SAT Sets Aside SEBI Findings Of Fraud Against NDTV Promoters; Reduces Penalties Imposed For Non-Disclosure Of Loan Agreement

The Securities Appellate Tribunal at Mumbai has set aside the findings of the Securities and Exchange Board of India which held NDTV promoters Prannoy Roy and Radhika Roy liable for committing fraud on its investors by non-disclosure of a loan agreement with Vishvapradhan Commercial Pvt Ltd.The SAT also reversed the SEBI finding that the the promoters had ceded control to VCPL over NDTV through the loan agreement. SEBI had held that under the garb of a loan agreement, VCPL had acquired voting rights in NDTV in as much as the loan did not carry any interest and that the loan was repayable at the end of 10 years. In the appeals preferred by Roys and RPPR Ltd., the SAT said,"The finding that through these documents VCPL had acquired control over 52% of NDTV shares is nothing but a figment of its imagination and against the material evidence on record." The SAT held that though the non-disclosure of the loan was a violation of the listing agreement, it said "such non-disclosure, in our opinion, is neither fraudulent nor found to be an unfair trade practice". It has thus set aside the order restraining the Roys from holding managerial or directorial posts for two years.It has also reduced the penalty of Rs. 25 Crores imposed on RRPR Holdings to Rs. 5 Crores and the penalty of Rs 5 crores imposed on NDTV to Rs 10 lakhs.The SAT further held that the SEBI order which had barred Roys "from accessing the securities market or from accepting any position of a Director is totally out of context and does not commensurate with the alleged violation especially when no fraud has been committed nor does the loan agreement defraud the investors." The SAT said that SEBI's finding that the loan agreement does not give any discretion to the promoters of NDTV with respect to exercise of their voting rights is "patently misconceived". It further held that SEBI's finding that the borrowers and promoters have ceded their voting rights at least by 26% covered in the loan agreement and another 26% covered in the call option agreement is "patently erroneous". "The loan agreement executed by the promoters with VCPL did not transfer control of NDTV to VCPL either directly or indirectly and, therefore, the findings given by the AO on the issue that the loan agreement is structured in such a way that in fact it transfers control to VCPL indirectly cannot be sustained," it held. It added that Clause 20 of the agreement is an assurance that the voting rights of the promoters of RRPR and NDTV should be exercised to enable VCPL and the option holders to exercise their rights in terms of the agreement. It is not a case through which VCPL has acquired voting rights or control over RRPR or NDTV. However, the Tribunal agreed with the Adjudicating Officer (AO) that minutes of the Boards' meeting on August 05, 2015 should have been disclosed under Clause 36 of the listing agreement. This was considering the peculiar structure of the loan agreement, coupled with the fact that the exercise of the warrant option or the call option if invoked would have a bearing on the performance/ operations of the company. As per the SAT, the AO had imposed an "excessive" cost of Rs. 5 crores on the promoters under Section 23E of the Securities Contracts (Regulation) Act, 1956; whereas that provision has nothing to do with the violation of Clause 36 of the listing agreement. It held that the penalty that can be imposed for violation of Clause 36 of the listing agreement is under Section 23A(a) which provides a maximum penalty of Rs. 1 Crore. Thus, while confirming the order of the AO only with regard to the violation of the Clause 36 of the listing agreement, the SAT reduced the penalty to Rs. 10 lakhs. It observed that the quantifiable gain or unfair advantage accrued to NDTV or extent of loss suffered by the investors as a result of the default cannot be computed. Consequently, the penalty for mere violation of non-disclosure under Clause 36 of the listing agreement cannot be penalized to the maximum amount quoted in the provision. Case BackgroundThe SAT was considering the appeals field by NDTV, Prannoy Roy, Radhika Roy, RRPR Holdings Pvt Ltd and VCPL against the orders passed by the SEB in June 2018, June 2019 and December 2020. The 202 order was passed by the SEBI passed the order in a 2017 case filed by Quantum Securities Ltd, an NDTV shareholder, alleging that RRPR Holdings, Prannoy Roy and Radhika Roy didn't disclose information about loan agreements entered into by them with Vishvapradhan Commercial Private Ltd (VCPL) and ICICI. It also banned them from accessing securities market for years. RRPR Holding Pvt. Ltd. took a loan of Rs. 350 crore from ICICI which carried interest at the rate of 19% p.a. Finding it difficult to repay the interest and principal amount RRPR Holding Pvt. Ltd. took two loans from Vishvapradhan Commercial Private Limited ('VCPL' for short)...

SAT Sets Aside SEBI Findings Of Fraud Against NDTV Promoters; Reduces Penalties Imposed For Non-Disclosure Of Loan Agreement

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SAT Sets Aside SEBI Findings Of Fraud Against NDTV Promoters; Reduces Penalties Imposed For Non-Disclosure Of Loan Agreement

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