[Update] RBI Partly Compounds Paytm’s Plea To Settle Alleged FEMA Breach

Update | November 5, 04:10 AM

Five months after Paytm filed an application to settle an ongoing case pertaining to alleged violations of the Foreign Exchange Management Act (FEMA), the Reserve Bank of India (RBI) has partly compounded the matter. 

As per auditor’s note in the company’s Q2 FY26 financial statement, the RBI has compounded “matters” having an aggregate value to the tune of INR 21 Cr related to Nearbuy India Private Limited during the quarter. 

“Further, based on the application and additional steps taken by the Little Internet Private Limited, RBI has observed that the matters having aggregate value of approximately INR 312 Cr are in compliance with applicable laws,” added the note. 

The auditors also said that Paytm is in the process of taking necessary steps for resolution of matters included in the show cause notice and has recorded provisions for “related compounding fees on best estimates”.

“Pending the final outcome of all the related processes in this regard, it is not possible to assess the consequent effects of the above remaining matters on these financial results,” added the auditor. 

Original | July 19, 01:41 PM

Paytm parent One97 Communications has reportedly filed a compounding application with the Reserve Bank of India to settle an ongoing case pertaining to alleged violations of the Foreign Exchange Management Act, after receiving a show cause notice from the Enforcement Directorate earlier this year.

An NDTV Profit report said that the fintech major has requested the ED to hold off on formal adjudication proceedings while the RBI reviews the application. 

If permitted, the matter may be resolved by paying a penalty under the compounding process.

Compounding is a process where an entity voluntarily admits to a violation, accepts responsibility, and seeks to settle the matter by paying a monetary penalty, rather than undergoing formal legal proceedings. The RBI has sole discretion to approve or reject a compounding application.

Inc42 has reached out to Paytm for comments on the development. The story will be updated based on the response. 

In March earlier this year, Paytm received a show cause notice from the ED in connection with alleged violations of foreign exchange norms involving an aggregate transaction amount of INR 611.17 Cr.

In an exchange filing, the company then clarified that the notice pertained to its acquisition of two companies, Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL), formerly known as Groupon, between 2015 and 2019.

Along with One97 Communications, the notice was also issued to the two subsidiaries and “certain current and past directors and officers of the company and its two subsidiaries.”

Out of the total alleged contraventions of INR 611.17 Cr, INR 245.2 Cr was attributed to One97 Communications, while INR 344.99 Cr and INR 20.97 Cr were attributed to LIPL and NIPL, respectively.

The Foreign Exchange Management Act (FEMA) is India’s primary legislation governing foreign exchange transactions, including investments, remittances, and cross-border payments.

Shares of Paytm were trading at 2.6% below at INR 868.30 on the BSE at 3:20 PM today.

Paytm Initiates Legal Clean-Up Drive To Close Pending Cases

Paytm appears to be on a spree to resolve its pending litigations. Most recently, founder Vijay Shekhar Sharma settled a case with the Securities and Exchange Board of India (SEBI) over violations related to employee stock options (ESOPs).

As part of the settlement, Sharma has been barred from accepting new ESOPs from listed companies for three years and has paid a penalty. 

Separately, the company paid INR 45.50 Lakh to settle another SEBI case concerning alleged violations of norms related to the technical glitch framework.

Earlier, in February, the company and its top executives, including Sharma, were fined nearly INR 1.8 Cr by Delhi GST authorities for alleged non-compliance in the issuance of tax invoices to customers. 

In January, Paytm’s current and former directors and officials settled a case with SEBI by paying INR 3.3 Cr. Last month, Paytm’s gaming arm, First Games, received a stay from the Supreme Court on an impending GST demand of INR 5,712 Cr.

With multiple legal and regulatory matters unfolding in parallel, the company reported a consolidated net loss of INR 544.6 Cr in the March quarter (Q4 FY25), a YoY decline of 1%. However,  quarterly, the company’s loss grew 118% from INR 208.5 Cr in Q3 FY25. Its operating revenue also shrank 19% on a yearly basis to INR 1,911.5 Cr from INR 2,267.1 Cr in Q4 FY24.