Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): S.K. Mohanty, (Whole Time Member) has barred two promoters of NDTV, namely Mr Prannoy Roy and Mrs Radhika Roy (the Noticees) from the securities market for 2 years and directed them to disgorge illegal gains of more than Rs 16.97 crore for indulging in insider trading under Sections 11(1), 11(4) and 11B of the SEBI Act, 1992. These directions came after a probe was launched by SEBI to check various allegations of insider trading between September 2006 to June 2008.

The SEBI noted that both the noticees were in possession of unpublished sensitive information (PSI-6) with respect to proposed reorganisation of the company. The discussions around reorganisation of the company started around 7-09-2007, and was finally disclosed to the public on 16-04- 2008. During this time, SEBI noted Mr Roy was the chairman and whole-time director whereas, his spouse, Mrs Roy was the managing director. Both were privy to the sensitive information with respect to reorganisation of the company.

On 17-04-2008, the noticees sold their shares making a profit of more than 16.97 crores when the trading window for them was closed.

SEBI found them to have contravened Regulation 3(i) and Regulation 4 of the PIT Regulations, 1992 read with Regulation 12 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 and Section 12A(d) and (e) of the SEBI Act, 1992; and the NDTV’s Code of Conduct and regulation 12(2) read with 12(1) of the PIT Regulations, 1992. NDTV’s code of conduct for prevention of insider trading prohibited them from trading at least till 24 hours after the information was disclosed to the stock exchanges.

The Noticees were directed to disgorge the amount of wrongful gain of ₹16,97,38,335/- as computed in the show cause notice, along with interest at the rate of 6% per annum from April 17, 2008, till the date of actual payment of disgorgement amount alongwith interest, within 45 days from the date of coming into force of this order.  They were also restrained from accessing the securities market and further prohibited them 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 2 years.[In the matter of New Delhi Television Ltd. WTM/SM/IVD/ID2/9711/2020-21, decided on  27-11-2020]

Nilufer Bhateja, Associate Editor has put this story together

Case BriefsSupreme Court

Supreme Court: IN a major for the NDTV Ltd, the bench of L. Nageswara Rao and Deepak Gupta, JJ has quashed the notice of the Income Tax department seeking to re-assess the income of the media house for financial year 2007-08. The Court said,

“the notice and reasons given thereafter do not conform to the principles of natural justice and the assessee did not get a proper and adequate opportunity to reply to the allegations which are now being relied upon by the revenue.”

Factual Background

The case relates to the re-assessment notice issued by the Income Tax department in March 2015 to NDTV after noting that Rs 642 crore had allegedly not been computed for the tax assessment purposes of NDTV for financial year 2007-2008.

  • NDTV Ltd. had submitted the return for the financial year 2007-2008 declaring a loss.
  • it later came to notice that step­up coupon bonds amounting to US$100 million were issued in July, 2007 through the Bank of New York for a period of 5 years by NDTV’s UK based subsidiary named NDTV Network PLC (NNPLC).
  • On 31.03.2015, the revenue sent a notice to the assessee wherein it was stated that the authority has reason to believe that net income chargeable to tax for the assessment year 2008­ 09 had escaped assessment within the meaning of Section 148 of the Act. This notice did not give any reasons.
  • The assessee then asked for reasons and thereafter on 04.08.2015 reasons were supplied.
  • Reason given: In the following assessment year i.e. assessment year 2009­10, the assessing officer had proposed a substantial addition of Rs.642 crores to the account of the assessee on account of monies raised by the assessee through its subsidiaries NDTV BV, The Netherlands, NDTV Networks BV, The Netherlands (NNBV), NDTV Networks International Holdings BV, The Netherlands (NNIH) and NNPLC.

“All these transactions with the subsidiary companies in Netherlands were sham and bogus transactions and that these transactions were done with a view to get the undisclosed income, for which tax had not been paid, back to India by this circuitous round tripping.”

Considering all the facts of the case and the material placed before the Court, it said that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts.  It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case.

Regarding the scope of the applicability of the second proviso of Section 147 of the Income Tax Act, 1961, the Court said that if the revenue is to rely upon the second proviso and wanted to urge that the limitation of 16 years would apply, then in the notice or at least in the reasons in support of the notice, the assessee should have been put to notice that the revenue relies upon the second proviso.

“The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the High Court that the notice is to be treated as a notice invoking provisions of the second proviso of Section 147 of the Act.”

If not in the first notice, at least at the time of furnishing the reasons the assessee should have been informed that the revenue relied upon the second proviso.  The assessee must be put to notice of all the provisions on which the revenue relies upon.

The Court, hence, held that the notice issued to the assessee shows sufficient reasons to believe on the part of the assessing officer to reopen the assessment but since the revenue has failed to show non­disclosure of facts the notice having been issued after a period of 4 years is required to be quashed.

[New Delhi Television Ltd. v. Deputy Commissioner of Income Tax,  2020 SCC OnLine SC 351, decided on 03.04.2020]

Hot Off The PressNews

As reported by media, the Central Bureau of Investigation (CBI) has filed a new case against NDTV Channel founders Prannoy and Radhika Roy and former channel CEO Vikram Chandra.

According to the FIR registered, it has been stated that “money raised by the TV channel between 2004 and 2010 was done with the “object of bringing tainted money of unknown public servants through a web of complex transactions”.

It is alleged that during May 2004 to May 2010, NDTV floated around 32 subsidiary firms all over the world, mostly in the tax havens of Holland, the United Kingdom, Dubai, Malaysia, Mauritius, etc.

As reported by News Nation, “Proceeds of corruption of unknown public servants was invested through NDTV Ltd.”

[Source: The Wire]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): Justice Tarun Agarwala (Presiding Officer) and Dr C.K.G. Nair (Member) dismissed an appeal by the appellant as it was devoid of any merit

The appellant, a private company, was a minority shareholder in New Delhi Television Ltd. (NDTV). With regard to non-disclosure of a tax demand under Clause 36 of the Equity Listing Agreement prescribed by the Stock Exchange (Listing Agreement) by the Company, the appellant made a complaint to the stock exchange as well as to SEBI based on which adjudication proceedings were initiated by the Adjudicating Officer under Sections 23-A and 23-E of the SEBI Act, 1992 read with 23-I of the Securities Contracts (Regulation) Act, 1956 (SCRA). The Adjudicating Officer imposed a penalty of Rs 2 crores on NDTV. The appellant filed an appeal against the order contending that the penalty should have been imposed on the Key Managerial Personnel of the Company who took a conscious decision of not disclosing the event under Clause 36 of the Listing Agreement, and not the whole company. The Tribunal directed the appellant to make a fresh representation to SEBI.

Based on this, a representation was filed which was rejected by the Whole Time Member (WTM), as they found that out of the nine violations only two violations formed the cause of grievance which was mentioned in the appeal filed before the Tribunal. The remaining seven violations alleged were beyond the scope of the directions of the Tribunal. On the two violations which were part of the appeal, the WTM held that the complaint of the appellant was considered and appropriate orders of the penalty were passed against the Company.

The Tribunal was of the opinion that the contentions by the appellants were misconceived. They held there were parallel proceedings for the same offence culminating into an order passed by the Adjudicating Officer under Section 15-A(b) of the SEBI Act as well as under Sections 23-A(a) and 23-E of the SCRA. Thus, their grievance was set at rest. Another contention of the appellant that the remaining seven alleged violations should also be considered as they were part of the appeal that was filed before the Tribunal was also misconceived.

The earlier order of the Tribunal clearly rejected the contention of the appellant for making the representation on issues other than the issue mentioned. The Tribunal rejected the modification application holding that permitting the appellant to make a representation on issues which are not the subject matter of appeal would amount to enlarging the scope of the representation beyond the grievances set out in the memo of appeal. Also, the additional affidavit on which reliance was placed was filed much after the disposal of the appellant’s appeal. Any additional affidavit filed after the disposal of the appeal cannot form part of the memo of appeal.[Quantum Securities (P) Ltd. v. Securities & Exchange Board of India, 2019 SCC OnLine SAT 142, decided on 07-08-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

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]

Further reading:


Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, Whole Time Member, passed an order finding the promoters of New Delhi Television Ltd. (“NDTV”)  Dr Prannoy Roy, Chairman (“Noticee 2”), Radhika Roy, Managing Director (“Noticee 3”) and RRPR Holdings (P) Ltd. (“Noticee 1”)  grossly violated the provisions of Section 12-A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 read with Regulations 3(a), (b), (c), and (d) and 4(1) of the SEBI (Prohibition of Fraudulent Trade Practices relating to Securities Market) Regulations, 2003. Further, Dr Pronnoy Roy and Radhika Roy were additionally found to have violated Clause 49(1)(d) of the Equity Listing Agreement read with Section 21 of the Securities Contracts (Regulation) Act, 1956. 

In view of such findings and in order to protect the interest of investors and the securities market the Board passed following Directions against the Noticees:

(i) All the Noticees are restrained from accessing the securities market and are 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 2 years. During the said period of restraint/prohibition, the existing holding, including units of mutual funds, of the Noticees shall remain frozen; 

(ii) Dr Prannoy Roy and Radhika Roy are restrained from holding or occupying position as Director or any key managerial personnel in NDTV for a period of 2 years; and 

(iii) Dr Prannoy Roy and Radhika Roy are restrained from holding or occupying position as Director or any key managerial personnel in any other listed company for a period of 1 year.

The backdrop

In August and December of 2017, SEBI received complaints from a shareholder of NDTV alleging, inter alia, that RRPR Holdings, which is one of the promoters of NDTV, and Dr Pronnoy Roy and Radhika Roy, who are promoters as well as Directors of NDTV, have violated the provisions of SEBI Act and the rules and regulations made thereunder by omitting to disclose material information to the shareholders of NDTV about certain loan agreements entered into by them. 

NDTV is a company listed on BSE and NSE, and the three Noticees together constituted for 63.17% aggregate promoters shareholding in NDTV during the period of investigation, i.e., 14-10-2008 to 22-11-2017. 

Upshot of findings in the investigation

(a) The Noticees entered into three loan agreements, one with ICICI Bank Ltd. (a rupee term loan not exceeding Rs 375 crores) and two with Vishvapradhan Commercial Private Ltd. (“VCPL”) (total amounting to more than Rs 400 crores, interest-free and payable at the end of 10 years period). These loan agreements contained material and price sensitive information, in as much as action/decision on many important matters pertaining to NDTV were made subject to prior written consent of the ostensible lender and without the knowledge of the minority shareholders of NDTV. 

(b) Further, under the VCPL agreements and the two call option agreements executed as supplementary to the said loan agreements, beneficial interest in 30% shares of NDTV was effectively vested in VCPL. All these information were profoundly material and price sensitive information which would have influenced the investment decision of the investors in the shares of NDTV, had they been made aware of this information at that time. 

(c) Terms of the loan agreements were devised to affect the interest of shareholders of NDTV. Although various clauses in the loan agreements deceitfully created binding obligations on NDTV, the Noticees consented to such clauses behind the back of the shareholders of NDTV to further their own private interests. 

(d) Having held the dominant position and being majority shareholders of NDTV, the Noticees manifestly assured VCPL to ensure swift compliance of such clauses of the loan agreements pertaining to NDTV, thereby taking all other shareholders for granted and also compromising the interest of shareholders of NDTV. 

(e) In order to conceal the said information from the investors so that the investors continue to trade in the shares of NDTV blissfully ignorant of the fact that the promoters of the company have already vested their voting rights to the extent of 30% in favour of a third external party, Noticees 2 and 3 chose to act in flagrant breach of Code of Conduct of NDTV. If the said information regarding loan agreements had been disclosed by Noticees 2 and 3 to the Board of Directors of NDTV, then the company was bound to intimate the same to the stock exchanges which in turn, would have disseminated such information on their websites for information of the general public. 

(f) The loan agreements were unmistakably 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.  

Observation on fiduciary duty and conflict of interest

It was argued that Noticees 2 and 3 could not have acted in terms of the loan agreements in view of their statutory fiduciary duty towards NDTV. That even if the agreements entered into by Noticees 2 and 3 contained provisions prejudicial to NDTV or its investors, yet such agreements were unenforceable if they were in violation of the statutory fiduciary duty of Noticees 2 and 3 as Directors of NDTV.  

In Board’s opinion, the question of enforceability of an agreement by the Courts would arise only in case of breach of the agreement by any of the parties. However, if the parties to an agreement decide to honour the undertakings and covenants provided for in such agreement out of their own volition, such agreements can always be performed by the parties, provided agreement is not prohibited by law. In the present case, the VCPL loan agreements, even though prejudicial to the interest of NDTV and creating conflict for Noticees 2 and 3 in the discharge of their fiduciary duties on the Board of NDTV, these agreements had been dutifully complied by the Noticees, till date. The Noticees, being fully aware and conscious about their pivotal role and positions in NDTV, still agreed/consented and executed agreements containing clauses which have an adversarial effect on the shareholders of NDTV. It restricts NDTV from raising fresh capital, making any restructuring, going for a merger, etc., without the prior written consent of ICICI/VCPL. It certainly amounts to acting in breach of fiduciary duties by Noticees 2 and 3. 

Shareholder’s vote, right to property, and freedom to exercise thereof

It was also contended that Noticess were also shareholders of NDTV, and a shareholder’s vote being a right to property, prima facie may be exercised by him as he thinks fit in his own interest. 

Rejecting the contention, the Board stated that it is to be understood that the case against the Noticees was not that they could not have entered into such loan agreements or exercised their voting rights the way they desired to, but the case against the Noticees was that they entered into certain transactions with a third party whereby they agreed to comply with certain conditions which bind NDTV and the interest of its shareholders too. In other words, by entering into such transaction, Noticees brought their personal interest in conflict with the interest of NDTV.

Based on such findings, the Securities and Exchange Board of India passed directions as aforementioned against Dr Prannoy Roy, Chairman, NDTV Ltd.; Radhika Roy, Managing Director, NDTV Ltd.; and RRPR Holdings (P) Ltd. all promoters of NDTV Ltd. It was directed that the directions made in the order shall come into effect with immediate effect. [NDTV Ltd, In re, 2019 SCC OnLine SEBI 47, decided on 14-6-2019]  

Case BriefsHigh Courts

Delhi High Court: A Division Bench of the Delhi High Court upheld the notice of the IT department proposing reassessment for NDTV for the financial years 2008-09 and 2009-10. The Court also ordered provisional attachment of it’s assets stating that there was reasonable apprehension that NDTV may liquidate it’s assets.

The department had received complaints from NDTV’s shareholders upon which the Revenue had acted. The Court held that mere disclosure of a transaction at the time of the original assessment proceedings does not protect the assessee from a re-assessment under Section 147 if the AO has information that indicates that the transaction is a sham or bogus.

The Court noted the AO’s decision to not attach the bank accounts and other trade receivables of NDTV so as to ensure uninterrupted operation of it’s operation. The Court relied upon Gandhi Trading v. Assistant Commissioner of Income Tax, [1999] 239 ITR 337 (Bom) wherein it was held that action taken under Section 281B must not hamper the business activities of the assessee, the Court found that the decision was in consonance with this principle.

The Court found that there were reasonable grounds for the AO to believe some transactions to be bogus. Therefore, it was held that the impugned reassessment notice is valid in law and the petition was dismissed. [New Delhi Television Ltd. v. Dy. Commissioner of Income Tax,  2017 SCC OnLine Del 9817, decided on 10.08.2017]