SAT Stays SEBI Order Barring Roys from Holding Directorial or Managerial Positions in NDTV

In a temporary relief to Prannoy Roy and Radhika Roy, the Securities Appellate Tribunal has stayed the June 14 order issued by Securities and Exchange Board of India (SEBI) which had restrained them from holding managerial or directorial posts in New Delhi Television Ltd (NDTV) for two years.

Admitting the appeal filed by Roys and RPPR Ltd, the promoters of NDTV, the Appellate Tribunal yesterday observed that "a listed company which is managed by the appellants holding more than 61% of the total shares cannot remain headless".

The SAT added that the order removing Roys from directorial or managerial positions of NDTV "would not be in the interest of the shareholders of the NDTV or for that matter the investors at this stage". It also criticised the SEBI for not supplying the certified copy of the order to the appellants.

"In the instant case, we find that the whole world knows about the impugned order except the appellants. Till date they have not been supplied a copy of the impugned order in spite of the oral direction given by this Tribunal yesterday. We are constrained to observe that the system undertaken by SEBI needs a revisit. Their liability and their onerous duty does not end the moment they upload the order on their website", observed the three-member Tribunal bench headed by Justice Tarun Agarwala.

However, the appellants have been told not to alienate or create any encumbrance on their shareholding in NDTV till further orders of SAT.

The SEBI passed the order in a 2017 case filed by Quantum Securities Ltd, an NDTV shareholder, alleging that RRPR Holdings, Prannoy Roy and Radhika Roy didn't disclose information about loan agreements entered into by them with Vishvapradhan Commercial Private Ltd (VCPL) and ICICI. It also banned them from accessing securities market for years.

RRPR Holding Pvt. Ltd. took a loan of Rs. 350 crore from ICICI which carried interest at the rate of 19% p.a. Finding it difficult to repay the interest and principal amount, RRPR Holding Pvt. Ltd. took two loans from Vishvapradhan Commercial Private Limited ('VCPL' for short) totalling approximately Rs. 400 crore in July 2009 and January 2010. Based on the loan taken from VCPL it was alleged that the loan of ICICI was liquidated.

It was alleged in the complaint that the VCPL was given a right of first refusal on 50% of the shares in the event the said shares are sold in the market. Further, a call option agreement was made whereby an option was given to two associates of VCPL for transfer of 30% of the shareholding of RRPR Holding Pvt. Ltd. to it at the price of Rs. 214.65 per share. It was stated that at the time when the loan agreement was executed the price of the NDTV share was Rs. 130 per share. It was also stated that the price of Rs 214.65 per share was fixed in order to cover the loan amount of Rs. 403.85 crore. The agreement further stipulated that RRPR Holding Pvt. Ltd. would have the sole control and will not sell the shares without the right of the first refusal by the lender, namely, VCPL.

According to the SEBI, "The loan agreements were unmistakeably structured as a scheme to defraud the investors by camouflaging the information about the adversarial terms and conditions impinging upon the interest of NDTV's shareholders, thereby inducing innocent investors to continue to trade in the shares of NDTV, oblivious to such adversarial developments in the shareholding of NDTV."

Roys argued that the agreements were for taking private loans in exercise of their shareholding rights and that since shareholders’ rights are personal property, the agreements did not affect NDTV or its operations in any manner. They added that the loan agreements were private agreements in which NDTV was not a party, and hence, there was no requirement for them to make disclosure of the same to the stock exchanges.

But this was not accepted by the SEBI, which found that they had agreed "to transfer a substantial controlling stake in NDTV to the VCPL behind the back of the shareholders of NDTV". It ruled that the loan agreements were used to deceitfully transfers shares of NDTV upto 30% to VCPL without the knowledge of the Board or its shareholders, amounting to unfair trade practice and was in stark violation of Section 12A of SEBI Act and Regulations 3(a), 3(b) and 4(1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations.

The SAT yesterday observed that whether the loan agreement was a sham transaction or not and whether the loan agreement, in fact, wrested control of NDTV to VCPL is a question which is required to be considered in detail. It also took into account the fact that the loan agreements were in existence for past ten years.