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The SEBI noted that both the noticees were in possession of unpublished sensitive information (PSI-6) with respect to proposed reorganisation of the company.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

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, 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: