The Securities and Exchange Board of India (SBI) Friday banned New Delhi Television Ltd (NDTV) Ltd Chairman Prannoy Roy and Managing Director Radhika Roy from the securities market for two years and restrained them from holding any key managerial personnel or directorship in the company for two years.
In an order, Sebi said they failed “to conform to the fair and transparent principles of trades in the securities market” in a case relating to transfer of NDTV shares. The Roys, who were the promoters and majority shareholders in NDTV, will have to step down following the order which comes into force with immediate effect.
“The way loan agreements have been used to deceitfully transfers shares of NDTV up to 30 per cent to Vishvapradhan Commercial Private Limited (VCPL) without the knowledge of NDTV board or its shareholders, it can be held that the acts of the noticees (Prannoy Roy, Radhika Roy and their firm RRPR Holdings Pvt Ltd) are in stark violation of Regulation 4(1) of PFUTP Regulations, being unfair trade practices,” the order said.
In a statement Friday evening, Radhika and Prannoy Roy said the SEBI order was based on “an incorrect assessment and is a highly unusual and perverse direction”. “The SEBI order delves into and presents conclusions on issues that were not raised in the show cause notice,” said the statement. They will take urgent legal action within the next few days, it said.
The market regulator banned Prannoy Roy, Radhika Roy and RRPR Holdings from accessing the securities market and prohibited them from buying, selling or otherwise dealing in securities, directly or indirectly, for two years. It also said the existing holding, including units of mutual funds, of the noticees will remain frozen during the period of restraint. Sebi also restrained them from holding the position of Director or any key managerial personnel in any other listed company for one year.
In June 2018, Sebi had ordered Vishvapradhan Commercial Pvt Ltd (VCPL), a little-known company with links to some corporate houses to make an open offer to NDTV shareholders after the capital markets regulator determined that VCPL had indirectly acquired a majority control in the media company nine years ago.
According to Sebi, the noticees entered into three loan agreements, one with ICICI and two with VCPL. “These loan agreements contained material and price sensitive information on many important matters pertaining to NDTV subject to prior written consent of the ostensible lender and without the knowledge of the minority shareholders of NDTV,” the order said. Further, under agreements with VCPL and the two call option agreements executed as supplementary to the said loan agreements, beneficial interest in 30 per cent shares of NDTV was effectively vested in VCPL.
All this information was profoundly material and price sensitive which would have influenced the investment decision of the investors in the shares of NDTV, had they been made aware of these information at that time, the order said. “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, noticees have consented to such clauses behind the back of the shareholders of NDTV to further their own private interests,” said the order signed by Sebi Whole Time Member SK Mohanty.
“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.
To conceal the said information from investors so that they continue to trade in NDTV shares blissfully ignorant of the fact that the promoters of the company have already vested their voting rights to the extent of 30 per cent in favour of a third external party, Noticee No. 2 and 3 (Prannoy Roy and Radhika Roy) have chosen to act in flagrant breach of code of conduct of NDTV, the regulator said.
Prannoy Roy, Radhika Roy and RRPR Holdings contended that “they have been erroneously accused of having failed to disclose the loan agreements to NDTV, the company of which they are promoters. “According to them all references to provisions relating to disclosures are flowing from the provisions of the Listing Agreement, which did not bind the promoters but the company. Therefore, there was no requirement for promoters of NDTV to make disclosure under the Listing Agreement or even otherwise, about the loan agreements executed by the promoters of NDTV in their personal capacity,” the order said.
However, Sebi said if the information regarding loan agreements was disclosed by the Roys to the NDTV board, the company was bound to intimate the same to the stock exchanges which in turn, would have disseminated it on their websites for information of general public.
“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,” the order said.