the RBI gives its decision. However, the RBI has sole authority in such matters, and a rejection would push the issue into a more adversarial legal path.
Written By Fazal Ul Vahab C H
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