Securities Appellate Tribunal, Mumbai : A Coram of Tarun Agarwala (Presiding Officer) J., Dr C.K.G. Nair (Member),  M.T. Joshi (Judicial Member), J. allowed three appeals filed by Dr Prannoy Roy, Radhika Roy and RRPR Holding Pvt. Ltd. against a common order passed by the Whole Time Member ( herein ‘WTM’) of Securities and Exchange Board of India (herein ‘SEBI’).

Quantum Securities Pvt. Ltd. made a complaint which led SEBI to investigate and on the basis of an investigation report, a show cause notice was issued to the appellants to file their reply and the impugned order[1] was passed stating that the appellants had acted fraudulently in a manner detrimental to the interests of New Delhi Television Limited (herein ‘NDTV’) and its shareholders by omitting to disclose material information to the shareholders about loan agreements entered into by them with Vishvapradhan Commercial Private Limited (herein ‘VCPL’) and ICICI Bank Limited (herein ‘ICICI’). Accordingly, SEBI ordered that the Roys were restrained from accessing the securities market and were further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of two years. It also directed that they were restrained from holding or occupying a position as Director or any Key Managerial personnel in NDTV for a period of two years.

The facts that led to the order were that RRPR Holding Pvt. Ltd. took a loan of Rs 350 crore from ICICI. This loan was required to be repaid within a stipulated period. Finding it difficult to repay the interest and principal amount RRPR Holding Pvt. Ltd. took two loans from Vishvapradhan Commercial Private Limited (herein ‘VCPL’) totaling approximately Rs 400 crore. RRPR Holding Pvt. Ltd. held shares in NDTV. Based on the loan taken from VCPL it was alleged that the loan of ICICI was liquidated. While taking a loan from VCPL certain agreements were entered, namely, that VCPL will give interest free loan for a period of 10 years on the condition that the principal amount would be paid within 10 years and that the VCPL will have 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 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 VCPL. It came on record that the call option was never exercised. SEBI considered the loan agreement in detail and gave a finding that the said loan agreement was nothing else but a sham agreement and that no prudent person/entity would enter into such an agreement giving a loan without any interest. In fact, SEBI further found that the transfer of money, in fact, was to control the listed company NDTV. SEBI further found that the transfer of 9% individual shares of Prannoy Roy and Radhika Roy to its holding company, namely, RRPR Holding Pvt. Ltd. amounted to non-disclosure of transfer of shares inviting violations of disclosure obligations.

This Tribunal noted that whether the loan agreement was a sham transaction or not and whether the loan agreement, in fact, wrested control of NDTV to VCPL was a question which was required to be considered in detail. Whether the call option gives an unfettered right of controlling the company without exercising the right of call option was also required to be considered.

However, upon the interpretation of the loan agreement at this stage, it was of the opinion that these agreements had remained in existence for the past 10 years. The loan agreements were executed in the year 2009 and 2010.remarked that at this stage, prime-facie, NDTV which was managed by the appellants holding more than 61% of the total shares could not remain headless. Thus, the impugned order restraining the appellants from occupying a position as a Director or in any Key Managerial personnel in NDTV for a period of two years would not be in the interest of the shareholders of the NDTV, or for that matter the investors at this stage.

Considering the aforesaid, the Tribunal stayed the effect and operation of the impugned order dated till the next date of hearing and granted the respondent six weeks time to file a reply, and three weeks thereafter to the appellant to file a rejoinder.

The matter has been listed for admission and for final disposal on 16-09-2019. SAT further ordered SEBI to supply a copy of the impugned order to the appellants and accordingly, directed the appellants to apply for a certified copy of the impugned order.[Dr Prannoy Roy v. Securities and Exchange Board of India, 2019 SCC OnLine SAT 37, decided on 18-06-2019]

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