Paytm Under ED Scrutiny for FEMA Violations Linked to Singapore Investments

Enforcement Directorate Issues Show Cause Notice to One 97 Communications

The Enforcement Directorate (ED) has accused One 97 Communications Ltd (OCL), the parent company of Paytm, of violating the Foreign Exchange Management Act (FEMA) by making investments in Singapore without reporting them to the Reserve Bank of India (RBI). This development has triggered regulatory concerns, potentially impacting the financial technology giant’s operations and investor confidence.

According to sources familiar with the investigation, the ED has alleged that OCL failed to report the creation of a step-down subsidiary in Singapore as required under FEMA guidelines. Additionally, the company reportedly received Foreign Direct Investment (FDI) without adhering to RBI’s pricing regulations, further compounding its legal challenges.

Key Allegations Against Paytm’s Parent Company

The ongoing probe has unveiled multiple instances of regulatory non-compliance by OCL and its subsidiaries. As per the ED’s findings:

• OCL did not report the establishment of a subsidiary in Singapore to the RBI, a mandatory requirement under FEMA.
• The company received foreign direct investment without following RBI’s pricing norms meant to regulate cross-border financial transactions.
• Paytm’s subsidiary, Nearbuy India Pvt Ltd, also failed to report FDI within the stipulated time frame, a key procedural requirement under FEMA.

The probe centers around investments made between 2015 and 2019, a period during which the financial technology sector witnessed exponential growth and increased foreign investments.

Enforcement Directorate’s Notice to Paytm

On March 1, 2025, the ED issued a show cause notice to One 97 Communications, alleging FEMA violations amounting to ₹611 crore. The company confirmed receiving the notice via an exchange filing, stating that the ED’s claims primarily pertain to its acquisition of two subsidiaries—Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL), formerly Groupon India.

Breakdown of Alleged FEMA Violations

• One 97 Communications: ₹245.20 crore
• Little Internet Private Ltd (LIPL): ₹344.99 crore
• Nearbuy India Pvt Ltd (NIPL): ₹20.97 crore

In its response, Paytm asserted that these subsidiaries were not under its ownership at the time of the alleged violations. The company also stated that it is currently seeking legal counsel to determine the appropriate course of action in addressing the regulatory concerns raised by the ED.

Paytm’s Stock Market Reaction and Investor Sentiment

Despite the negative regulatory news, Paytm’s stock remained resilient, closing 1.38% higher at ₹726.20 on Monday compared to its previous close of ₹716.30. However, intraday volatility was evident as the stock declined by nearly 4% before recovering in the later trading hours.

This rebound came amid broader market recovery and an announcement of a new partnership with RBL Bank, which likely helped offset investor concerns regarding the FEMA allegations.

Regulatory Scrutiny on Fintech Firms Intensifies

The ED’s action against Paytm comes amid increasing scrutiny on digital payment firms and fintech companies operating in India. Over the past few years, regulatory authorities have ramped up their oversight on foreign investments, cross-border transactions, and compliance with FEMA regulations.

The Reserve Bank of India has already taken strict measures against non-compliant digital lending apps and payment firms, with a particular focus on ensuring adherence to FDI norms. Paytm, as one of the leading fintech players in India, now faces heightened scrutiny, which could impact its business operations and future expansion plans.

What’s Next for Paytm?

While the ED’s notice does not imply an immediate penalty, non-compliance with FEMA can result in hefty fines and legal action. If found guilty of violations, Paytm could face financial penalties, regulatory restrictions, or even directives to unwind certain transactions.

Possible Outcomes:

• Paytm may need to furnish additional documents and justifications to the ED regarding its investments.
• The company may contest the allegations legally, seeking to prove that the transactions were within permissible limits.
• If penalized, Paytm might be required to pay fines and make necessary regulatory disclosures to comply with FEMA.

With fintech regulations tightening, experts believe that this case could set a precedent for how cross-border transactions involving digital payment firms are scrutinized in the future.

Conclusion

The allegations against Paytm for FEMA violations add to its recent regulatory challenges, including RBI’s restrictions on its banking services. As the Enforcement Directorate continues its investigation, the fintech giant must navigate legal hurdles while maintaining investor confidence.

The coming weeks will be crucial in determining whether Paytm successfully defends itself or faces further regulatory action that could impact its market standing.