PAYTM TO PAY RS 18.76 LAKH AFTER RBI COMPOUNDS FEMA VIOLATION LINKED TO SUBSIDIARY

 PAYTM TO PAY RS 18.76 LAKH AFTER RBI COMPOUNDS FEMA VIOLATION LINKED TO SUBSIDIARY

WHAT IS THE ISSUE ?

In a stock exchange filing on Monday, the company said the RBI has imposed a compounding fee of Rs 18.76 lakh in connection with certain investments made in Little Internet Private Limited by Little Internet Singapore. The underlying transactions, with an aggregate value of about Rs 33 crore, pertained to the period between March 2016 and June 2017. 

DETAILS OF THE RBI ORDER

PENALTY                    AMOUNT	₹18.76 lakh
REASON:	FEMA contravention related to investments in Little Internet Pvt Ltd by Little Internet Singapore.
TRANSACTION VALUE:	Approximately ₹33 crore worth of transactions between March 2016 and June 2017.
COMPANY INVOLVED:	One 97 Communications Ltd (Paytm’s parent company).
COMPLIANCE STATUS:	Paytm has stated it is taking necessary steps to comply with the RBI order.
COMPOUNDING ORDER:	A compounding order allows a company to settle FEMA contraventions by paying a fee, avoiding prolonged litigation.
NATURE OF CONTRAVENTION:	The issue arose from cross-border investment flows between Paytm’s Indian and Singapore entities.

 

TABLE OF PENALTIES LEVIED ON PAYTM PAYMENTS BANK

PENALTY AMOUNT	REASON / VIOLATION	DATE OF ORDER
₹5.39 crore	Non-compliance with KYC norms, failure to identify beneficial owners, weak monitoring of payout transactions, and cyber security framework violations	October 10, 2023
₹5.49 crore	Violations under the Prevention of Money Laundering Act (PMLA); linked to illegal online gambling transactions and failure to meet anti-money laundering obligations	February 15, 2024 (announced March 1, 2024)
₹1 crore (Paytm Payments Bank) and ₹27.78 lakh (Western Union)	Paytm: Misrepresentation in application for Certificate of Authorisation under Payment and Settlement Systems Act, 2007;	October 1, 2021 (Paytm);

 

CONCLUDING REMARKS

This compounding order is not a major financial setback for Paytm but underscores the importance of strict compliance with FEMA regulations in cross-border investments. It also reflects the RBI’s increasing vigilance over fintech companies’ international transactions.

·      RBI penalties focus on compliance failures in KYC, cyber security, and payment system regulations.

•     FIU penalty was more severe in terms of reputational risk, as it linked Paytm Payments Bank to money laundering and illegal gambling networks.

•     The ₹5.39 crore and ₹5.49 crore fines are among the largest regulatory actions against Paytm Payments Bank, while the ₹1 crore penalty in 2021 was tied to authorization irregularities.

R V SECKAR , FCS , LLB 79047 19295