A company (NDTV) that was posting losses for past five years and receives a tax demand of Rs450 crore, which is higher than its net worth of Rs365 crore, should have made prompt, voluntary disclosures to exchanges, the SEBI order says
The Securities and Exchange Board of India (SEBI) has levied a penalty of Rs2 crore on New Delhi Television Ltd (NDTV) for the company's failure to disclose information about the Income Tax demand notice to the Exchanges.
In an order issued on 4 June 2015, Prasad Jagadale, adjudicating officer, SEBI said, "I hereby impose a penalty of Rs25 lakh upon the Noticee (NDTV) for violation of Section 23 A and Rs1.75 crore for the violation of Section 23 E of the SCRA. Therefore, a total penalty of Rs2 crore is imposed upon the Noticee New Delhi Television Limited which will be commensurate with the violations committed by the Noticee."
The case relates to non-disclosure of the Rs450 demand notice served by the Income Tax department on 21 February 2014 to the stock exchanges as is mandated by Clause 36 of the listing agreement. NDTV’s failure to disclose the notice, for wider dissemination to shareholders was taken up by the regulator for action. When BSE and NSE asked NDTV about this, the company argued that the demand notice was "without any basis or justification and contrary to provisions of Income Tax Act, 1961 and had resulted only due to erroneous and incorrect view taken by the tax department". Moneylife has been the first to report this non-disclosure when it happened. (Please read Why NDTV did not disclose Rs450 crore tax notice to exchanges
At that time NDTV had said, "It was felt that the disclosure of these events in isolation, without any reference to the steps proposed to be taken by the Company, was not desirable. In the event of ongoing proceedings before Income Tax Appellate Tribunal (ITAT), where a stay has been granted by ITAT, the claim made by the tax department cannot be deemed as an enforceable tax demand against NDTV due and payable by it. The demand has resulted only due to erroneous and incorrect view taken by the tax department."
Finally, on 26 May 2014, NDTV shared the information with NSE and on 29th May with BSE.
Soon after the disclosures, NDTV informed the bourses about resignation of its company secretary and compliance officer. In a regulatory filing, NDTV said, "Anoop Singh Juneja has resigned from the services of the Company. The Company has accepted his resignation and relieved him of his responsibilities w.e.f. 31 May 2014."
On 12 February 2015, the market regulator issued a show cause notice to NDTV under Rule 4(1) of SCR Adjudication Rules for alleged violation of Clause 36 of the Listing Agreement.
In its reply on 4 March 2015, NDTV denied that it violated any reporting requirements under Clause 36 of the Listing Agreement. "The Company was under the bona fide understanding that the same need not be reported / informed to the Exchanges under clause 36 of the Listing Agreement. The Company had submitted that the said Tax Demand has resulted due to an erroneous view taken by the Assessing officer. Hence, the alleged Tax Demand was untenable in law," NDTV said in its reply to SEBI's show cause notice.
Mr Jagadale, the Adjudicating Officer of SEBI, further said, "I note that from bare and combined perusal of aforesaid Clause 36 of the Listing Agreement and Para 6 of Guidance Note, it is very much clear that in case of litigation or dispute with a material impact, the disclosure is warranted on a prompt and immediate basis, which may also include not only the details of the event but also the impact of the event as envisaged by the management of the company. The said disclosure is aimed at enabling the shareholders and the public to appraise the position of the company."
"...it is noted that at the time when the disclosure obligation arose, i.e. immediately upon the receipt of the Assessment Order, in terms of the Clause 36 of the Listing Agreement, the Noticee did not furnish sufficient evidence that the opinion of the tax adviser existed at the time when the disclosure obligation arose. It also did not furnish the record of discussions / decisions by the relevant authority within the Company, as regards the materiality."
"The disputed amount of Rs450 crores in the tax demand is noted to be significant when compared with Rs349.77 crores of revenue of Noticee for the year ended 31 March 2014 as also the net worth of Rs365 crores as on 31 March 2014. The company has consistently posted a net loss for the past five years. The net loss in FY 2014 amounts to Rs.53.56crores. In view above, Noticee should have made voluntary disclosures to stock exchanges on an immediate and prompt basis. Although it is the prerogative of companies to decide on materiality, in this case, the amount is material particularly considering the financials of the Company and information ought to have been disclosed. It is noted that the amount involved in the income tax demand was larger than the revenue of the company and significantly larger than its net profit i.e. net loss in the recent financial year as also greater than its net worth," the SEBI order says.
In its submission, NDTV also mentioned that it has approached the ITAT as well as Delhi High Court and obtained a stay on tax demand notice. In its order, the High Court, while disposing the company's writ petition, decided to continue the stay of recovery operating in favour of NDTV until the final disposal of its appeal by the ITAT.
NDTV, in its submission during the adjudicating proceedings said, the decision by the High Court prima-facie agree with the case of the company in granting a stay on the alleged tax demand.
SEBI's Adjudicating Officer, however, said, "...the company has filed an appeal before the ITAT. It is pertinent to note that the operation of the order has been stayed by the High Court. The order has not been set aside. This is subsequent development not existing at the time when the disclosure obligation arose."
"...the noticee (NDTV) has failed to furnish the evidence in support of the existence of legal advice at the time when the disclosure obligation arose as also the decision making regarding the materiality of the information which would have formed the basis of the honest and genuine belief of the company that it was acting in compliance of Clause 36."
The SEBI order, said, "...the noticee (NDTV) was under obligation to disclose the information pertaining to the tax demand of Rs450 crore raised vide the Assessment Order dated 21 February 2014 issued by Assessing Officer for the Assessment Year 2009-10 (Financial Year 2008-09). The above information was to be disclosed by the noticee immediately to the Stock Exchanges."
The Adjudicating Officer, the levied a total penalty of Rs2 crore on NDTV for the company's failure to immediately disclose information about tax demand of Rs450 crore to bourses.