Sebi bars NDTV promoters Prannoy, Radhika Roy from accessing securities markets for 2 years
Prannoy and Radhika Roy also cannot hold management positions in NDTV during this period.
All the investments of the Roys and RRPR Holdings, an NDTV promoter, in mutual funds will also remain frozen for two years. It also barred the Roys from holding board positions or key managerial posts in any listed company for one year. The Roys established NDTV, one of India’s top news broadcasters, in 1988.
The Roys said they will take “legal action” against the ruling in a statement posted on the NDTV website.
“Radhika and Prannoy Roy, the promoters of NDTV, believe the Sebi order asking them to step down as directors and to not hold any management positions in NDTV, is based on an incorrect assessment and highly unusual and perverse directive,” it said. “They will take urgent legal action as advised within the next few days.”
Sebi had received a complaint from NDTV shareholder Quantum Securities in 2017 that the promoters had violated rules by not disclosing material information about loan agreements. Sebi initiated an investigation for the period between October 2008 to November 2017 when the Roys and RRPR Holdings were the promoters of NDTV. The aggregate promoters' shareholding in NDTV was 63.17% at the end of the June 2009 quarter.
The regulator alleged that the promoters of NDTV entered into three loan agreements--one with ICICI Bank and two with VCPL. These agreements contained material and price-sensitive information, Sebi said. Decisions on key company matters were subject to prior written consent from the lenders, something minority shareholders were ignorant of. Further, under the VCPL pacts and two call option agreements executed as a supplementary to the loan agreements, a beneficial interest in 30% of NDTV was effectively vested in VCPL.
The regulator had directed VCPL to make an open offer for NDTV last year after it indirectly acquired control by entering into the loan agreements. The Delhi-based wholesale trading firm had told the regulator that it had sourced the loan from Reliance Strategic Investment Ltd, a wholly owned subsidiary of Reliance Industries Ltd. Sources close to Reliance had then said that VCPL was owned by the Nahata group.
In its order on Friday, Sebi alleged that all this information was material and would have influenced the decisions of investors in NDTV, had they been aware of it.
“Although various clauses in the loan agreements deceitfully created binding obligations on NDTV, noticees (RRPR Holding and the Roys) have consented to such clauses behind the back of the shareholders of NDTV to further their own private interests,” Sebi whole-time member SK Mohanty said in his 51-page order on Friday. “Having held the dominant position and being majority shareholders of NDTV, noticees have 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.”
Sebi said the founders had violated the company’s code of conduct.
“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, Prannoy Roy and Radhika Roy have chosen to act in flagrant breach of code of donduct of NDTV,” the regulator said.
Sebi also alleged that “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.”
One of the schedules of the VCPL loan agreement mandated that any matter pertaining to the shares of NDTV that reduced the aggregate valuation of the company to less than Rs 1,346 crore, the level at which it had invested in the company, buyback of shares, merger or consolidation of NDTV with any other entity required prior approval of VCPL, thereby potentially affecting the interest of public shareholders, Sebi said.