The Securities and Exchange Board of India (SEBI) on June 14, 2019, has barred the promoters of New Delhi Television Ltd (NDTV) - RRPR Holdings Pvt. Ltd, Prannoy Roy and Radhika Roy - from accessing securities market for two years.
The market regulator has also restrained them from holding position as director or any key managerial personnel in NDTV for two years.
The order was passed by SEBI whole time member S.K. Mohanty in a 2017 case filed by Quantum Securities Ltd, an NDTV shareholder, alleging that RRPR Holdings, Prannoy Roy and Radhika Roy didn't disclose material information to the shareholders about loan agreements entered into by them with Vishvapradhan Commercial Private Limited (VCPL) and ICICI.
The SEBI found that the Roys "bartered away the interests of NDTV by making them subject to prior written consent of ICICI/VCPL without disclosing the same to the company (NDTV)."
As per SEBI, "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."
In their defence, 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. Moreover, the loan agreements were private agreements in which NDTV was not a party, and hence, there was no requirement for the Noticees to make disclosure of the same to the stock exchanges.
However, SEBI rejected their arguments on finding 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 percent to VCPL without the knowledge of 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.
Further, SEBI also found that since Prannoy Roy and Radhika Roy were running the day to day affairs of the company as its Chairman and Managing Director respectively, they had "this avowed duty to act in a fair and transparent manner to protect the interest of their minority shareholders and not to indulge in any fraudulent activity or any activity detrimental to the interest of the shareholders.”
"From a read-through of the ICICI Loan Agreement, one would get a clear impression that the prime consideration for ICICI to extend the loan to the Noticee no. 1 (RRPR) was on the strength of the fact that the Noticees are the promoters and majority shareholders of NDTV. Through this agreement, ICICI has sought to secure the repayment of the loan amount by imposing certain conditions on the Noticees. However, it cannot be denied that these conditions materially and significantly impacted the business interest of NDTV, a listed company, although NDTV was not a party to the said loan agreement. It is true that the said agreement was a loan agreement between the parties and the conditions stipulated therein were contingent only on default in repayment of the loan amount. Yet, it is also a fact that at the time of availing of the loan from ICICI, the Noticees, who had controlling interest in NDTV, undertook and gave guarantee to comply with the said conditions imposed on them by ICICI, which had significant implications on the interest of NDTV and was therefore, a material and price sensitive information. Had these information been disclosed to the public, they would have undoubtedly influenced the investment decisions of the shareholders and prospective investors of NDTV,” observed SEBI in respect to agreements with ICICI.
On the other hand, as regards to VCPL loan transaction, the SEBI observed that "the VCPL Loan Agreements were very material and price sensitive information as they effectively involved passing of controlling stake of 30% share capital of NDTV and stipulated various conditions binding the promoters of NDTV (i.e. the three Noticees) with respect to their dealing in the shares of NDTV, capital restructuring of NDTV etc. The minority shareholder of NDTV and general investors of securities market were entitled to know such crucial transactions carried out by the promoters which involved transferring the rights over a substantial stake by the promoters to a third party. However, Noticees apparently did not want the general investors to know about the transfer of their 30% shares of NDTV and other associated rights to VCPL. These transactions were deliberately structured by the Noticees as loan transactions so as to conceal the said sale of 30% stake in NDTV. Accordingly, the transaction was devised in a way to avoid the said information getting known to the investors, and to ensure that investors continue to trade in the shares of NDTV unaware of these material and price sensitive developments. Further, as mentioned earlier inter se transaction of shares of NDTV between the Noticees were taking place in off market in furtherance of the VCPL Loan Agreements, behind the back of the shareholders of NDTV."