Vijay Shekhar Sharma, the visionary behind One97 Communications, along with his brother, has reached a resolution regarding their employee stock options (Esops) dispute with the Securities and Exchange Board of India (SEBI). In this settlement, both Sharma and the company agreed to pay ₹1.1 crore each, while Ajay Shekhar Sharma contributed ₹57.11 lakh. Notably, Vijay Shekhar Sharma will be restricted from accepting any Esops for the next three years.

Background of the SEBI Case

In February 2024, SEBI issued a show-cause notice to One97 Communications and its founders, highlighting that 21 million Esops were allocated to Vijay Shekhar Sharma in October 2021, and 226,000 Esops were granted to Ajay Shekhar Sharma in May 2022. These actions were deemed to violate regulatory guidelines.

• Key Allegations:
  • Sharma reclassified himself as a non-promoter right before filing for the IPO on July 15, 2021.
  • A scheme was allegedly created to transfer part of his equity to a family trust, allowing him to maintain control over more than 10% of the equity.
  • The notice accused Sharma of circumventing SEBI’s rules on share-based employee benefits.

SEBI further asserted that Vijay Shekhar Sharma had the power to influence decisions made by the Nomination and Remuneration Committee. The notice also pointed out that Ajay Shekhar Sharma’s Esops were granted under the influence of his brother, despite a prior cancellation of his Esops due to regulations against issuing them to the promoter group.

Settlement Terms and Implications

Following the show-cause notice, One97 Communications sought a settlement in April 2024. By March of this year, a high-powered committee outlined the settlement terms, which included:

• Cancellation of all 21 million Esops granted to Vijay Shekhar Sharma.
• Cancellation of 222,862 Esops allocated to Ajay Shekhar Sharma that were not exercised.
• Ajay Shekhar Sharma was also required to disgorge ₹35,86,452 related to the sale of 3,720 OCL shares acquired through the exercise of the Esops.

In April, SEBI’s settlement division confirmed that the involved parties complied with the settlement terms, closing this chapter for One97 Communications.

Future of Esops Regulation

Interestingly, SEBI has recently proposed changes that could allow founders to exercise Esops or stock appreciation rights (SAR) even after being classified as promoters during the IPO process. However, these options would need to be granted at least one year prior to the IPO, reflecting a potential shift in regulatory practices.

This case not only highlights the complexities of corporate governance but also sheds light on the evolving landscape of employee compensation in Indian startups.