The Enforcement Directorate (ED) has issued a show-cause notice under the Foreign Exchange Management Act (FEMA) to Paytm’s parent company, One97 Communications Ltd (OCL), along with its managing director and other linked entities, for alleged violations amounting to Rs 611 crore.

Why was the notice issued?
According to the ED, OCL made foreign investments in Singapore but failed to submit the necessary reports to the Reserve Bank of India (RBI) regarding the creation of an overseas step-down subsidiary. The agency stated that the company did not comply with regulatory filings, leading to the issuance of the FEMA notice.

What are the allegations?
The ED alleged that OCL received foreign direct investment (FDI) from overseas investors without adhering to the RBI’s pricing guidelines. Further, its subsidiary, Little Internet Pvt Ltd, was also found to have received FDI without following the prescribed pricing regulations. Another subsidiary, Nearbuy India Pvt Ltd, allegedly failed to report its FDI within the timeframe set by the RBI.

Who is involved?
The show-cause notice has been issued to One97 Communications Ltd, its managing director, and its subsidiaries, Little Internet Pvt Ltd and Nearbuy India Pvt Ltd. A special director of the ED issued the notice ahead of adjudication proceedings.

What has Paytm said?
In a regulatory filing last Saturday, Paytm confirmed receiving the ED notice for alleged FEMA violations by OCL, Little Internet, and Nearbuy in connection with certain investment transactions. However, Paytm later clarified that the alleged breaches occurred before 2017, when the two subsidiaries were not under its ownership.

What happens next?
A show-cause notice under FEMA requires the recipients to respond and justify their actions. If the explanations are deemed unsatisfactory, the case could lead to financial penalties or further legal proceedings. The ED has stated that the matter remains under investigation.